The private and public savings gaps in Malta and their impact on the current account

Any difference that arises between the level of domestic saving and investment is reflected in the nation's current account position. Both domestic saving and investment can be sub-divided into private and public sector components, and gaps between these two variables can be easily computed. This paper analyses the relationship between the private and public saving gaps in Malta during the 1970-1997 period and then proceeds to discern their respective impact on the current account position. In particular, it finds that the deterioration in the current account in the 1990�s was the result of higher government net borrowing, and that there was no statistically significant relationship between the private and public saving gap during the period. Given that in the coming decades economic restructuring and the ageing of the population will probably lead to higher investment and a drop in saving, the article concludes that public finances must be strengthened significantly if a further deterioration in the country�s external imbalance is to be prevented.