Malta

Politics:

• Analysis

  Malta politics: Quick View - Another cabinet member is forced to resign

  Event

  On June 18th Malta's permanent representative to the EU, Richard Cachia Caruana, resigned from his post after a majority in parliament voted in favour of a no confidence motion brought against him by the opposition Labour Party (PL).

  Analysis

  The no confidence motion was brought against Mr Cachia Caruana after statements contained in US embassy cables revealed by Wikileaks in 2011 indicated that the permanent representative to the EU had sought to bypass parliament on a decision to bring Malta back into NATO's Partnership for Peace programme in 2008. The ruling Nationalist Party (PN) backbencher Franco Debono, who has been a thorn in the side of the prime minister, Lawrence Gonzi, for some time, voted with the opposition. Mr Debono had been openly critical of the excessive influence on the government wielded by Mr Cachia Carauna as the only unelected member of cabinet.

  Mr Cachia Caruana's resignation is the latest in a series of setbacks suffered by Mr Gonzi's government, and follows the no confidence motion against the minister of home affairs and the speaker of the house, Carm Mifsud Bonnici, at the end of May. Mr Gonzi, who has a fragile single-seat majority in parliament, can no longer be sure of the outcome of a parliamentary vote. This uncertainty will continue to hinder parliamentary activity and prevent the government from undertaking economic reforms and unpopular fiscal austerity measures if needed, as seems likely, to meet budget targets agreed with Malta's EU partners.

  June 20, 2012

• 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 by mid-2013 at the latest

  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

  October 24, 2012

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)	5,859	5,857	6,235	6,499	6,721
  GDP at market prices (US$ m)	8,616	8,161	8,272	9,045	8,628
  Real GDP (% change)	4.0	-2.4	3.4	1.9	-0.6
  Consumer price inflation (av; %)	4.7	1.8	2.0	2.5	3.4
  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	4,110
  Imports of goods fob (US$ m)	-5,496	-4,345	-4,973	-5,512	-5,485
  Current-account balance (US$ m)	-455	-662	-536	-283	-195
  Foreign-exchange reserves excl gold (US$ m)	368	532	536	500	518
  Exchange rate €:US$ (av)	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	61.1
  Industry	14.3	Public consumption	20.7
  Construction	4.0	Gross fixed investment	14.8
  Trade, transport & communications	22.1	Exports of goods & services	101.8
  Financial intermediation & real estate	14.2	Imports of goods & services	96.0
  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)

  October 24, 2012

• Outlook

  Malta: Country outlook

  Malta: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Tensions within the governing Nationalist Party (PN) remain high and there is a considerable risk of an early general election. The PN has been beset by internal rifts and lost its single-seat majority after one of its members of parliament (MPs) resigned in late July 2012. The next general election is due in mid-2013, but both the PN and the main opposition Labour Party (PL) are firmly in election mode in case a snap vote is called. Rebel PN MPs have so far backed away from voting against crucial money bills, which if defeated could bring down the government. But after a number of recent confidence votes (one after the resignation of the minister of home affairs, Carmelo Mifsud Bonnici, in May, and a second that led to the resignation of Malta's permanent representative to the EU, Richard Cachia Caruana, in June), the prime minister, Lawrence Gonzi, faces pressure to call an early election. In light of the heavy defeat suffered by the PN at local elections in March 2012, the Economist Intelligence Unit expects that Mr Gonzi will seek to hold on in the hope of recovering lost ground. However, with the public finances having deteriorated during 2012 amid constant pressure for fiscal consolidation from the EU, there may still be a temptation to call an early election later this year before the government has to present its 2013 budget.

  ELECTION WATCH: Our central forecast is that the PN will continue in power until the end of the parliamentary term in mid-2013, although there is a high risk of an early vote. Traditionally, the margin between the two main parties at general elections is small and, despite the PN's current travails, much will still depend on the policy programmes that the party eventually presents. However, at this juncture, with the PL enjoying a solid lead in opinion polls, a change in government is likely, which would see the PL return to power for the first time since its defeat in 1998. A turnaround in the polls will be difficult for the PN to achieve given the damage done by the party's internal (but very public) divisions, the perception that the government mismanaged a reform of public transport, and the decision by the prime minister and most of his cabinet in 2011 to vote against a bill to introduce divorce, in contradiction of a clear referendum result.

  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.

  POLICY TRENDS: The fragility of the PN government and the approach of the next general election (due by mid-2013) means that important, politically sensitive reforms, such as to pensions and healthcare, are unlikely to be tackled until after the election. Although the degree of disagreement between the two main political parties on pension reform is not particularly wide, even the introduction of the non-controversial voluntary third pillar now seems likely to be shelved until after the election. 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, and other countries, of the need to put their public finances on a sustainable path. We expect fiscal slippage in view of the electoral cycle and a weaker economic environment. However, whichever party wins the election will probably be required to take tough fiscal measures.

  ECONOMIC GROWTH: Given the Maltese 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. Official data suggest that Malta emerged from recession in mid-2012 (although they are often subject to heavy revision), in response to a boost from net exports. But the uncertain outlook at home and abroad will continue to weigh on sentiment. With the euro zone expected to remain in--or flirt with--recession through at least the first half of 2013, the macroeconomic environment will be highly challenging, After contracting by an estimated 0.6% in 2012, real GDP is forecast to expand by a sluggish 0.4% in 2013 (broadly in line with our projection for the euro zone as a whole), with activity accelerating only modestly thereafter to generate growth of 1% in 2014. There are significant downside risks to even this anaemic outlook from the euro zone crisis, which could trigger a deeper recession in the forecast period. The potential for a wave of unmanaged sovereign defaults in the euro zone and for Greece (and potentially more states) to exit the single currency area represent major risks.

  INFLATION: Inflation (according to the EU harmonised measure) eased gradually over 2011, to average 2.5% (2.7% on the domestic measure of retail price inflation). Price pressures rebounded in the first half of 2012, with annual inflation rising to 4.4% in June, although it has since eased to 3% in September. This is in line with our full-year inflation forecast for 2012 of 3.4%. In 2013 inflation is projected at 3.2%, which assumes an official rise in electricity prices. The main upside risk to this forecast is a sharp hike in food prices, in response to a recent spate of poor global harvests. A modest uptick in domestic demand and still resilient commodity price pressures are forecast to push average annual inflation in 2014 to 3.6%.

  EXCHANGE RATES: Although not our central forecast, there is a high risk that several countries will be forced to leave the euro zone during the next two years. Such fears have led to flight from euro assets and partly explain the volatility over the past year of the single currency, which depreciated from above US$1.40:EUR1 in August 2011 to a two-year low of US$1.21:EUR1 in late July 2012. However, it has recently strengthened to US$1.30:EUR1 as of mid-October, in response to central bank policy measures. Even assuming that it survives in its present form, the euro will remain volatile in response to shifting risk appetite, protracted economic weakness and lower reserve accumulation by Asian economies. We forecast that the euro will average US$1.26:EUR1 in 2013 and US$1.25:EUR1 in 2014-17, but sharp movements in either direction remain a significant risk.

  EXTERNAL SECTOR: The current-account deficit narrowed from 8.1% of GDP in 2009 to 6.5% in 2010, according to IMF data, and declined further to 3.1% in 2011, mainly owing to an improving balance on trade in services. The current-account deficit is forecast to narrow to 2.3% in 2012, as subdued activity weighs on import demand. A modest economic upturn by 2014 should support demand, leading to a gradual widening of the current-account deficit to 4.1% of GDP. 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.

  October 17, 2012

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Country Briefing

Land area

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

Population

412,970 (2009 estimate)

Main towns

Population (2009 estimates)

Valletta (capital): 6,051

Birkirkara: 21,962

Mosta: 18,781

Qormi: 16,632

Zabbar: 14,929

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), April 2nd (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)

March 05, 2012