On average, the other new member States have fiscal positions ranging from close to balance to deficits of around 7% of GDP. Malta’s deficit is close to the latter figure and thus acts as a drag on the productive use of resources, and hence also on economic growth. 4  BIS Review 50/2003  Other new member States on average spend 0.8% of their GDP on innovation, research and development. This compares with almost 2% for the present EU members and with a target of 3% to be achieved by 2010. The comparable figure for Malta is not yet known, but preliminary indications suggest that the research and development expenditure undertaken here is even lower than the average for the other new members. And Malta is only now preparing to adopt a specific innovation policy as part of its programme of economic reform. Business investment in the other new member States amounts to almost 20% of GDP. The comparable figure for Malta is not available, but it is known that the combined public and private investment to GDP ratio in 2002 was 21%. This suggests that the ratio of business investment to GDP in Malta is significantly lower than that in other countries. On the other hand, Malta compares relatively well in terms of its educational expenditure which, at almost 5% of GDP, is equivalent to that in other new members and indeed in the EU member countries.
These are the correction of macroeconomic imbalances, which I have often characterized as the need to live within our means; the need to respond to, and exploit the competitive forces unleashed by globalization; and the deleterious economic effects of population ageing and of environmental degradation. These challenges are by no means unique to Malta. Economies all over the world at different stages of development are similarly affected. They can, and must, therefore, be transformed into opportunities, because economies which are more successful than others in overcoming them will enjoy a significant competitive advantage. In Malta’s case the task is particularly difficult because all of these issues need to be tackled at the same time. Indeed, undue postponement of the necessary reforms could have serious consequences. The Correction of Macroeconomic Imbalances The Maltese economy has been devoting far too many of its relatively scarce resources to consumption. Household and government consumption have increased steadily over the past decade from 80% to 85% of GDP. The household savings rate has meanwhile declined from almost 16% to around 1.5% of disposable income during the same period. These trends are a source of concern. First, because a reduced savings pool will compromise future economic growth by curtailing investment. Indeed, the share of resources devoted to productive investment has shrunk from almost 30% a decade ago to just over 20% today. Second, because excessive consumption threatens the sustainability of the economy given the high import content of  BIS Review 50/2003  1  domestic expenditures.