MALTA, IMF RELEASES PRELIMINARY FINDINGS OF A VISIT
The International Monetary Fund (IMF) has released the preliminary findings (Concluding Statement) of a visit carried out during 2018. The document underlines that “Malta’s economic growth continues to be one of the strongest in Europe, resulting in rapid income convergence towards the European Union (EU) average”. This is attributable to specific reforms aimed at strengthening the private and public – sector balance sheet, combined with the lowest unemployment rate in history.
While underlining that economic prospects remain favourable, the report also lists the criticalities of the system, indicating the pressure on infrastructure, rapidly rising housing costs and labour and skills shortages as the main challenges to be addressed. The document also mentions that “Attention should also be given to safeguarding financial stability and integrity, including against the risks attached to new activities involving virtual financial assets.”
The main policy recommendations included in the Concluding Statement are therefore related to the above mentioned challenges. For the financial sector, they focus on guaranteeing the long-term independence of the supervisor and increase supervisory capacity. With regards to the housing market, the IMF suggests to ensure that measures to make housing more affordable remain targeted on low-income families. On fiscal policy, recommendations are related to the need of containing long term fiscal risks, invest more in infrastructure and strengthening revenue collection (a measure that has already significantly improved in the past years). Attention was also given to structural reforms: the IMF underlined the need of further investing on research and development (R&D) and of facilitating access to finance for SMEs.
With reference to GDP growth, the document mentions that it stood at 6.5 per cent in 2018, and it is expected to be above 5 per cent in 2019. It underlines also that it will me mostly driven by internal demand, therefore labour market conditions, mainly wage, will have to reflect this feature.
The document also stressed that risks to the outlook are balanced, despite the exposure that the country has on potentially disruptive factors such as Brexit. On this, it has to be noted that, in a recent statement, Prime Minister Joseph Muscat affirmed that Malta is ready to face any scenario regarding Brexit.
The assessment on the banking system was positive, and defined by the report as “well-capitalized, liquid, profitable and resilient”. Challenges to be faced are related to a possible decrease in profitability, also due to low interest rates.
A large part of the Concluding Statement was dedicated to the promotion of inclusive growth, to be reached through addressing infrastructural gaps – a path that the government has already undertaken, with major infrastructural works that might result in additional projects co-financed by EU funds, upskilling the labor force to match the requirements of the market, fostering access to finance and improve housing affordability with schemes that are periodically adjusted.