An estimate of the possible impact of lower electricity and water tariffs on the Maltese economy

Abstract

This paper presents estimates of the possible impact on the Maltese economy of the reduction in electricity and water tariffs to residential customers that took place on 31 March 2014 and the subsequent lowering of tariffs to commercial customers, which is expected to take place in March 2015. These estimates are calculated using the structural macro-econometric model described in Grech et al (2013). Assuming a full and immediate pass-through of these measures, this paper suggests that Malta’s real GDP could be boosted by 0.65 percentage points by 2020, with the bulk of the impact being felt during 2015 and 2016. The measures should also lead to lower consumer price inflation and contribute towards an improvement in the international competitiveness of the Maltese economy.