Malta’s economic policy is like the metaphorical frog which doesn’t realise that the temperature of the water is slowly rising. Then the water gets too hot and the frog dies. Actually Malta’s situation is worse, as the government is actually being warned about money laundering, corruption and overdependence on certain sectors.
We should be very worried about the government’s consultation process about the cash-for-citizenship scheme known as the Individual Investors Programme (IIP). Let us remember that when Joseph Muscat had originally announced the scheme after the 2013 election, he had promised to keep it temporary.
Now the scheme is not simply a one-off programme in the government’s policymaking: it is the main reason why Malta has a fiscal surplus. This means that Muscat and Finance Minister Edward Scicluna are rendering the country dependent on the sale of passports.
They pacify public opinion by seducing voters to take a share of the multiplier effect generated by the scheme. But in the meantime we are becoming addicted to lazy and unsustainable policy that cannot go on forever.
The ultimate result of this could be ruin for all especially if the economy does not generate alternative models of growth.
It is important to note that the International Monetary Fund (IMF) has recently expressed its doubts on Malta’s reliance on the IIP. True, the IMF noted the government’s success in achieving robust economic growth, but it also said that proceeds from IIP are “volatile and difficult to predict”, and that the scheme presents “a challenge for long-term fiscal adjustment”. It also noted that the influx of foreign workers is fuelling an increase in housing prices.
The IMF also highlighted the need for “adequate resources” within the Malta Financial Services Authority to safeguard the reputation and integrity of Malta’s financial sector. This is the same sector that was subject to political consensus during the past two decades and which is now facing threats due to the government’s obstinate resistance to take concrete action on money laundering, corruption and scandals such as Panama Papers.
Indeed, the IMF added that “robust implementation and effective enforcement of the anti-money laundering framework is critical given the size of Malta’s financial sector, the fast-growing remote gaming activity, and the high demand for the IIP”.
As predicted, Scicluna replied to the IMF with a triumphal statement about what he sees as the government’s over-achievements with regard to its budgetary estimates. All warnings were ignored, meaning that we can only expect business-as-usual from Labour.
I wouldn’t be surprised if Muscat’s government adds further triumphalism by stating that like EU member states, institutions such as the IMF are jealous of Malta’s achievements. I really cannot understand how journalists do not take Muscat to task whenever he resorts to such logic, as if Malta is some street vendor competing with other hawkers around.
Let us keep in mind that Malta’s economy is the size of a European town or small city: At the end of 2016 it was around €12 billion. The EU total reads €14,825 billion. Besides, latest Eurostat figures show that the eurozone grew at its fastest rate in a decade in 2017, and the other countries in question are not fiscally dependent on sale of passports to balance their budgets.
So let us not allow Muscat’s propaganda machine to fool us that the rest of Europe is jealous of his achievements. Should Malta’s current economic model collapse we only have ourselves to blame for this.
The impact on Maltese society may be huge, but the impact on the EU economy would be minute. It is not that all Europe is waiting for Malta to paint the future bright. If Muscat and Scicluna prefer boasting about themselves than looking at troubling trends, they are only doing a disservice to their electors.
The editorial in this newspaper of January 25 couldn’t have put it better: “The government appears to think there is no tomorrow, in ‘making hay while the sun shines’, as some developers are doing. But building speculation would not last forever. Neither do governments, nor passports for sale.”