Malta has one of the lowest inflation rates in the eurozone

View of the port of Valletta, Malta, on September 8, 2021.

“If I had known, I would have slipped a few cans of food into my luggage!” Oliver Garcia was born near London but has been living in the Maltese capital Valletta for the past few years. In mid-December, the young IT specialist returned to the UK for the holidays. “The hotel, the cab, the beers: everything is more expensive and that’s a shock. In Malta too, everyone complains about inflation. But now that I’m here, I understand that in fact, the Maltese are pretty lucky.”

The figures published by Eurostat do not contradict him: since February, the inflation rate recorded in Malta has been one of the lowest in the eurozone, along with France’s. In November, it was 7.2%, compared to 7.1% in France and 11.1% in the European Union (EU) as a whole, far from the records set in the three Baltic countries (over 21%). “It must be said that, like Paris, Valletta has deployed a form of tariff ‘shield’ that is very protective for households and companies,” said Marcos Carias, an economist specializing in the south of the eurozone at Coface.

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In detail, the government has asked Enemalta, the 67% state-owned energy supplier, to freeze prices at their 2014 level. “In exchange, it is compensating the company for the losses caused by the price cap due to the increased cost of energy imports,” economists Simone Tagliapietra, Georg Zachmann and Giovanni Sgaravatti explained in aenergy-prices” title=”Nouvelle fenêtre”> note on the subject for the Brussels-based think tank Bruegel.

Fiscal leeway

In fact, the island imports almost all of its energy, mainly oil and gas, while some of its electricity is supplied by Italy, via the undersea cable linking Malta to Sicily. “Because its territory is small and densely populated – 316 square kilometers in all, making it the smallest European country, and 520,000 inhabitants – Malta has developed relatively little renewable energy, due to lack of space,” said Mr. Carias.

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The fact remains that the price freeze is expensive: 2.5% of gross domestic product (GDP) in 2022, and 3.5% in 2023, according to the International Monetary Fund (IMF). The result is a deficit of 6% of GDP for the full year 2022, the highest in the eurozone behind Lithuania (7.1%). Malta nevertheless has considerable room for maneuver: at 56.3% of GDP in 2021, its public debt remains well below the eurozone average of 97.1%.

In the wake of the 2008 crisis, its debt had jumped to 70% of GDP in 2011. “But the country managed to put its public finances in order spectacularly in the following years, thanks in particular to the citizenship by investment program,” said Mr. Carias. In 2014, the Labour prime minister at the time, Joseph Muscat, introduced the scheme. It allowed foreign individuals to buy a Maltese passport – and therefore a ticket to enter the EU – for €650,000.

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