Malta’s labour-intensive economic growth model appears to be approaching its limits, the International Monetary Fund (IMF) has noted.
In its report on Malta, the IMF acknowledged Malta’s impressive economic growth, but noted that the current labour-driven economic model “is reaching its limits due to infrastructure constraints, population density, and tight labour markets, underscoring the need for a strategic pivot toward productivity-driven expansion.”
The report stresses that Malta can no longer rely on a continued influx of foreign workers to sustain momentum, noting that the island now faces a population density 15 times greater than the EU average.
On the fiscal front, the IMF commended Malta for a narrowing deficit, which fell from 4.4% of GDP in 2023 to an estimated 3.2% in 2025, with a target of 2.6% by 2026.
While public debt remains sustainable and stable at around 47% of GDP, the IMF recommends phasing out untargeted energy subsidies, which cost about 0.8% of GDP in 2025, to create space for critical investments in infrastructure and the green transition.
The IMF stated that Malta’s financial sector remains resilient, but urged vigilance regarding the banking system’s high exposure to real estate. Lending to construction and real estate now accounts for 72% of the private loan portfolio.
Structural challenges, particularly in the labour market and judiciary, remain a drag on the business climate. Currently, 68% of employers in the services sector report labour shortages, a figure significantly higher than the EU average of 24%. The report advocates for a more strategic, skills-based migration policy and increased domestic upskilling.
According to the IMF, the outlook for the economy remains positive but is subject to downside risks primarily stemming from external factors. Geopolitical tensions and regional conflicts could disrupt trade and lead to renewed spikes in global energy prices, which would impact Malta’s open economy.