Malta ranks 52 in Economic Freedom Index

- ranks sixth out of EU accession countries

The 2003 Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal have classified Malta as a ‘mostly free’ country in its assessment of trading and economic freedom in the world.

The list, comprising 156 nations, has Malta placed at number 52 with an overall score of 2.70. The Hong Kong economic powerhouse is first in the list, with a score of 1.45, and is followed by another small city-state, Singapore, which ranks second with 1.55. These countries have been graded as ‘free’. North Korea is tagged at the bottom of the list.

Malta has maintained a stable 2.70 grade since 2002, although having lost seven places to other countries who moved up in the ‘freedom’ ranks. In 1995, Malta stood at 68 with a score of 3.35. Today it shares its position with South Korea and Namibia.

A general leap is identifiable for Malta following 2000, where the report highlights a reduction in aid for the shipyards, the removal of import tariffs and a general drive towards more liberalisation and a deregulation of the economy.

Malta also ranks sixth out of the ten EU accession candidate countries, who have achieved high rankings within the top 50 states in the list. These are Estonia, who has been categorised as ‘free’, ranking sixth out of the whole list, Cyprus (22), Lithuania (29), Latvia (33), and the Czech Republic (35).

The report’s general assessment of freedom is a grading of the structure catering for the free flow of capital and resources, which takes into consideration the following policy areas – trade, fiscal burden, government intervention, banking and finance, wages and prices, property rights, regulation and the black market. The index records significant progress for the ex-communist states on the threshold of European enlargement.

Malta’s trade policy, graded 3.0 and stable since 2002, is characterised by a moderate level of protectionism, influenced by an average tariff rate of 10 per cent (2001), which is however set to change upon EU accession. Contrasted with Estonia, the Baltic state is essentially duty-free with a very low level of protectionism, which can be seen as an early commitment towards its EU obligations, especially with the introduction since January 2000 of import tariffs on third country agricultural products, such as the US.

Malta’s fiscal burden, graded at a stable 4.0 was remarked as returning a high cost of government, with moderate tax rates but a very high level of government expenditure. All six accession countries have recorded high government costs, with a combined average of 39.9 per cent of GDP forming their government expenditure.

The recent privatisation of Malta International Airport, Maltapost and other partial privatisation projects have given Malta a moderate level of government intervention, graded at 3.0, as more plans are in the pipeline for the disposition of government entities.

Inflation has maintained a low profile in these last ten years, as the weighted average since 1992 has been of 2.72 per cent and, according to Finance Ministry figures, currently stands at 2.4 per cent. Lithuania has the lowest weighted average of inflation since 1992, at 1.71 per cent, out of the top six accession countries.

Malta retains a high level of black market activity at 4.0, being described as a major centre for smuggling, not least due to its geographic position. The closing of Virgin Megastore’s operation is cited as a case in point. Malta’s score is the highest of all top six accession countries, who despite their equally strategic positions as transhipment points, seem to have achieved lower levels of illegal smuggling.

Malta still maintains moderate barriers to foreign investment, graded at 3.0, restricting foreign wholesale or retail, real estate development and essential state-controlled services. Wages and prices are recorded as having a moderate level of intervention, through control of food prices and other basic commodities’ prices, as well a mandate for a minimum wage. Property rights enjoy high protection through what is termed as a judiciary with a ‘long tradition of independence’, and a low threat of expropriation.

Although losing one point, banking and finance (3.0) remains competitive with moderate restrictions, taking into consideration further liberalised exchange controls in 2000.