Without the Government’s decision to freeze current prices of fuel and electricity, cushioning consumers from massive increases in prices across international markets, Malta would have had among the highest rate of inflation across the EU.
Finance Minister Clyde Caruana spoke at length of Malta’s decision to earmark €608 for energy and staple food import subsidies on Monday night during the Budget 2023 announcement. He revealed that shockingly, €1 for every €10 of Government expenditure will be spent on energy subsidies.
He also spoke of how Malta imports more than 40 per cent of its food from Italy and the UK, two countries badly hit by inflation.
The Minister justified price increases by local supermarkets and other food sellers by explaining that the factories where foods are imported have had no other option but to raise their own prices as they are faced with higher energy prices.
He also explained the decision not to freeze prices of basic food products within supermarkets, stating that since local retailers have no other option but to raise prices, due to factories raising their own prices, had the Government put a cap on certain products, retailers would have had no other option but to choose not to sell the item, resulting in empty supermarket shelves.
This is a nod to growing anger and frustration among the public against Government for not intervening in the increasing costs of basic items such as pasta, milk, bread and more. Many have called for price controls to be instituted at local retailers, claiming shop and supermarket owners are profiting themselves and taking advantage of a global situation where war in Ukraine has led to price spikes on a number of items.
Here, he encouraged local producers look long-term, showcase local products and take advantage of a situation where importing from abroad has become highly costly.
Malta’s economy is expected to grow by 3.5 per cent in 2023, according to the Budget 2023 announcement. According to Government projections, it will then grow by 4.3 per cent in 2024, decreasing slightly in 2025 to reach 3.8 per cent growth.
Government is also projecting inflation to decrease from 5.7 per cent in 2022 to a moving average of 3.7 per cent in 2023, marking a slight improvement. It is projecting a further decrease in 2024 at 2.6 per cent, down to the ideal range of 1.9 per cent in 2025.
Inflation is expected to remain high in 2023 thanks to the US Federal Reserve and the European Central Bank continuing its policy to raise interest rates.
Measuring consumer price inflation, that is a typical basket of goods the average consumer purchases on a regular basis, Malta was found to have the second lowest across the 27-nation EU bloc. This is largely credited to the subsidised energy and staple foods policy being maintained by Government.
Finance Minister Clyde Caruana believes the relatively low consumer price index for Malta will be key to boosting its competitiveness as European countries grapple with soaring prices due to increased energy costs.
The Government’s deficit for 2022 is just 0.3 percentage points off its target, reaching -5.8 per cent of GDP. In 2023, it is projected to decrease to -5.3 per cent, further reducing to -4.2 per cent in 2024 and -2.8% of GDP in 2025.
Here, Finance Minister Clyde Caruana has said that the €608 energy subsidy for energy and staple foods is tantamount to creating a whole new Ministry within Government.
He remarked that the deficit will be reduced at a slower pace than envisaged when the Government made its calculations during the pandemic, however this new trajectory will facilitate economic growth within the country while keeping the Government’s finances in check.
The energy subsidies will have cost Malta 6.4 per cent of its entire GDP in 2022, projected to increase to 9.3 per cent of its GDP next year. The figure goes down to 7.7 per cent of GDP in 2024, and 5.5 per cent in 2025, indicating that the Government is not expecting the war in Ukraine to be solved overnight.
As for Government’s debt, represented as a percentage of the country’s GDP, 2022 will see the debt burden reach 57 per cent, up marginally from 56.3 per cent in 2021. It is forecast to increase to 59.1 per cent in 2023, and again to 60.3 per cent in 2024.
Minister Clyde Caruana and Parliamentary Speaker Anglu Farrugia arriving in Parliament / DOI Photo – Jason Borg
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