3 - 9 February 2000

editorial

More focus needed

The latest business optimism survey conducted by the Central Bank of Malta gives us reason to be cautiously optimistic about Malta's future economic direction, but much more needs to be done, and much more needs to be achieved, before we can say that the economy has really taken off. It appears from the survey that domestic demand started to recover in the third quarter of 1999, although remaining below its normal long-term rate of growth. The Central Bank has pointed out that there are strong indications that the recovery in domestic demand is set to continue. The survey points out that this recovery is more likely to benefit the wholesale and retail sector, the construction and real estate sector and the services sector. It also goes on to say that domestically-oriented manufacturing industry is facing a number of difficulties "particularly arising out of import competition which should intensify following the removal of protective levies".

The Central Bank survey also says that the latest results appear to indicate some concerns regarding export activity. "Respondents in the tourism sector are experiencing a drop in activity, and have indicated a marked decline in optimism. The latter applies to manufacturing exporters to a lesser extent, as their activity remained sustained and is likely to continue doing so in the short run". The Central Bank says that it thus appears that in the coming months economic growth is less likely to continue to be export driven but that a recovery in domestic demand should compensate for a slowdown in economic growth.

It is true that the government's main priority is to get its finances in order and this year's budget is an attempt to do just that, but it must also be more creative and more focused. It is a fact that despite a slight improvement in the domestic scene, the economy has still not taken off since the change in government in September 1998. There has been no magic with the election of a Nationalist government; instead we have been given tax increases, including a substantial raise in income tax despite the fact that the Prime Minister has promised not to raise income tax. As usual, the tax-paying middle classes were unfairly targeted at the last budget, and this will certainly reduce this sector's purchasing power, with all its consequences on the local economy.

The government is right, of course, to set a target for reducing the country's structural deficit, but it should not only rely on increased taxation to achieve this. It should also concentrate on reducing expenditure and on expanding economic growth. However, the budget has been approved by Parliament and it is no use looking back. The government must now not waste any time trying to negotiate the budget measures with the General Workers' Union. What is there to negotiate? There were both good and bad measures in the budget and the judge of that will be the electorate at the next election. The government has far too many important things to focus on than to spend time on a budget which has already been heavily debated both in Parliament and throughout the country. It must not make the same mistake as the previous Labour government which allowed the discussions over the 1998 budget to dominate much of the year and thus prevent it from concentrating on the real issues in the country.

The economy should be given a psychological boost when the official membership negotiations between the European Commission and Malta begin later on this month, but that will not be enough to get the economy going again. We need more than that. We need a government that has a long term vision for the country, that is prepared to tackle problems head on instead of sweeping them under the carpet and which is prepared to take difficult decisions. Yes, EU membership does imply a long term vision, and is greatly in Malta's long term interest, but even that aspect could be perhaps tackled in a better way. There needs to be more dialogue with the social partners over the question of EU membership. The government, after all, needs as much support as it can get in order to win the upcoming referendum.

Things seem to be just plodding on in this country and there has been no spectacular economic performance at all. It is as if we are just waiting for something to happen. Are we waiting for the major projects to take off? The Tigne and Cottonera projects will certainly have a major impact on the economy, but even here, why is it that we have to wait until the end of this year for work to start? Why have these projects taken so long to get started?

We need a fresh impetus in our economy and some new ideas from the administration. Otherwise we run the risk of simply plodding on.