As Finance Minister Clyde Caruana unveils Malta’s Budget for 2026, the Government’s fiscal trajectory is taking centre stage. With the country’s deficit now forecast to fall to 2.8 per cent of GDP in 2026, Malta is set to return firmly within the European Union’s fiscal limits – and exit the Excessive Deficit Procedure (EDP) earlier than expected.

The deficit for 2025 is set to be 3.3 per cent, lower than initially forecast.

While Minister Caruana previously stated that the Maltese Government’s deficit would fall below the 3 per cent target after four years, it managed to do this in two.

The Excessive Deficit Procedure is a mechanism established under the EU’s Stability and Growth Pact, designed to ensure that Member States maintain sound public finances. Under EU rules, a government’s budget deficit must remain below 3 per cent of GDP, while public debt should stay under 60 per cent of GDP or be on a clear downward path.

If a Member State exceeds these thresholds, the European Commission launches the EDP, requiring the country to submit a correction plan that outlines how it will restore compliance. The procedure can lead to enhanced monitoring and, for eurozone members, potential financial sanctions if corrective measures are not taken.

Malta entered the Excessive Deficit Procedure in 2024, after its deficit exceeded the 3 per cent threshold as public spending remained high in the aftermath of the pandemic and energy subsidies weighed on government finances.

However, recent economic data point to a faster-than-expected recovery. Strong employment, robust investment, and resilient domestic demand have supported revenue growth, while the government has begun phasing out temporary energy support measures. The Ministry for Finance now projects the deficit to narrow to 2.8 per cent of GDP in 2026, well below the EU limit, marking a significant fiscal turnaround.

Once the European Commission confirms that Malta’s deficit has fallen sustainably below 3 per cent, the country will exit the Excessive Deficit Procedure. This will reduce the level of EU fiscal oversight and allow greater flexibility in future budgets – though fiscal prudence will remain a central expectation under the reformed EU economic governance framework, which places more emphasis on medium-term debt sustainability.

Malta’s expected exit from the EDP sends a strong signal of macroeconomic stability to investors, credit rating agencies, and financial markets. The improved fiscal outlook, combined with ongoing growth in high-value sectors positions Malta as a resilient and credible economy within the euro area.