Macroeconomic Policy Frameworks of Small States

A Case Study of Malta

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Malta’s socio-economic successes have been remarkable. Key policy decisions have enabled this small island state to cope with its inherent vulnerabilities. This book reviews the implementation of macroeconomic policies in Malta, identifying the key issues, lessons learnt and best practices which could be adapted by other small states. It also sets out the country’s challenges for the future, which include managing a huge fiscal deficit, a high unemployment rate and attending to the conflicting demands of environmental conservation and economic development.




The implementation of macroeconomic policies in small states is affected by the inherent vulnerability of these countries. The inherent vulnerability of small states stems from their high dependence on a narrow range of exports and on strategic imports such as food and fuel. These features render small states disproportionately exposed to external economic shocks. Other characteristics which pose disadvantages for small states include their limited ability to exploit economies of scale, and their limited opportunities for diversification. These features have constrained policy implementation and success in small states and increased the importance and influence of external reserves, external financing, foreign investment and the international economic climate on domestic policy.


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