2014 Index of Economic Freedom

Malta

overall score66.4
world rank58
Rule of Law

Property Rights75.0

Freedom From Corruption55.8

Limited Government

Government Spending47.2

Fiscal Freedom63.7

Regulatory Efficiency

Business Freedom62.4

Labor Freedom53.2

Monetary Freedom79.1

Open Markets

Trade Freedom87.8

Investment Freedom80.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.4 million
  • GDP (PPP):
    • $11.3 billion
    • 0.8% growth
    • 1.3% 5-year compound annual growth
    • $27,022 per capita
  • Unemployment:
    • 6.3%
  • Inflation (CPI):
    • 3.2%
  • FDI Inflow:
    • $157.2 million
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Malta’s economic freedom score is 66.4, making its economy the 58th freest in the 2014 Index. Its overall score is 1.1 points lower than last year, with declines in labor freedom and investment freedom outweighing improvements in fiscal freedom, control of government spending, and business freedom. Malta ranks 27th out of 43 countries in the Europe region, and its overall score is below the regional average.

Over the 20-year history of the Index, Malta has advanced its economic freedom score by over 10 points, the fifth largest improvement among developed countries. Improvements in six of the 10 economic freedoms include notable gains in the rule of law as measured by property rights and freedom from corruption. Measures of market openness, including trade freedom, investment freedom, and financial freedom, also have improved markedly. Malta’s economy, once rated “mostly unfree,” advanced to “moderately free” as of 2001.

Despite its institutional competitiveness, Malta remains weak in several areas. Relatively high tax rates and government spending are a drag on economic activity. Lingering corruption and rigid labor regulations add to the cost of conducting business.

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Background

Malta joined the European Union in 2004 and the eurozone in 2008. Labour Party leader Joseph Muscat won the March 2013 elections and became prime minister. With few natural resources, Malta imports most of its food and fresh water and 100 percent of its energy supply. The economy depends on tourism, trade, and manufacturing. Well-trained workers, low labor costs, and membership in the EU attract foreign investment, but the government maintains a sprawling socialist bureaucracy, with the majority of spending allocated to housing, education, and health care. In early 2013, excessive public borrowing led to an EU warning to reduce the budget deficit, which exceeded EU guidelines. Regional instability and large immigration flows from North Africa are concerns.

Rule of LawView Methodology

Property Rights 75.0 Create a Graph using this measurement

Freedom From Corruption 55.8 Create a Graph using this measurement

A 2012 study revealed that 88 percent of Maltese saw corruption as a major problem in both politics and business. Malta lacks appropriate institutions to implement and monitor anti-corruption activities. The judiciary is independent constitutionally and in practice. Property rights are protected, and expropriation is unlikely. Foreigners do not have full rights to buy property on the island.

Limited GovernmentView Methodology

The top individual income and corporate tax rates are 35 percent. The new budget proposal envisions cutting the top personal tax rate to 25 percent by 2015. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 34.4 percent of gross domestic income. Government expenditure amounts to 42 percent of GDP, and public debt has risen to about 73 percent of gross domestic output.

Regulatory EfficiencyView Methodology

Incorporating a business takes 40 days on average, and completing licensing requirements costs more than the level of average annual income. The labor market remains relatively rigid, and the government mandates a minimum wage. Malta maintained macroeconomic stability during the eurozone crisis but faces deteriorating public finances and needs to reform pension and health care subsidies.

Open MarketsView Methodology

EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. Malta generally welcomes foreign investment, but investment in companies producing goods for the domestic market may be screened. The financial sector has undergone gradual restructuring. The banking sector has become more open to foreign banks and has withstood the global financial turmoil relatively well.

Country's Score Over Time

Bar Graph of Malta Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Malta to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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