Economic Transition in Malta (1960s–1990s): From Military Dependence to Self‑Sufficiency

Introduction

Malta’s post-independence economic history (1960s–1990s) is a remarkable case of successful structural transition in the face of strong scepticism. A military economy was the de facto economic model for Malta since the Order of St John. As the prospect of British withdrawal loomed in the 1960s, many locals and experts feared that Malta’s economy might collapse without this long-standing pillar. In this article, we will take an in-depth look at how in a span of a few decades, Malta’s economy transitioned from one dependent on foreign military expenditure, to a diversified, self-sufficient economy.

British Military Dependence and 1960s Scepticism

Until the mid-1960s, the British defence establishment accounted for an estimated 15% of Malta’s GDP. British forces and naval dockyards employed a huge segment of the workforce. Roughly one-quarter of all jobs on the islands were dependent on the British. This disproportionate reliance meant that any reduction in British military expenditure would send shockwaves through employment and public finances. It is no surprise that the prospect of Britain’s departure caused intense anxiety among Maltese citizens and officials in the 1960s.

In fact, many were openly sceptical that the newly established tiny island state could manage, let alone survive economically without British support. A United Nations report in 1964 (the Stolper report) even concluded that mass emigration was “the only feasible solution in the long run” for Malta, reflecting a widespread belief that the domestic economy could not generate enough jobs internally. In short, expert and popular opinion at the time foresaw severe hardship, if not total economic collapse, should the British forces leave.

Contemporary accounts vividly illustrate this prevailing pessimism. In 1967, as Britain formally accelerated its drawdown, the Maltese public reacted with “dismay” and even protests, viewing the move as an existential threat to their livelihood. Malta’s prime minister of the time Dr Borg Olivier, and others, warned Britain that the proposed rapid withdrawal would create “serious economic difficulties and heavy unemployment” in the short term. British officials themselves acknowledged Malta’s vulnerable position. A 1967 statement in the UK Parliament conceded that even a phased reduction “would create serious problems for Malta particularly during the early years”, and that the British were taking extra measures “to lessen the impact on the Maltese economy”. Indeed, Britain agreed to postpone some troop departures and increased direct aid to Malta to ease the transition. Projections suggested joblessness might hit 17% of the labour force within two years if forces withdrew too fast.

Immediate Economic Impact of British Withdrawal (1960s)

Britain’s de-militarisation on the island gained momentum after Malta’s independence in 1964. The initial economic impacts were severe, validating the short-term fears. With defence expenditures and related employment being slashed, GDP essentially flatlined the first half of the 1960s - remaining at £M43.5 between 1960 and 1964. This stagnation reflected the sudden loss of demand and income as British military outlays were cut.

The unemployment rate more than doubled, to over 8% by 1964. In absolute terms, the number of registered unemployed jumped from roughly 3,800 to 7,600 in those few years. Such job losses hit a population recovering from post-war devastation, already struggling with underemployment and poverty, fuelling a wave of emigration.

Thousands of young Maltese left for opportunities abroad (to Britain, Australia, Canada, the U.S. and elsewhere), a trend considered “necessary” to prevent even higher domestic joblessness. Emigration had long been a safety valve for Malta’s economy, and it accelerated as the British withdrawal began.

However, the Maltese government was not idle during this crisis. Development planning for a post-military economy had actually started in the late 1950s, once it became “manifestly obvious” that British defence cuts were coming. As early as 1959, Malta launched economic development plans aimed at diversifying the economy away from service with the British forces. Maltese leaders (regardless of political party) coalesced around the fundamental goal of “making Malta a viable economic unit” that could provide jobs independent of foreign military spending. In the 1960s, two key plans (in 1964 and 1967) proposed measures to expand manufacturing, tourism, and agriculture. These sectors were seen as the most promising to replace the base-driven economy. With Malta’s domestic market being tiny, these plans emphasised export-oriented industry and competitive enterprises to earn foreign exchange.

Early efforts included establishing an industrial estates programme, attracting foreign light-manufacturing firms, and promoting Malta as a Mediterranean tourist destination. Critically, Britain and other allies provided financial assistance to kick-start these initiatives. After Maltese appeals, a joint Anglo-Maltese economic mission led by Lord Robens in 1967 recommended urgent investments in new industries and infrastructure (such as a new industrial estate and a large ship-repair drydock) to create jobs for displaced service workers. Britain agreed and helped fund some of these projects.

Moreover, the Maltese won a temporary reprieve: the British withdrawal schedule was stretched out (with some troop removals deferred from 1968 to 1970) specifically to reduce the impact on the Maltese economy. This phased approach, essentially buying time with outside aid, was an early demonstration of how a gradual transition could avert the most extreme risks. It prevented an overnight collapse and gave Malta a crucial window to implement economic adjustments.

By the late 1960s, there were tentative signs that Malta was weathering the storm. Though the first half of the decade had been economically grim, the second half of the 1960s saw a sharp turnaround. Real GDP growth turned positive as new economic activities took root. From 1965–1969, Malta’s economy grew rapidly. One estimate puts real GDP growth at about +8% per annum in that period. Industrial output and tourist arrivals started climbing from a low base, and construction activity boomed (spurred by public works and housing developments). Employment also rebounded, with 14,000 new jobs created and the unemployment rate falling to only 3.7% already by 1969.

This dramatic recovery in the late 1960s validated the long-term development strategy and began to dispel the doomsday predictions. The economy by 1969 was much more diversified than a decade before. Small manufacturing enterprises involved in the production of goods like textiles, garments, electronics and machinery were employing thousands of Maltese. In fact, manufacturing’s share of GDP rose from only 17% in the early 1960s to about 33% of GDP by the late 1970s.

Tourism also emerged as a pillar of growth. From virtually zero in the 1950s, Malta’s tourist sector took off in the 1960s with the construction of hotels and resorts. By the 1970s, tourist expenditures were a major source of foreign income, benefiting a range of local businesses.

Malta ended the 1960s far more confident in its economic prospects than when the decade began, exceeding all expectations. The British military presence was still significant (thousands of service jobs remained through 1970), but Malta had shown it could create other jobs and growth given prudent policies and a bit of breathing room.

Diversification and Growth in the 1970s

Malta entered the 1970s still navigating the transition from a military economy, but now with a measure of optimism. A new Maltese government in 1971 led by Dom Mintoff took an even more assertive role in this process.

The state increased its involvement in the economy, including nationalising the Malta Drydocks and expanding state-owned industries and public works to ensure employment. At the same time, Mintoff renegotiated Malta’s defence agreement with Britain. Rather than an indefinite British presence, a fixed timeline was set for a final withdrawal by March 1979. In exchange, Malta secured hefty rent payments from the UK and its NATO allies during the 1970s. This cash injection further bolstered government revenues and foreign exchange reserves in the short term. It was another example of how gradually phasing out the base with financial support helped avoid a sudden shock. The Maltese government effectively used these funds to invest in infrastructure (power stations, water supply, roads) and to subsidise nascent industries.

Economically, the 1970s for Malta were a tale of two halves. In the early 1970s, growth was modest and somewhat uneven. Real GDP grew around 6–7% per year on average from 1970 to 1974. One concern in the early ’70s was that, despite GDP growth, employment was not keeping pace. Private sector job creation was sluggish, and it was noted that “had employment not been created in government labour corps, the number of persons employed would have actually decreased” in the 1970–1974 period. In other words, the government absorbed many workers into public projects (sometimes in make-work schemes) to prevent unemployment from rising.

As a result, the official jobless rate in 1974 stood at about 5.8%, higher than it had been in 1970, but still far below the crisis levels of the early ’60s. This mild uptick in unemployment reflected the challenges of the early 1970s, when global economic turbulence such as the 1973 global oil shock, started to be felt locally. In fact, inflation became a new problem.

The late 1970s saw Malta’s economy gathering steam again. After weathering the mid-decade global recession, Malta enjoyed a burst of growth in the latter part of the decade. By 1979 Malta’s GDP had roughly quadrupled compared to a decade earlier. Perhaps most tellingly, unemployment in 1979 was extremely low, around 2.7%. Only about 3,300 people were registered unemployed that year, out of a labour force of 122,000. Essentially, Malta had achieved full employment by the end of the 1970s, a far cry from the predicted doomsday of 25% unemployment that some had feared in the 1960s.

In the span of 15 years, the economy had largely replaced the British military economic contribution with new sectors. The British military bases’ share of GDP fell from ~15% in the early ’60s to 0% in the 1980s, marking a complete economic decoupling. The country stood on the threshold of the 1980s with a much more self-reliant economy, albeit one still facing new challenges such as inflation and external shocks.

Turbulence and Resilience: Early 1980s

No economic transition is without hiccups, and for Malta a major test came in the early 1980s. Following the celebratory exit of British forces in 1979, the global economy entered a difficult period. The result was a sharp, albeit brief economic downturn in Malta. The 1982–1985 recession was perhaps the closest Malta came to the feared meltdown scenario. Yet, Malta endured it without descending into true collapse or needing any kind of bailout. The foundations laid in the previous two decades (a diversified production base, better education, improved infrastructure) gave Malta sufficient resilience. Moreover, by the mid-1980s, policy adjustments were made to get the transition back on track.

In other words, the early ’80s slump was a painful but temporary deviation. Malta returned to a growth path by the end of the 1980s, entering the 1990s in a relatively strong position – a diversified small economy ready to further open up and eventually join the European common market.

Long-Term Outcomes and Avoiding Tail Risks

Looking at the entire 30-year arc from the 1960s to the 1990s, Malta’s economic transition can be deemed an overall success. In 1964, Malta was economically on par with lower-middle-income countries; by the early 1990s, it was classified by the World Bank as an “upper middle income” economy with social indicators (literacy, life expectancy, etc.) resembling those of Western Europe.

Crucially, Malta achieved these outcomes without experiencing the much-feared depression, financial collapse, or social breakdown of the expert-written Stolper report. The transition was managed gradually, and this proved to be the key to success.

Conclusion

By the turn of the millennium, Malta’s challenge was no longer how to survive Britain’s exit, but how to thrive in a globalised market. The careful transition had paid off: Malta entered the 2000s with a per capita GDP among the highest of the former British colonies and a labour force employed in shipbuilding, electronics, finance, tourism, and other modern sectors.

The small size of the Maltese economy allows it to be dynamic, and quick to adapt. As we look ahead, calls intensify to revisit Malta’s economic model. Similarly to 1964, the dilemma lies on Malta’s foreign dependence, albeit this time of a different kind.

Changing and adapting the economic model is a constant for Malta. The formula for success, however, remains the same; broad political alignment, a clear long-term strategy, and a gradual phasing in of reforms that allows firms, workers, and institutions time to adjust.

The crucial difference from 1964 lies in Malta’s starting position. Compared to the early 1960s, Malta is far better equipped to manage change:

• Diversification: Instead of relying on a single external patron, Malta now has multiple economic pillars – advanced manufacturing, tourism, financial services, i-gaming, aviation, and logistics. This reduces concentration risk.

• Fiscal capacity: Whereas public finances were fragile in the 1960s, Malta today maintains stronger fiscal institutions, established capital markets, and access to EU structural funds. Even after shocks such as the 2008 crisis and the COVID-19 pandemic, the state has demonstrated its ability to buffer households and firms without triggering collapse.

• Human capital: Adult literacy and educational attainment are near universal, tertiary education has expanded dramatically, and the workforce is more adaptable and globally competitive. Female participation in the labour force has also risen, enlarging the pool of skills available to the economy.

  
  

In effect, the conditions that saved Malta in the 1960s–70s are still necessary, but the structural strengths Malta has built since then mean the country is starting from a much more resilient base. If Malta chooses to re-shape its economic model again, the risks are real, but the capacity to manage them is far stronger than six decades ago