Maltas Deficit Expands as Government Spending Surges

March 29 2025 09:02:12 by PCLMedia

Malta’s public finances in 2024 paint a mixed picture, with government revenue continuing to rise but failing to keep pace with surging expenditure, leading to a wider budget deficit compared to the previous year, according to new data from the National Statistics Office (NSO).

Compared to 2023, Malta’s total recurrent revenue climbed by 12.7% to €7.85 billion, with strong growth in income tax (+38.9%) and VAT (+14.2%). However, government spending rose by 13.3% to €8.49 billion, driven by increased allocations for social protection, infrastructure, and public sector wages.

As a result, the country’s budget deficit expanded to €639 million, reversing the previous year’s decline when the shortfall had fallen to €524 million. The primary factor behind this increase was spending growth outpacing revenue gains, particularly in recurrent expenditure and interest payments, which surged by 22% year-on-year.

Budget Deficit vs. Consolidated Fund Deficit
The NSO reported that while the Consolidated Fund deficit stood at €432.7 million at the end of December 2024, the budget deficit under ESA 2010 accounting reached €639 million. The disparity arises because ESA 2010 includes a broader range of financial activities, such as loan repayments and equity acquisitions, offering a more comprehensive view of Malta’s fiscal position.

Under ESA 2010, Malta’s fiscal obligations exceeded core government revenue and spending, highlighting additional financial commitments beyond the treasury’s immediate cash flow.

Government Spending Breakdown
Social protection remained the largest expenditure category, with government spending rising 11.5% to €2.43 billion in 2024. Health-related expenses increased to €1.01 billion (+8.4%), while education spending saw a notable 15.2% jump to €1.02 billion, reflecting wage hikes and investments in educational programs.

Capital expenditure also saw a sharp rise, increasing by €142.5 million to €1.14 billion. The bulk of this spending went to infrastructure projects, including €125 million for energy infrastructure and €65.1 million for other development initiatives.

Revenue Performance
The strongest revenue growth came from income tax receipts, which rose by €957 million due to higher employment and wage growth. VAT revenue increased by €182.4 million, while social security contributions grew by €154.2 million. However, some revenue streams performed below expectations, with miscellaneous receipts declining by €7.9 million and sales of goods and services experiencing slight drops.

Rising Debt and Interest Payments
Malta’s central government debt reached €10.47 billion by the end of 2024, an annual increase of €727.7 million. The primary driver was an expansion in Malta Government Stocks (+€791.9 million), while Treasury Bill issuance added another €23.2 million. Meanwhile, foreign loans and savings bond holdings saw slight reductions.

Interest payments on debt surged by 22% to €261.4 million, signaling rising borrowing costs. If debt accumulation continues to outpace economic growth, servicing this debt could become a growing concern for Malta’s public finances.

Impact of a Potential EU-US Trade War on Malta
While Malta’s direct trade with the US is relatively small, a potential EU-US trade war poses economic risks due to its impact on European markets, according to the Malta Chamber of Commerce.

Rather than direct exposure to US tariffs, Malta’s vulnerability lies in the potential effects on its European trade partners. The EU has already imposed retaliatory tariffs on $28 billion worth of US goods in response to US actions on steel and aluminum. Meanwhile, US President Donald Trump has threatened 200% tariffs on French and EU alcoholic products, escalating tensions.

Malta’s Trade Ties with the US and EU
Malta exports approximately €200 million worth of goods to the US annually, including pharmaceuticals, medical devices, precision instruments, and technology-related products. Imports from the US total a similar €200 million, covering medical devices, vehicles, electronics, and industrial machinery.

Trade in services between the two nations ranges between €250 million and €400 million annually, spanning financial services, iGaming, tech, professional services, and shipping.

If tariffs or trade barriers increase, Malta could face higher costs for US-origin goods, potential supply chain disruptions, and a decline in demand for its exports. Additionally, an escalating trade conflict could deter US investors from EU-based ventures, indirectly impacting Malta’s economy.

EU Trade is Crucial to Malta’s Economy
While Malta-US trade is measured in millions, Malta’s economic ties with the EU amount to billions. The country imports approximately €7 billion annually and exports €3 billion in goods, while service exports—spanning tourism, finance, gaming, and shipping—add another €3 billion.

Given Malta’s heavy reliance on European markets, any economic slowdown in key EU nations like Germany, France, or Italy due to trade tensions could have significant indirect effects on the country’s exports and services sector.

“The situation remains fluid and depends on the measures ultimately implemented,” said a spokesperson for the Malta Chamber of Commerce. If tensions escalate, Malta may be forced to strengthen trade relations with other global partners, accelerating a shift in the global economic landscape.