1. The Maltese economy’s past, present and future
The small islandof Malta has a mere populationof 415,654 whichis approximatelya25% increase
since its302,650 in1970, the countryis still heavilyreliantonforeigntrade withlargercountries
such as itsneighbour,Italyof whichitimportsalmost40% of itsgoods.Malta also importsfrom
othersurroundingcountrieswithinEurope like France andthe UnitedKingdomwhichwere keyto
Malta’s survival duringWorldWar2, itwas due to itskeygeographical locationwhichmade ita
prime targetfor opposingcountrieslike Italy asithadthe opportunitytoattack any ships
transportingsuppliestoandfromthe axisside.
In the last25 yearsMalta has become more economicallystrongerasback in1985 it had only£1.1
billionGDPwhichhassince vastlyincreasedto£8.8 billionin2011.In 2004 Malta joinedthe
EuropeanUnion.InApril 2007 the Maltese Lira wasthe second-highest-valuedcurrencyinthe world
beingworthUS $3.1596. Malta thenjoinedthe Eurozone in2008, indoingsoit switchedcurrency
fromthe Maltese Lirato the Euro withan exchange rate of 0.4293 Liri to 1 Euro.
Overthe past yearMalta hasmanagedto maintaina stronglabourforce witha relativelylow
unemploymentrate fluctuatingaround6.2%.There isan average influx of anetmigrationrate of 2
per1,000 of theirpopulationwhichisfromthe UK whichtake up 1.6% of theirpopulationandother
ethnicgroupstakingupa further3.1%.
Tourismisan importantsectorof the country’seconomyasin 2003 to 2004 itconstituted40% of the
nationsGDP althoughcurrentlynowaccountsforapproximately15% of the nationsGDPwhichis
still quite significant. Maltaisrich inlimestoneof whichthe majorityof itsbuildingsare made from
and othermajorgoodswhichare exportedincludemineral fuels,oilsandelectricalmachinery.
Tourismplaysa keyrole withinMaltawithover Withinthe Eurozone Malta hasthe smallest
economymakingimports of highimportance asonly20% of its foodsourcesare producedwithinthe
countryas well ashavinglimitedfreshwatersupplies.
The Maltese governmenthave beguntoshow more interestinoil explorationaroundMalta which
shouldinturngreatlyincrease Malta’swealthhoweverthe majorityof the moneygainedfromoil
foundwill gostraightintothe pocketsof the companieson the explorationsuchasGenel energyor
MediterraneanOil andGas.Due to Malta havingsuchlimitednatural resourceshightaxesare
imposedonthe workingpopulationtoaffordtoimportpeople’sneeds,therefore anyoil found
shouldease thispressure by resultinginareductionintaxes.
Price Level
Real GDP
AD 1
AD 2
LRAS
Y1 Y2
P2
P1
The graph showsthat the moneygainedfrom
the Maltese governmenttaxingthe oil
companiestodrill intheircountrycan thenbe
usedto subsidisecitizens’tax andtherefore
citizens’have more spare expenditure,resulting
inan increase inconsumerspendingandan
increase inaggregate demand.Thisincrease in
aggregate demandwill thencause anincrease in
Real GDP if there isspare capacityinthe
economy.