Malta

Politics:

• Analysis

  Malta politics: Centre-left wins election

  Malta politics: Centre-left wins election

  FROM EUROPEAN VOICE

  Labour Party, led by former MEP Joseph Muscat, sweeps to power; Lawrence Gonzi quits as leader of the Nationalist Party

  Malta's Labour Party will return to power for the first time in 15 years after a decisive victory in a general election yesterday (9 March).

  Labour, led by Joseph Muscat, secured 55% of the vote, with the centre-right Nationalist Party, led by Lawrence Gonzi, picking up 43%. The difference between the two parties is around 30,000 votes, giving Labour the largest majority since the country gained independence from the UK in 1964.

  Muscat, 39, who was a member of the European Parliament from 2004 until 2008, will now attend this week's summit of EU leaders in Brussels (14-15 March).

  Gonzi, who has been prime minister since 2004, has announced that he is standing down as leader of the Nationalist Party. "I shoulder the responsibility [for the defeat] personally and completely," Gonzi said.

  The general election was brought forward a few months after Gonzi lost a parliamentary vote on the national budget in December. Muscat has said that he will reconvene parliament as soon as possible in order to tackle the budget problem.

  © 2013 European Voice. All rights reserved.

  March 11, 2013

• Background

  Malta: Constitution and institutions

  Malta has a written constitution. The president is the head of state, a largely ceremonial position. A two-thirds majority in parliament is needed to change the constitution. Elections to the 65-member unicameral legislature—the House of Representatives—are on the basis of proportional representation using the single transferable voting system.

  Judges and magistrates are independent of the executive, although they are appointed by the president. They enjoy security of tenure and can be removed only by a two-thirds majority vote in the House of Representatives.

  April 11, 2007

• Structure

  Malta: Political structure

  Official name

  Republic of Malta

  Form of state

  Parliamentary republic

  Legislature

  Unicameral House of Representatives of 69 members directly elected on a single transferable vote system of proportional representation. The constitution provides for the allocation of extra seats should one party receive a majority of the popular vote, but a minority of seats in the House of Representatives

  National elections

  Last general election on March 8th 2008; next election due on March 9th 2013

  Head of state

  President, elected by the House of Representatives for a five-year term; currently George Abela, who was elected by parliament in April 2009

  Executive

  Cabinet, headed by the prime minister, responsible to parliament. There is currently a Nationalist Party government

  Main political parties

  Nationalist Party (PN); Labour Party (PL); Alternattiva Demokratika (AD)

  Key ministers

  Prime minister & home affairs minister: Lawrence Gonzi

  Deputy prime minister, minister for foreign affairs & speaker of the House: Tonio Borg

  Competition & consumer affairs: Jason Azzopardi

  Education: Dolores Cristina

  Finance, economy & investment: Tonio Fenech

  Gozo: Giovanna Debono

  Health, the elderly & community care: Joe Cassar

  Infrastructure, transport & communications: Austin Gatt

  Justice & social affairs: Chris Said

  Resources & rural affairs: George Pullicino

  Tourism, culture & environment: Mario de Marco

  Central Bank governor

  Josef Bonnici

  January 23, 2013

Economy:

• Background

  Malta: Education

  Education in public institutions, including the University of Malta, is free. The 1988 Education Act empowers the education minister to set and monitor the national curriculum. This applies to pre-primary, primary, secondary and post-secondary (non-university) education, whether state or private. There are also privately run, usually church-owned, primary, secondary and post-secondary schools, which cater for over one-third of the school population.

  April 11, 2007

• Structure

  Malta: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (€ m)	5,965	5,973	6,314	6,545	6,825
  GDP at market prices (US$ m)	8,772	8,321	8,378	9,108	8,761
  Real GDP (% change)	3.7	-2.4	2.7	1.6	0.9
  Consumer price inflation (av; %)	4.7	1.8	2.0	2.5	3.3
  Population (m)	0.414	0.414	0.418	0.421b	0.424
  Exports of goods fob (US$ m)	3,708	2,879	3,539	4,143	4,226
  Imports of goods fob (US$ m)	-5,496	-4,345	-4,973	-5,512	-5,688
  Current-account balance (US$ m)	-455	-662	-536	-283	-304
  Foreign-exchange reserves excl gold (US$ m)	368	532	536	500	542
  Exchange rate (av) €:US$	0.68	0.72	0.75	0.72	0.78
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011	% of total	Components of gross domestic product 2011	% of total
  Agriculture, fishing & forestry	1.8	Private consumption	61.6
  Industry	14.3	Public consumption	20.6
  Construction	4.0	Gross fixed investment	15.1
  Trade, transport & communications	22.1	Exports of goods & services	101.4
  Financial intermediation & real estate	14.2	Imports of goods & services	96.2
  Other services	43.6
  Principal exports 2011	€ m	Principal imports 2011	€ m
  Mineral fuels & lubricants	1,622	Mineral fuels & lubricants	1,943
  Machinery & transport equipment	1,238	Machinery & transport equipment	1,687
  Manufactured goods	383	Chemicals	434
  Chemicals	259	Food	421
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  Germany	8.3	Italy	26.0
  France	5.2	France	7.0
  Italy	3.8	UK	6.5
  UK	3.8	Germany	5.6
  Greece	1.6	US	3.1

  Download the numbers in Excel

  Download text file (csv format)

  January 23, 2013

• Outlook

  Malta: Country outlook

  Malta: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: An early general election will be held on March 9th 2013 in Malta, after the governing Nationalist Party (PN) failed to gain parliamentary approval for its 2013 budget. The Economist Intelligence Unit expects the main opposition Labour Party (PL) to win the election and return to office for the first time since 1998. The PL's solid 9-10 percentage points opinion poll lead is likely to narrow as the election date nears, but a significant shift in support back to the PN appears unlikely given the party's well-publicised internal divisions and the level of voter discontent. Moderate progress on important reforms of healthcare and pensions is likely to be made after the election, alongside a five-year restructuring plan for the national airline, Air Malta. Real GDP is estimated to have grown by 0.9% in 2012, boosted by external demand and government spending. Activity is forecast to remain sluggish in 2013-14, resulting in average annual GDP growth of just below 1%. Given the Maltese economy's high degree of openness to trade, its performance will be highly dependent on developments in the euro zone.

  DOMESTIC POLITICS: Long-standing tensions within the PN finally came to a head in December 2012, when the conservative government of Lawrence Gonzi, the prime minister, failed to gain parliamentary approval for the 2013 budget. In early January the president, George Abela, formally dissolved the parliament. An early general election will be held in March, four months before the scheduled date. The PN has been beset by internal rifts over the past year and lost its single-seat majority after one of its members of parliament (MPs) resigned in July 2012. The party has since had to rely on an independent to pass legislation. The protracted divisions within the PN's parliamentary group have been a contributing factor in preventing the government from undertaking much-needed structural reforms to the Maltese economy, especially in healthcare and regarding a new mandatory second pillar in the pension system. The PL, led by Joseph Muscat, is the clear favourite to win the election, with the party boosted in the polls by the divisions in the PN and public dissatisfaction with the government's performance. Mr Muscat has diverged from his predecessor's approach by appearing to be more constructive on several reform issues, notably pensions. After his successful involvement in the divorce referendum campaign, he is continuing to promote a secular state with civil liberties, such as the introduction of same-sex unions. These issues are again meeting with resistance from conservative quarters, but as with the subject of divorce, they will strike a chord with liberal voters who have traditionally supported the PN. This approach, together with the PL's support for a second bail-out for Greece, expansion of the euro zone rescue funds and enshrining fiscal prudence in the constitution, as required by the EU fiscal compact, have helped to dispel any doubts that the PL is still anti-EU.

  INTERNATIONAL RELATIONS: The main focus of foreign policy will be ties with the EU and in particular euro zone member states. Malta has been a euro member since 2008 and will continue to contribute financially to bail-outs of struggling peripheral member states. The euro area debt crisis represents the greatest challenge to relations with other member states, but as a small country Malta will not have much influence on the currency bloc's approach to crisis management. Of the EU member states, Italy is Malta's closest ally. The two countries will continue to co-operate on the challenge of dealing with the flow of illegal immigrants from North Africa, especially Libya and Tunisia, Malta's closest neighbours geographically. This will also be the main task for the country's armed forces. Malta will remain militarily neutral and retain a bilateral defence agreement with Italy to "guarantee Malta's neutrality".

  POLICY TRENDS: Due to the fragility of the PN government there has been limited progress on important and politically sensitive reforms to pensions and healthcare. Although the degree of disagreement between the two main political parties on pension reform is modest, even the introduction of a non-controversial voluntary third pillar could be problematic. Nonetheless, a more constructive approach on the issue from the PL over the past year should see an agreement over the 2013-14 forecast period (albeit one that is likely to ignore calls for an increase in the state retirement age). In healthcare, the parties' commitment to maintaining a universal health service free of charge is unsustainable because of population ageing and demand for an ever-increasing range of services. The European Commission has warned Malta (along with other countries), of the need to put its public finances on a sustainable path. We expect fiscal slippage in view of the electoral cycle and a weaker economic environment. Whichever party wins the election will probably need to take tough fiscal measures in the coming years, given the timid approach to fiscal consolidation implied in the proposed 2013 budget. The banking system is expected to remain solid, as it has limited exposure to the debt of struggling euro area member states, but the need to focus on raising capital ratios, both as part of recently agreed EU recapitalisation plans and to meet the Basel III liquidity and capital rules, will curtail bank lending. No further privatisation is envisaged in 2013-14. Public stakes in Bank of Valletta (BOV) and Air Malta were the most probable asset sales, but BOV's share price is depressed and the sale of the state's 40% stake would be likely to face stiff political resistance, especially if the PL returns to office. In September 2012 the European Commission approved a five-year restructuring plan for the national airline, Air Malta, which involves a major recapitalisation by the state. The government succeeded in reducing the fiscal deficit from 3.7% of GDP in 2010 to 2.7% in 2011, within its official 3% target. Doubts remain, however, about the sustainability of the government's fiscal adjustment plans, as it has continued to rely on one-off revenue collection and accounting measures rather than more politically sensitive expenditure cuts. The government had projected a further narrowing of the deficit to 1.7% in 2012-an optimistic target, in our view, given the weak economic environment, additional costs related to the restructuring of Air Malta, utility subsidies and the current stage of the political cycle. We estimate that the deficit widened to 3.2% last year, and forecast another modest expansion in 2013. The deficit is projected to narrow slightly in 2014, as a gradual recovery in economic activity supports tax revenue. Public debt (under Eurostat's preferred definition) is forecast to increase to just over 80% of GDP by the end of the outlook period. If government-guaranteed debt is included, the ratio rises to around 100%.

  ECONOMIC GROWTH: Given the economy's high degree of openness to trade and financial flows, and the country's membership of the euro zone, its performance will remain highly dependent on external developments, particularly the protracted crisis in the currency bloc. After a period of subdued activity during most of 2011, official data suggest that the economy gathered some momentum in the second and third quarters of 2012, in response to a boost from net exports (the figures are, however, often subject to heavy revision). Sentiment weakened in the final quarter of last year, as external demand slowed, and we expect the uncertain outlook at home and abroad to continue to weigh on output during 2013. Financial market sentiment towards the euro zone has improved in recent months, but economic conditions across the region remain weak, amid ongoing fiscal austerity and rising unemployment. After growing by an estimated 0.9% in 2012, real GDP in Malta is forecast to grow by 0.7% in 2013, with activity accelerating only modestly thereafter to generate growth of 1.1% in 2014. There are still significant downside risks to even this anaemic outlook from the euro zone crisis, as a period of renewed financial turbulence could trigger a return to recession in 2013-14. Subdued global economic conditions, especially in the euro zone (Malta's largest trading partner), will dampen the contribution of the external sector to overall growth. However, in comparison with 2012, an anticipated slight pick-up in activity in the US and in major Asian economies should offer support to Malta's export manufacturing sector, which has considerable exposure to non-EU countries. Domestic demand is likely to remain weak. Recent debate on the 2013 budget implies that a moderate tax-cutting boost to households is likely, but this may only ratchet up EU pressure over the government's fiscal consolidation programme, limiting the extent of any stimulus measures. The government is likely to continue to subsidise electricity prices during the pre-election period, but a possible sharp rise thereafter in utility rates (reflecting the impact of forward buying by the state-owned energy corporation) would weigh heavily on consumer sentiment. That said, private consumption is projected to pick up slightly in 2014 on the back of mildly improved labour market conditions. After declining in 2011, investment is estimated to have stagnated in 2012. Continued weak activity in most advanced economies will see companies remain cautious about spending on new capital goods in 2013-14.

  EXTERNAL ACCOUNT: The current-account deficit narrowed from 8% of GDP in 2009 to 6.4% in 2010, according to IMF data, and contracted further to 3.1% in 2011, mainly owing to an improving balance on trade in services. The current-account deficit is estimated to have widened slightly in 2012, due to a deterioration in the merchandise trade and income balances. After a slump in late 2012, global demand should pick up in the first half of 2013, supporting export growth. However, over this year as a whole external demand will be more subdued than in 2012, with the current-account deficit fairly stable at around 3.5% of GDP. It is forecast to widen slightly in 2014 in response to moderately stronger domestic demand. The services account will sustain a strong positive balance. Net investment income flows will continue to be characterised by high volatility owing to transactions by international banks.

  January 24, 2013

View detailed map

Country Briefing

Land area

316 sq km. The islands include Malta (246 sq km), Gozo (67 sq km) and Comino (3 sq km)

Population

424,000 (2012 estimate)

Main towns

Population (2010 estimates):

 Valletta (capital): 6,264

 Birkirkara: 22,508

 Mosta: 9,164

 Qormi: 16,719

 Zabbar: 14,980

Climate

Mediterranean (hot summers and mild winters)

Weather in Valletta (altitude 1 metre)

Hottest month, August, 23-29°C (average daily minimum and maximum); coldest month, January, 10-14°C; driest month, July, 0 mm (average monthly rainfall); wettest month, December, 110 mm

Languages

Maltese and English

Measures

Metric and UK (imperial)

Currency

Euro (€)=100 cents

Fiscal year

Calendar year

Time

1 hour ahead of GMT (2 hours ahead in summer)

Public holidays

January 1st (New Year's Day), February 10th (St Paul's Shipwreck), March 19th (St Joseph), March 29th (Good Friday), May 1st (Workers' Day), June 7th (Sette Giugno), June 29th (St Peter and St Paul), August 15th (Assumption), September 8th (Victory Day), September 21st (Independence Day), December 8th (Immaculate Conception), December 13th (Republic Day), December 25th (Christmas Day)

January 23, 2013