Trends in Malta’s current account and their underlying causes

Abstract

Malta’s current account has improved substantially since 2009, by about four times the change seen in the euro area. Cyclical demand factors did not cause this, while lower oil prices and a better real exchange rate explain a minor part. Structural developments, such as improving energy intensity and falling import content, appear to have played a much larger role. These factors should have positive macroeconomic impacts, such as reducing vulnerability to oil price shocks and increasing multipliers. The note establishes that Malta’s current account is stationary, a necessary condition for avoiding sustainability problems in external accounts. This reflects a recovery in the national saving rate, driven by better fiscal performance, and rising corporate and household savings due to export-oriented services sectors. Conversely investment has declined, as these sectors rely more on human capital. To ensure growth remains sustainable, there should be a renewed emphasis on investment in education and infrastructure.