The European Commission has warned that Malta is at risk of material non-compliance with the recommended maximum growth of net expenditure in terms of its rules. 

The warning came as the commission adopted the 2026 European Semester Autumn Package, setting out economic and employment policy priorities to boost competitiveness. 

The commission launched an excessive deficit procedure against Malta and six other countries in 2024 after the country’s deficit reached 4.9% of GDP in 2023.

EU rules dictate that a country’s deficit should not exceed 3% of its gross domestic product. 

Finance Minister Clyde Caruana in the Budget speech last month said the deficit is projected to slip below the 3% threshold next year. It will reach 2.8% from the current 3.3%.  

In its report on Tuesday, the European Commission said that Malta’s net expenditure in 2025 and 2026 (in annual terms) is projected to grow within the ceilings recommended by the Council. However, given a large deviation in 2024, the cumulative deviation in both 2025 and 2026 is well above 0.6% of GDP in both years, entailing a strong presumption of no effective action. 

“While the Excessive Deficit Procedure is held in abeyance at this stage in the absence of outturn data for 2025, Malta is at risk of material non-compliance and may therefore fall short of delivering effective action, which could require a stepping up of the EDP. It should however be noted that a correction of the excessive deficit in 2026 is within reach in view of the large revenue windfalls that occurred in 2024,” the commission said. 

Later in its report the commission explains that on 21 January 2025, the Council adopted a recommendation setting out a maximum net expenditure growth path with a view to bringing an end to the situation of an excessive deficit in Malta by 2027.

Based on the Commission Autumn 2025 forecast, Malta’s net expenditure growth was projected to increase by 4.4% in 2025, which was within the maximum growth rate of 6.0% recommended by the Council.

“However, on a cumulative basis, net expenditure growth is expected to exceed the maximum growth rate of 13.8% recommended by the Council. This corresponds to a cumulative deviation of 2.0% of GDP in 2025. For 2026, net expenditure growth is projected to increase by 4.6%, which is within the maximum growth rate of 5.8% recommended by the Council. On a cumulative basis, net expenditure growth is expected to exceed the maximum growth rate of 20.4% recommended by the Council with a cumulative deviation of 1.5% of GDP in 2026. As a result, Malta is at risk of material non-compliance with the maximum net expenditure in the Council Recommendation in 2025 and 2026”.Â