[WATCH] JP Fabri: ‘Malta faces a productivity crisis’

The headline figures are great – Malta is experiencing high rates of economic growth and employment. But when you take a deeper look at the numbers, they point to a productivity crisis.

In an interview with MaltaToday, economist JP Fabri warns that Malta does indeed face a productivity crisis, and the budget offers little to address this.

He says the budget is heavy on short-term, socially-focused measures such as tax cuts and pension boosts, aimed at increasing disposable income rather than long-term investments to improve Malta’s productive capacity.

While Malta’s economy has grown, Fabri warns it relies heavily on consumer demand and low-skilled tourism rather than high-value exports or advanced industries. All this limits sustainable and quality growth.

In this regard, he insists that Malta needs policies that increase productivity through upskilling and industry support.

On Vision 2050, the government’s initiative to establish a long-term economic and social direction, Fabri says this strategy must go beyond economic indicators and should integrate aspirations for education, health, and infrastructure, to improve quality of life holistically.

Malta has plenty of challenges, but Fabri says these can be overcome by changing the status quo – encouraging high-skill jobs, promoting creative education, and rethinking areas like health and environmental policy. A few examples he mentions include focusing on preventative healthcare, digitalising public services fully, and implementing targeted incentives to promote positive economic behaviour, such as green energy investments and digital transformation.

Here, Fabri suggests looking at tax as a tool to shape positive social and economic behaviours. Such an example would be to tax behaviours that contribute to environmental issues, like car use, to tackle traffic congestion.

Fabri also calls for more responsible and transparent governance through evidence-based policymaking and results-oriented budgeting, especially to better connect government spending with tangible societal benefits. He says this would be particularly effective in areas like education and health, where high spending does not always lead to tangible outcomes.

Fabri also speaks about pensions sustainability. He says the current system’s reliance on a growing workforce is not sustainable, and instead suggests a multi-tiered approach involving government contributions, private pensions and improved incentives for personal savings.

Above all, Fabri says Malta needs to focus on “quality of life” in its broader sense, which would include cultural heritage, environmental health, and a strong social fabric, to remain an attractive place for both residents and foreign investors. In this regard, he tells me the budget does not address Malta’s productivity crisis adequately, and stresses that sustainable prosperity depends on higher wages, strong social and environmental systems, and a united national vision.

The following is an excerpt of the interview.

The full interview can also be viewed on Facebook and Spotify.

What is your overall take on the Budget 2025?

The Budget is social to the core. It’s aimed at increasing or enhancing disposable income, with a mix of tax cuts, increases in social benefits, pensions. But if you have to weigh it against measures taken which really focus on the productive capacity of the economy, I must say that it is lacking. It’s a stimulus for the short run, but I think the investment capacity into the infrastructure of the country from a productive point of view is lacking.

What sort of measures should we have seen in this budget to improve productivity?

If we look at the headline figures, Malta performs extremely well, we actually outperform the European average by a lot. We have the lowest unemployment rates as well. But when you look into the numbers, the growth is coming from demand-driven growth, consumption-based growth. As economists, what we would like to see is for growth to become export-led, because you’d create much more real value within the economy. From the export perspective, the numbers show we’re doing great. Let’s take tourism – we’re seeing a huge increase in numbers. But it is not necessarily the profile of the tourists that one would want […] That constitutes an economic cost to the country, a strain on infrastructure, congestion, development, and also an increased requirement on human resources because the hospitality industry is very human resource-centric and dependent, as opposed to high value manufacturing whereby you might have less workers that earn much more because the skills needed are of a higher value, but then through the use of high-tech manufacturing you might be more productive. So, in reality, what Malta faces is a productivity crisis...

Sometimes the government throws money at certain sectors but fails to bring about results. Why does this happen?

It’s cracks in the system – a possible lack of resources, lack of skill, infrastructure. If we’re talking about education, which is still focused on exams, competitive exams, whereas in Nordic countries they don’t sit for an exam until they’re seven or eight. They’re still learning music, drama, creativity, design. Then you look at their outcome-based indicators and they perform much better than Malta. Is our college-educational system, right? Education is a journey, it’s not an on-off switch, it happens over the course of years, and the educational outcomes depends not just on what you’re throwing into the formal education system, but also in the informal – families, community. It could be we don’t have an early intervention system that is good enough, so children born in vulnerable families are doomed for life. This is why I continue harping on evidence-based policy, because we really need to improve early intervention.

It's the same with healthcare. We’ve been hearing for years that we are the most obese population; children are the most obese. We have metabolic health deficiencies, diabetes, cholesterol. And still, there is no nutrition education in our schools. There are no healthy eating campaigns as a population. There is an initiative to get youths into gyms, but do our schools prepare them for physical activity? As far as health outcomes go, around 80% is nutrition and 20% is physical activity. What are we going to do? Is it time to tax junk food like other countries are doing?

[…]

We need to challenge and question where needed. We need to really change things. It’s about a subtle revolution at the end of the day. The Malta we have today is not the Malta we want tomorrow. We need to define the Malta we want tomorrow – for ourselves, for our kids, and for the kids of our kids.

Pensions came up quite a bit in this budget. Do you think the government’s actions are enough to ensure pension sustainability?

Around 15-20 years ago the pension time bomb came onto the policy agenda, not only in Malta but in Europe. We have an ageing population, fertility levels are low, and we have a pay-as-you-go system, meaning the pot that people will expect to find will dwindle. What happened over the past 10 years is that we have been saved, to a certain extent – the time bomb has been defused slightly because the increase in foreign workers meant social security increased more compared to the pensions being paid out.

However, that would be a very myopic way of looking at things. We’re interested in long-term sustainability.

We’ve known the solutions. We’re not reinventing the pension system. The solutions are the three pillars. You need the state, you need another pillar whereby there’s a matching scheme, and then you have the third pillar which is the private pension scheme. We’ve been slow in implementing this. There are multiple reasons why, but one of them is because if you’re saving more today, your disposable income will go down. Tax positive incentives need to be in place to manage this behaviour, because it’s not only enough to have a pension, we need to think about the affordability of pensions in the future.