Bridging the infrastructure gap

The private sector must play an increasing role in infrastructure funding, yet private investors face higher borrowing costs and growing risk aversion.

In recent years, Malta’s infrastructure has been thrust into the spotlight due to a combination of factors, including population growth, increased tourism and the country’s strategic shift towards service-based sectors such as financial services, remote gaming and professional services.

While Malta has a well-developed infrastructure system, there have been challenges in keeping up with the growing demands on its infrastructure. Last year’s EY Malta Attractiveness Survey highlighted the urgent need for infrastructure investment, with over 85% of foreign direct investors responding to this survey deeming current planning and preparedness for population growth as inadequate.

Population growth has been a critical driver in Malta’s recent economic success story but the long-term costs are likely to be more lasting. The population of well over half a million presents a massive burden on the social and physical structures of the country inherently limited in size.

Projections show that unless Malta rethinks its current economic model, the country could see its population increase to 700,000 in just over 15 years. With tourism numbers also expected to grow significantly in line with the increased bed stock and marketing strategy, Malta’s infrastructure could threaten the country’s hard earned economic development and social progress.  

The challenges Malta faces in this respect are multifaceted, extending beyond the immediate inconveniences of crowded spaces and traffic congestion. The transportation system is buckling under the demands of both residents and tourists, necessitating investment and the continued exploration of mass public transportation. The reliance on desalination for water supply and an ageing sewage infrastructure demand material investment to meet the growing needs.

These concerns are compounded by the pressures on healthcare and education systems, energy generation and distribution, waste management and food security, all of which are exacerbated by the influx of expatriates and the limited availability of resources such as land and water.

Re-evaluating the economic framework is a potential strategy to manage these pressures but such changes must be gradual and transformative to avoid shocking the system and causing new socio-economic disparities. It’s also a miscalculation to think that altering the economic model will halt population growth.

Malta, like other developed countries, is facing an ageing demographic and low birth rates that will, as a result, continue to require foreign labour for various services, including critical ones such as healthcare and elderly care. Malta must therefore invest in its critical infrastructure to accommodate a growing population and ensure future prosperity.

"The population could increase to 700,000 in 15 years"

This year marks the 20th edition of the EY Malta Attractiveness Survey. Looking back on the last two decades, which also coincides with Malta’s EU accession, it is evident that the country has come a long way despite its unique challenges.

As an island with limited space and devoid of natural resources, Malta has had to make strategic investments in its infrastructure and undertake a series of socio-economic and political reforms to thrive and enhance its economic offering. Therefore, it is not unprecedented for us to pause again as a nation to re-evaluate our direction and aspirations.

However, relying solely on government-driven investment to pave the way for a new future will be difficult, particularly following a global pandemic and an energy crisis spurred by the war in Ukraine, which have left governments burdened with debt and limited fiscal agility.

With the need for substantial infrastructure investments, public funding alone is insufficient. The private sector must play an increasing role in infrastructure funding, yet, private investors face higher borrowing costs and growing risk aversion.

Governments must employ diverse strategies to finance essential infrastructure projects, including innovative financing solutions, risk management to attract private investment and support for project preparation. Most importantly, they will need to consider new funding models to ensure long-term affordability of these investments.

This year’s ‘Future Realised’ event will lend itself to help address these issues by concretely examining the effects of demographic expansion on Malta’s infrastructure and discussing strategies to leverage private sector investments for meaningful infrastructure projects.

Additionally, it will explore how innovative financing and public-private partnerships will be essential in building resilient infrastructure, ensuring they meet the future needs of Malta’s growing population and tourism sector.

Chris Meilak and Glenn Fenech are economists and members of EY’s economic advisory team.