During the first eight months of 2008, Malta maintained a rate of economic growth of about 3.3%. Possessing few indigenous raw materials and a very small domestic market, Malta's economic development since the beginning of the 1990s has been based on tourism, accounting for roughly 30% of GDP, and exports of manufactured goods, mainly semi-conductors, which account for some 75% of total exports.
Tourist arrivals and foreign exchange earnings derived from tourism have steadily increased since the late 1970s. The introduction of low-cost flights in 2007 was the main contributor to the 7.6% increase in tourist arrivals since January 2007. The cruise liner sector that had seen a 26.6% increase since January 2007 dropped by 28.2 percent between January and August 2009 when compared to the same period in 2008. The relatively flexible labor market kept unemployment fairly steady at 4.1% for 2008. With its highly educated, English-speaking population, Malta has seen growth in high value-added manufacturing and in the services sector, away from the traditional low-cost manufacturing in textiles. The banking system remains highly concentrated with two of the four local commercial banks accounting for about 90% of total loans and deposits.
The Maltese Government has pursued a policy of gradual economic liberalization, taking some steps to shift the emphasis in trade and financial policies from reliance on direct government intervention and control to policy regimes that allow a greater role for market mechanisms. Malta's accession into the EU marked the total dismantling of protective import levies on industrial products, increasing the outward orientation of the economy. Malta joined the Exchange Rate Mechanism II (ERM-II) in 2005 to put itself on the path to enter the Eurozone, and in January 2008 it formally adopted the Euro as its official currency.
Consolidation of public finances has improved over recent years. The budget deficit was brought down from 10.7% of GDP in 1998 to 2.5% of GDP in 2006, a figure that was below the 3% required by the Maastricht criteria. For this reason, in 2007 the European Commission had abrogated the excessive deficit procedure against Malta, only to reopen it in May 2009, as the country’s budget deficit for 2008 increased to 4.7 per cent. The GOM attributed the increase to one-off impacts in the 2008 budget.
The budget deficit for 2008 was estimated to be 1.2% of GDP.
Information by U.S. Department of State