Should the continued increase in Malta’s national debt be a cause for concern?

Malta's national debt has continued to rise in nominal terms, prompting questions over whether the trend should be a cause for concern.

However, BusinessNow.mt spoke to Economists JP Fabri and Professor Lino Briguglio, and they argue that the debt figure should not be viewed in isolation. Instead, they say the country's economic growth, debt-to-GDP ratio, fiscal position and the quality of government expenditure provide a more meaningful assessment of Malta's fiscal health.

Latest National Statistics Office figures show government debt continued to increase during the first four months of 2026. At the same time, recurrent revenue grew faster than expenditure, contributing to a substantial reduction in the Consolidated Fund deficit.

Debt remains manageable, says JP Fabri

Economist JP Fabri believes the increase in debt should not automatically be interpreted as a warning sign.

"Growing economies typically accumulate debt over time as governments finance investment and refinance existing obligations," he said. "The more important question is whether debt is growing faster than the economy's capacity to service it."

According to Mr Fabri, Malta is not currently in that position.

He pointed to the country's improving public finances, noting that Malta has exited the EU's Excessive Deficit Procedure, narrowed its fiscal deficit considerably and maintained a debt-to-GDP ratio well below the European Union average.

The latest assessment by the Malta Fiscal Advisory Council (MFAC) similarly forecasts Malta's debt-to-GDP ratio to decline from 46.4 per cent in 2025 to 45.8 per cent in 2026, remaining comfortably below the EU's 60 per cent reference threshold. The report also notes that Malta's deficit and debt levels compare favourably with the euro area average.

Nevertheless, Mr Fabri cautioned that borrowing has become more expensive following higher global interest rates, making fiscal discipline increasingly important.

Debt figures only part of the picture

Both economists stressed that nominal growth matters more than headline debt.

Mr Fabri said Malta's continued economic growth means the country's debt burden remains moderate by European standards.

He also highlighted that government revenue between January and April increased by more than €635 million, comfortably exceeding the €440 million rise in expenditure. Much of that additional revenue came from stronger income tax and VAT receipts, suggesting economic activity remains robust rather than reflecting higher tax rates.

"This is an important distinction," he said. "Healthy public finances are not simply the result of expenditure restraint. They also reflect a growing economy generating higher revenues."

Professor Lino Briguglio agreed that Malta's debt ratio is currently not a major concern.

"Although Malta's national debt is historically very high, it remains well below the 60 per cent limit established by the Stability and Growth Pact, mainly because GDP growth during the past 13 years has outstripped the growth in debt," he said.

He suggested this partly explains government's continued emphasis on economic expansion.

"As long as growth is sustained, the debt-to-GDP ratio should not be a matter of concern."

Concerns shift to public spending and quality of growth

While both economists believe current debt levels remain manageable, they raised different concerns about the country's longer-term trajectory.

Mr Fabri argued that the debate should increasingly move away from fiscal consolidation towards the quality of public expenditure.

He noted that government consumption continues to make a significant contribution to economic growth, particularly during a period of weaker external demand and geopolitical uncertainty. However, he questioned whether sufficient emphasis is being placed on investment that improves long-term productivity.

He pointed to increased capital spending on projects such as the second electricity interconnector and road infrastructure but observed that implementation remains a longstanding challenge.

The MFAC assessment also notes that public investment has repeatedly fallen short of budgeted levels in recent years, despite higher allocations, raising questions about implementation capacity.

Looking ahead, Mr Fabri argued that Malta's demographic realities mean future prosperity cannot continue relying primarily on labour force expansion.

Instead, he said, public finances should increasingly support education, innovation, research, digital infrastructure and productivity-enhancing investment.

Growth 'at any cost' questioned

Professor Briguglio focused more directly on the sustainability of Malta's economic model. He questioned whether the country should continue pursuing economic growth regardless of its wider consequences.

He warned that heavy reliance on tourism, construction and continued population growth has contributed to environmental degradation, infrastructure pressures and broader social impacts affecting residents' quality of life.

Professor Briguglio also highlighted concerns surrounding the pace of government expenditure.

He referred to the MFAC's latest assessment, which concludes that Malta is expected to remain compliant with both the Maastricht deficit and debt criteria over the forecast period.

However, the report also warns that cumulative government expenditure deviations under the revised EU fiscal framework are expected to exceed the threshold established under the control account mechanism. Among the contributing factors identified are substantial capital transfers in recent years, including support related to the national airline and major infrastructure projects, which continue to affect compliance in subsequent years.

Professor Briguglio also noted that the European Commission warned in its Autumn 2025 assessment that Malta risked materially exceeding the expenditure recommendations underpinning the Excessive Deficit Procedure if spending growth continued along its current path. The situation regarding the fiscal deficit has been improved since then, but economists still worry that Malta’s government expenditure growth risks exceeding  a sustainable path.

Domestic borrowing provides stability

Mr Fabri also highlighted what he described as an often-overlooked strength of Malta's fiscal position.

A substantial share of government borrowing continues to be financed domestically through Malta Government Stocks rather than external markets.

According to Mr Fabri, this provides an additional layer of stability compared with countries that depend more heavily on foreign financing.

Ultimately, he argued that the key issue is not whether debt increases in nominal terms, but whether economic growth continues to outpace borrowing, whether debt finances productive investment rather than recurring expenditure, and whether today's public spending strengthens the country's long-term resilience.