## cr1819

## Source details

**Canonical URL:** [cr1819](https://www.imf.org/-/media/files/publications/cr/2018/cr1819.pdf)

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---

### Recent economic performance and labor market
- Real GDP growth: 6.8 percent in 2017 (growth of 7.2 percent y/y in the first three quarters of 2017; 5.5 percent in 2016).
- Labor market:
  - Unemployment: record-low; unemployed fell to 4 percent in 2017Q3 from 5.2 percent at end-2015.
  - Labor supply increased due to strong inflows of foreign workers and rising female labor force participation.
  - Wage pressures contained in most sectors, helping keep inflation low despite a positive output gap.
- Inflation:
  - HICP and core inflation picked up modestly to about 1.5 percent as prices of services accelerated.
  - CPI (harmonized, average): 1.3 percent in 2017; projected 1.7 percent in 2018 and 1.8 percent in 2019.

### Drivers of growth and external sector
- Growth composition:
  - Expansion driven largely by export-oriented services and domestic demand (backed by rising incomes and historically-low unemployment).
  - Net exports (strong services exports and a sharp decline in imports) remained a key driver in 2017.
  - Domestic demand: 1.8 percent in 2017; projected 5.4 percent in 2018 and 4.0 percent in 2019.
- External balances:
  - Current account balance: 10.3 percent of GDP in 2017; projected 9.6 percent in 2018 and 9.2 percent in 2019.
  - Trade balance (goods and services): 16.0 percent of GDP in 2017; projected 16.2 percent in 2018 and 16.7 percent in 2019.
- Exchange rate / EMU membership:
  - Joined EMU on January 1, 2008.
  - Nominal effective rate (2010=100): 97.9 in 2016.
  - Real effective rate, CPI-based (2010=100): 98.4 in 2016.

### Fiscal developments, public debt, and IIP implications
- Fiscal balances (general government, percent of GDP):
  - Overall balance: 1.1 percent in 2016; 1.4 percent in 2017 (estimated); projected 0.8 percent in 2018 and 0.7 percent in 2019.
  - Primary balance: 3.3 percent in 2016; 3.4 percent in 2017; projected 2.6 percent in 2018 and 2.4 percent in 2019.
  - Structural balance 1/: 0.6 percent in 2016; 0.8 percent in 2017; projected 0.1 percent in 2018 and 0.2 percent in 2019.
  - Gross debt: 57.7 percent of GDP in 2016; 54.2 percent in 2017; projected 50.1 percent in 2018 and 47.3 percent in 2019.
- Individual Investor Program (IIP):
  - Introduced in 2014; capped at 1800 successful applications; about 1000 applications received; rejection rate around 20 percent; more than 800 applications approved by October 2017.
  - Investment requirements: financial instruments minimum value €150,000; real estate purchase minimum €350,000 or leasing at least €16,000 per annum; minimum holding period five years.
  - Individual applicants must also contribute €650,000, of which 10 percent is retained as fees; remainder split: 30 percent to the Treasury’s Consolidated Fund and 70 percent to the National Development and Social Fund (NDSF).
  - Contributions to Treasury and NDSF rose from €50 million in 2015 to €172 million in 2016 (0.5 and 1.7 percent of GDP, respectively).
  - Staff project inflows to reach €230 million in 2017, roughly equivalent to 2.1 percent of GDP and 5.4 percent of fiscal revenue.
  - As of November 2017, no resources from the NDSF had been committed to specific projects.
- Fiscal risks related to IIP:
  - Volatility and unsustainability of inflows; macro-financial risks from rapid housing investment; reputational and money laundering risks if due-diligence is insufficient.
- Fiscal projections (selected):
  - Revenue 2017: 39.6; 2018: 38.9; 2019: 38.7; 2020: 38.4; 2021: 38.4; 2022: 38.4 (percent of GDP).
  - Expenditure 2017: 38.1; 2018: 38.1; 2019: 38.0; 2020: 37.8; 2021: 37.8; 2022: 37.9 (percent of GDP).
  - Structural balance, excl. IIP proceeds 2017: -1.4; 2018: -1.0; 2019: -0.9; 2020: -0.7; 2021: -0.5; 2022: -0.5 (percent of potential GDP).
  - Public debt 2017: 54.2; 2018: 50.1; 2019: 47.3; 2020: 44.4; 2021: 42.4; 2022: 41.2 (percent of GDP).
- Debt sustainability:
  - Projected to moderate to about 41 percent of GDP by 2022 due to favorable growth prospects, strong fiscal revenues (including IIP), and improved financing conditions.
  - Contingent liability shock combined with a low growth scenario would increase public debt considerably; a contingent liability shock could increase public debt to 72.1 percent of GDP in 2019 in one stress test.

### Financial sector, banks, and nonbank financing
- Banking sector:
  - Domestic banks remain profitable and well-capitalized.
  - Legacy corporate non-performing loans (NPLs) remain a persistent challenge though banks’ asset quality continued to improve.
  - Bank lending remains focused on mortgages; share of mortgages in total lending reached a record-high of 45 percent.
  - Loan-to-deposit ratio at core domestic banks below 60 percent; banks’ total assets amounted to 467 percent of GDP (about €46 billion) at 2016.
- Nonbank financing and corporate sector:
  - Non-financial corporate sector increased reliance on nonbank financing, particularly intercompany lending.
  - NFC debt (largely intercompany loans) stood at about 135 percent of GDP in 2017Q2.
  - Legacy corporate NPLs remained elevated at 10 percent; NPLs in construction and real estate activities stood at 25 percent in 2017Q2.
- Financial conditions:
  - 10-year government bond yields remained low with spread over German bunds fluctuating in a relatively narrow range of 80-120bps.
  - Bank lending rates for both NFCs and households remained on a downward trend.
- Policy and supervisory recommendations:
  - Continue resolution of legacy corporate NPLs; increase provision coverage ratio; further improve insolvency process.
  - Ensure MFSA has adequate resources to preserve operational independence and effective supervision.
  - Address data gaps and enhance oversight of nonbank lending.
  - Ensure robust governance and well-designed origination rules for the Malta Development Bank (MDB) to contain contingent liability risks.

### Housing market, infrastructure, and social inclusion
- Property market developments:
  - Property prices and rents continued to rise owing to rising disposable incomes; continued influx of foreign workers; higher use of online accommodation services by tourists; portfolio rebalancing towards property investments given low interest rates; demand-fueling policies (IIP, extension of first home buyers stamp duty relief, reduced tax rate on rental income).
  - Price indices (first half of 2017): advertised house price index increased by 13 percent y/y; transaction-based house price index increased by 5 percent y/y.
  - Residential construction activity: development permits for dwellings indicate ongoing construction.
- Housing risks and policy recommendations:
  - Household debt remained elevated at around 110 percent of gross disposable income.
  - Deploy targeted macro-prudential limits for mortgages (e.g., limits on loan-to-value and debt service-to-income ratios).
  - Close data gaps on borrower characteristics; align tax rate on rental income with tax rates on other sources of income.
  - Introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values.
  - Accelerate corporate balance-sheet repair in the construction sector to improve housing supply response.
  - Accelerate delivery of social housing; incentivize private investment through tax exemptions; ensure eligibility criteria for rent subsidies and social home loans are prudently means-tested.
- Infrastructure:
  - Public capital stock per capita is estimated to be the lowest among EU countries.
  - Government embarked on a 7-year road revamp at an estimated cost of €700 million (6.5 percent of projected 2017 GDP).
  - Staff estimate a public investment efficiency gap of about 20 percent; closing this gap would reduce the financing need of the road upgrade plan by €140 million.
  - A budget-neutral increase of public investment by one percentage point of GDP over 7 years would result in a GDP gain of about 5 percent in net present value terms over 30 years (NPV discounted at 3 percent).

### Outlook, risks, and external assessment
- Medium-term outlook:
  - Growth expected to decelerate gradually and converge to about 3 percent over the medium term.
  - Inflation set to pick up gradually, reflecting higher import prices and tighter labor market conditions.
  - Headline fiscal surpluses forecast to continue and contribute to further moderation of public debt.
  - Buoyant services exports projected to sustain current account surpluses.
- Risks:
  - External: weak growth in advanced economies, policy and geopolitical uncertainties, inward-looking policies, post-Brexit arrangements, changes in international corporate taxation affecting FDI and tax revenues.
  - Domestic: stronger-than-expected private consumption, rapid implementation of infrastructure and SME investment raising investment above baseline.
  - Structural: slow progress in addressing structural weaknesses could undermine competitiveness.
  - Financial stability: strong increases in housing prices and mortgage lending may increase financial stability risks.
- External position:
  - Assessed to be broadly in line with fundamentals.
  - EBA-lite REER estimates suggest a modest REER undervaluation of 2.2 percent; CA-gap at 4.7 percent in the CA model.
  - NIIP increased to about 63 percent of GDP in 2017Q3 from 47 percent in 2016Q4.
  - Gross external debt: 873 percent of GDP in 2016; large external assets more than cover gross external debt.

### Policy recommendations and priorities
- Maintain financial stability:
  - Resolve legacy corporate NPLs.
  - Improve SME access to bank finance and monitor nonbank financing of NFCs.
  - Contain financial integrity risks and ensure effective supervision.
  - Introduce macro-prudential measures for mortgages and mitigate property price pressures.
- Promote high and inclusive growth:
  - Upgrade infrastructure quality and increase public investment in a budget-neutral, well-prioritized manner.
  - Increase labor participation and reduce skill gap; upskill and reskill the labor force.
  - Boost innovation by developing research infrastructure, increasing financial support for research and innovation, and improving links between academia and the private sector.
- Ensure fiscal sustainability:
  - Maintain fiscal discipline; enhance revenue collection and broaden the tax base.
  - Build further fiscal buffers and continue complying with the MTO, net of IIP proceeds.
  - Save future revenue windfalls and identify structural measures beyond the IIP to strengthen the fiscal position.
  - Advance restructuring and monitoring of financially weak SOEs to contain contingent liability risks.
  - Implement pension and healthcare adjustments to address long-term demographic pressures (including aligning contributory period with life expectancy and better linking lifetime incomes to pensionable incomes).

### Key statistics (selected)
- Per Capita GDP (2016): €22.8 thousands.
- Quota: 168 million SDR, .04% of total.
- Real GDP (percent change year on year): 8.2 (2014); 7.2 (2015); 5.5 (2016); 6.8 (2017 Est.); 5.7 (2018); 4.6 (2019).
- Unemployment rate (percent): 5.8 (2014); 5.4 (2015); 4.7 (2016); 4.2 (2017 Est.); 4.4 (2018); 4.6 (2019).
- Credit to nonfinancial private sector (percent change year on year): 3.8 (2014); 0.6 (2015); 1.1 (2016).
- Credit to the private sector (percent GDP): 95.9 (2014); 90.8 (2015); 87.9 (2016).
- Interest rate for mortgage purposes (year average): 3.5 percent (2014); 3.1 percent (2015); 3.1 percent (2016).
- Ten-year government bond yield (year average): 2.6 percent (2014); 1.5 percent (2015); 0.9 percent (2016).
- Nominal GDP (millions of euros): 10,794 (2017 Est.); 11,640 (2018); 12,420 (2019); 13,177 (2020); 13,915 (2021); 14,656 (2022).

### Annex highlights
- Annex I (Implementation of IMF Recommendations): Government attained its Medium-Term Objective of a structural balance in 2016, three years ahead of schedule; ongoing actions on tax collection, MDB setup (MDB Act approved May 2017), AML transposition, and insolvency framework improvements.
- Annex II (External Sector Assessment): Staff assess external position broadly in line with fundamentals; model indications show modest REER undervaluation (2.2 percent) and CA-gap at 4.7 percent with caveats on model fit given Malta’s services composition.
- Annex III (Risk Assessment Matrix): Main risks with relative likelihoods and policy responses include structurally weak external demand (High likelihood), policy and geopolitical uncertainties (High), tighter global financial conditions (High), slow structural reform progress (Medium), and a sharp correction in housing prices (Medium).
- Annex IV (Property Price Valuation): Mixed indicators — price-to-income about 10 percent below historical average (small undervaluation); price-to-rent about 11 percent above long-term average; HP filter indicates modest above-trend deviation end-2016; econometric models give overvaluation estimates of 13 percent (with credit growth) and 7 percent (without credit growth).
- Annex V (Debt Sustainability Analysis): Under baseline, public debt projected to moderate to about 41 percent of GDP by 2022; stress tests show contingent liability shocks can raise debt to 72.1 percent of GDP in 2019 in an adverse scenario.

*Source: IMF staff report for the 2017 Article IV consultation with Malta (cr1819).*

### 6.8 percent in 2017, accompanied by dynamic job creation, which brought unemployment to a

### cr1819 - 6.8 percent in 2017, accompanied by dynamic job creation, which brought unemployment to a

### Recent economic performance and labor market
- Real GDP growth: 6.8 percent in 2017 (growth of 7.2 percent y/y in the first three quarters of 2017; 5.5 percent in 2016).
- Labor market:
  - Unemployment: record-low; unemployed fell to 4 percent in 2017Q3 from 5.2 percent at end-2015.
  - Labor supply increased due to strong inflows of foreign workers and rising female labor force participation.
  - Wage pressures contained in most sectors, helping keep inflation low despite a positive output gap.
- Inflation:
  - HICP and core inflation picked up modestly to about 1.5 percent as prices of services accelerated.
  - CPI (harmonized, average): 1.3 percent in 2017; projected 1.7 percent in 2018 and 1.8 percent in 2019.

### Drivers of growth and external sector
- Growth composition:
  - Expansion driven largely by export-oriented services and domestic demand (backed by rising incomes and historically-low unemployment).
  - Net exports (strong services exports and a sharp decline in imports) remained a key driver in 2017.
  - Domestic demand: 1.8 percent in 2017; projected 5.4 percent in 2018 and 4.0 percent in 2019.
- External balances:
  - Current account balance: 10.3 percent of GDP in 2017; projected 9.6 percent in 2018 and 9.2 percent in 2019.
  - Trade balance (goods and services): 16.0 percent of GDP in 2017; projected 16.2 percent in 2018 and 16.7 percent in 2019.
- Exchange rate / EMU membership:
  - Joined EMU on January 1, 2008.
  - Nominal effective rate (2010=100): 97.9 in 2016.
  - Real effective rate, CPI-based (2010=100): 98.4 in 2016.

### Fiscal developments and public debt
- Fiscal balances (general government, percent of GDP):
  - Overall balance: 1.1 percent in 2016; 1.4 percent in 2017 (estimated); projected 0.8 percent in 2018 and 0.7 percent in 2019.
  - Primary balance: 3.3 percent in 2016; 3.4 percent in 2017; projected 2.6 percent in 2018 and 2.4 percent in 2019.
  - Structural balance 1/: 0.6 percent in 2016; 0.8 percent in 2017; projected 0.1 percent in 2018 and 0.2 percent in 2019.
  - Gross debt: 57.7 percent of GDP in 2016; 54.2 percent in 2017; projected 50.1 percent in 2018 and 47.3 percent in 2019.
- Revenue drivers and fiscal risks:
  - 2017 fiscal surplus for the second consecutive year, supported by buoyant revenues—including from Individual Investor Program (IIP) proceeds—and contained capital expenditure growth.
  - Staff recommends continuing to build larger fiscal buffers, broaden the tax base, strengthen revenue collection, and identify further structural measures to attain the MTO net of IIP proceeds.

### Financial sector and balance-sheet risks
- Banking sector:
  - Domestic banks remain profitable and well-capitalized.
  - High legacy corporate non-performing loans (NPLs) remain a persistent challenge, though banks’ asset quality continued to improve.
  - Bank lending remains focused on mortgages; concentration of property-related loans continued to grow.
- Nonbank financing:
  - Non-financial corporate sector increased reliance on nonbank financing, particularly intercompany lending.
  - Staff calls for addressing data gaps and enhancing oversight of nonbank lending.
- Policy and supervisory recommendations:
  - Continue resolution of legacy corporate NPLs; increase provision coverage ratio; further improve insolvency process.
  - Ensure MFSA has adequate resources to preserve operational independence and effective supervision.
  - Robust governance and well-designed origination rules for the Malta Development Bank (MDB) to contain contingent liability risks.

### Housing market, infrastructure, and social inclusion
- Housing market:
  - Continued housing market appreciation and decline in availability of low-cost housing.
  - Strong momentum in housing calls for policy measures: targeted macroprudential limits for mortgages; close data gaps on borrower characteristics; align tax rate on rental income with tax rates on other sources of income; introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values.
  - Accelerate corporate balance-sheet repair in the construction sector to improve housing supply response.
- Infrastructure:
  - Rapid expansion and population growth put pressure on physical infrastructure and public services; public capital stock per capita is estimated to be the lowest among EU countries.
  - Transport congestion is severe; government adopted the National Transport Strategy and Transport Master Plan and embarked on a 7-year road revamp at an estimated cost of €700 million (6.5 percent of projected 2017 GDP).
- Social and labor policies:
  - Policies should increase female labor force participation further, particularly among older cohorts; upskill and reskill labor force; improve road quality and increase utilization of alternative transport modes.
  - Strengthen innovation by developing research infrastructure, increasing financial support for research and innovation, and improving links between academia and the private sector.

### Outlook, risks, and Executive Board assessment
- Medium-term outlook:
  - Growth is expected to decelerate gradually and converge to about 3 percent over the medium term.
  - Inflation set to pick up gradually, reflecting higher import prices and tighter labor market conditions.
  - Headline fiscal surpluses forecast to continue and contribute to further moderation of public debt.
  - Buoyant services exports projected to sustain current account surpluses.
- Risks and external position:
  - Risks to the outlook are broadly balanced.
  - External position assessed to be broadly in line with fundamentals.
- Executive Board conclusions (2017 Article IV consultation):
  - Directors endorsed staff’s appraisal: Malta remains on a strong growth trajectory driven by export-oriented services, improved balance sheets, and solid job creation.
  - Recommended policy priorities include reducing fiscal risks, building fiscal buffers, advancing balance-sheet repair, strengthening oversight of nonbank lending, safeguarding financial system integrity, and addressing housing market pressures.

### Key statistics (selected)
- Per Capita GDP (2016): €22.8 thousands.
- Quota: 168 million SDR, .04% of total.
- Real GDP (percent change year on year): 8.2 (2014); 7.2 (2015); 5.5 (2016); 6.8 (2017 Est.); 5.7 (2018); 4.6 (2019).
- Unemployment rate (percent): 5.8 (2014); 5.4 (2015); 4.7 (2016); 4.2 (2017 Est.); 4.4 (2018); 4.6 (2019).
- Credit to nonfinancial private sector (percent change year on year): 3.8 (2014); 0.6 (2015); 1.1 (2016).
- Credit to the private sector (percent GDP): 95.9 (2014); 90.8 (2015); 87.9 (2016).
- Interest rate for mortgage purposes (year average): 3.5 percent (2014); 3.1 percent (2015); 3.1 percent (2016).
- Ten-year government bond yield (year average): 2.6 percent (2014); 1.5 percent (2015); 0.9 percent (2016).

*Source: IMF staff report for the 2017 Article IV consultation with Malta (Staff Report, January 9, 2018).*

### 7.      Property prices continued to increase owing to strong demand. While new construction

### cr1819 - 7.      Property prices continued to increase owing to strong demand. While new construction

### Property market developments
- Property prices and rents continued to rise owing to:
  - rising disposable incomes;
  - continued influx of foreign workers;
  - higher use of online accommodation services by tourists;
  - portfolio rebalancing towards property investments given low interest rates;
  - demand-fueling policies: the Individual Investor Program (IIP), extension of the first home buyers stamp duty relief, and the reduced tax rate on rental income.
- Price indices (first half of 2017):
  - advertised house price index increased by 13 percent y/y;
  - transaction-based house price index increased by 5 percent y/y.
- Residential construction activity:
  - development permits for dwellings (number of units) show ongoing construction (chart sources: Central Bank of Malta).

### Credit, banks, and corporate sector
- Bank lending composition and trends:
  - lending remained focused on mortgages while NFCs increasingly relied on nonbank financing.
  - share of mortgages in total lending reached a record-high of 45 percent.
- Household debt and mortgage lending:
  - household debt remained elevated at around 110 percent of gross disposable income.
- Non-financial corporate (NFC) sector:
  - bank credit to NFCs contracted further due to demand and supply factors:
    - demand-side: deleveraging of highly-leveraged firms, expansion of less capital-intensive sectors, shift to nonbank financing, and firms’ increased profitability reducing loan demand;
    - supply-side: tight credit supply with lending rates above the euro area average.
  - legacy corporate NPLs remained elevated at 10 percent.
  - NFC debt (largely intercompany loans) stood at about 135 percent of GDP in 2017Q2.
- Financial conditions:
  - 10-year government bond yields remained low with spread over German bunds fluctuating in a relatively narrow range of 80-120bps.
  - bank lending rates for both NFCs and households remained on a downward trend.
  - Malta’s stock index declined moderately in 2017Q4 (last obs. Dec. 28, 2017).

### Individual Investor Program (IIP) and fiscal implications
- IIP design and scale:
  - introduced in 2014; capped at 1800 successful applications (government considering extension).
  - about 1000 applications received; rejection rate around 20 percent; more than 800 applications approved by October 2017.
  - investment requirements: financial instruments minimum value €150,000; real estate purchase minimum €350,000 or leasing at least €16,000 per annum; minimum holding period five years.
  - individual applicants must also contribute €650,000, of which 10 percent is retained as fees; remainder split: 30 percent to the Treasury’s Consolidated Fund and 70 percent to the National Development and Social Fund (NDSF).
- Fiscal contributions from the IIP:
  - contributions to Treasury and NDSF rose from €50 million in 2015 to €172 million in 2016 (0.5 and 1.7 percent of GDP, respectively).
  - staff project inflows to reach €230 million in 2017, roughly equivalent to 2.1 percent of GDP and 5.4 percent of fiscal revenue.
  - as of November 2017, no resources from the NDSF had been committed to specific projects.
- Risks related to IIP:
  - fiscal risks: volatility and unsustainability of inflows;
  - macro-financial risks: rapid influx of housing investment could trigger property market bubbles;
  - reputational and money laundering risks if due-diligence is insufficient.

### Fiscal outcomes and projections
- 2016 fiscal outcome:
  - fiscal balance recorded a surplus of 1.1 percent of GDP compared with a budget deficit target of 1.1 percent of GDP.
  - public debt-to-GDP ratio declined to about 58 percent.
- 2017 staff estimates and 2018–22 projections (percent of GDP unless indicated otherwise):
  - staff estimate a surplus of 1.4 percent of GDP in 2017 (above initial budget deficit target of 0.5 percent), and public debt moderating to about 54 percent.
  - 2017 structural balance estimated at 0.8 percent of potential GDP.
  - Malta: Fiscal Estimates and Projections table (selected rows):
    - Revenue 2017: 39.6; 2018: 38.9; 2019: 38.7; 2020: 38.4; 2021: 38.4; 2022: 38.4
    - Expenditure 2017: 38.1; 2018: 38.1; 2019: 38.0; 2020: 37.8; 2021: 37.8; 2022: 37.9
    - Overall balance 2017: 1.4; 2018: 0.8; 2019: 0.7; 2020: 0.6; 2021: 0.6; 2022: 0.5
    - Structural balance 2017: 0.8; 2018: 0.1; 2019: 0.2; 2020: 0.3; 2021: 0.5; 2022: 0.4
    - Structural balance, excl. IIP proceeds 2017: -1.4; 2018: -1.0; 2019: -0.9; 2020: -0.7; 2021: -0.5; 2022: -0.5
    - Public debt 2017: 54.2; 2018: 50.1; 2019: 47.3; 2020: 44.4; 2021: 42.4; 2022: 41.2
  - Staff project the fiscal surplus to stand at 0.8 percent of GDP in 2018 and moderate to 0.5 percent of GDP at the end of the forecast horizon under baseline assumptions that include IIP proceeds.
  - Excluding IIP revenues, staff project the structural fiscal balance to improve by a cumulative 0.9 percent of potential GDP in 2018-22 but remain negative.
- Fiscal risk points highlighted:
  - high exposure to IIP revenues which are volatile and difficult to predict;
  - government guaranteed debt stood at 14 percent of GDP in 2016 and is projected to remain elevated (temporary guarantees to ElectroGas about 4 percent of GDP noted);
  - long-term demographic pressures with age-related spending projected to increase significantly (EC’s 2015 Aging Report: Malta’s age-related spending set to increase by 6.6 percentage points of GDP by 2060).

### External position, growth, and outlook
- External developments:
  - first three quarters of 2017: current account posted a surplus of about 13 percent of GDP, following a surplus of 6.6 percent of GDP in 2016.
  - NIIP increased to about 63 percent of GDP in 2017Q3 from 47 percent in 2016Q4.
  - strong productivity gains kept ULC growth subdued in 2016.
  - external sector assessment: external position broadly in line with fundamentals.
- Growth projections and composition:
  - Real GDP projected: 2017: 6.8 percent; 2018: 5.7 percent.
  - Medium-term convergence to potential of just above 3 percent; potential GDP growth row in projections: 2016: 6.1; 2017: 6.4; 2018: 5.9; 2019: 5.1; 2020: 4.5; 2021: 4.0; 2022: 3.3
  - Macroeconomic projections table (selected rows, 2016–22):
    - Real GDP 2016: 5.5; 2017 Est.: 6.8; 2018: 5.7; 2019: 4.6; 2020: 4.0; 2021: 3.5; 2022: 3.2
    - Domestic demand 2016: 1.4; 2017 Est.: 1.8; 2018: 5.4; 2019: 4.0; 2020: 3.3; 2021: 2.7; 2022: 2.4
    - Private consumption 2016: 3.1; 2017 Est.: 4.3; 2018: 4.2; 2019: 3.6; 2020: 3.1; 2021: 2.6; 2022: 2.4
    - Fixed investment 2016: -0.9; 2017 Est.: -8.0; 2018: 8.4; 2019: 5.0; 2020: 3.5; 2021: 2.5; 2022: 1.8
    - Current account (percent of GDP) 2016: 6.6; 2017 Est.: 10.3; 2018: 9.6; 2019: 9.2; 2020: 8.9; 2021: 8.8; 2022: 8.7
    - Consumer Prices (HICP) 2016: 0.9; 2017 Est.: 1.3; 2018: 1.7; 2019: 1.8; 2020: 1.9; 2021: 1.9; 2022: 2.0
- Risks to outlook:
  - external: weak growth in advanced economies, policy and geopolitical uncertainties, inward-looking policies, post-Brexit arrangements, changes in international corporate taxation affecting FDI and tax revenues;
  - domestic: stronger-than-expected private consumption (via strong wage increases), rapid implementation of infrastructure and SME investment raising investment above baseline;
  - structural: slow progress in addressing structural weaknesses could undermine competitiveness;
  - financial stability: strong increases in housing prices and mortgage lending may increase financial stability risks and limit potential growth by deterring foreign workers.

### Policy recommendations and priorities
- Maintain financial stability:
  - Resolve legacy corporate NPLs.
  - Improve SME access to bank finance and monitor nonbank financing of NFCs.
  - Contain financial integrity risks and ensure effective supervision.
  - Introduce macro-prudential measures for mortgages and mitigate property price pressures.
- Promote high and inclusive growth:
  - Upgrade infrastructure quality.
  - Increase labor participation and reduce skill gap.
  - Boost innovation.
- Ensure fiscal sustainability:
  - Maintain fiscal discipline.
  - Enhance revenue collection and broaden the tax base, contain contingent liabilities risks, and mitigate long-term spending pressures.
  - Boost public investment.
- Additional fiscal guidance:
  - Build further fiscal buffers and continue complying with the MTO.
  - Save future revenue windfalls and identify structural measures beyond the IIP to strengthen the fiscal position given volatility of IIP proceeds.
  - Advance restructuring and monitoring of financially weak SOEs to contain contingent liability risks.
  - Implement further pension and healthcare adjustments to address long-term demographic pressures, including aligning contributory period with life expectancy and better linking lifetime incomes to pensionable incomes.

*Source: IMF staff (cr1819).*

### 19.      Increasing capital expenditure would buttress Malta’s competitiveness and welfare. In

### Increasing capital expenditure would buttress Malta’s competitiveness and welfare.

### Public investment, infrastructure, and growth
- Malta has an estimated low public capital stock per capita and weak infrastructure quality; staff support plans to upscale public investment to revamp the road network, encourage higher utilization of public transportation, and improve public services.
- The envisaged road overhaul and the government’s Transport Master Plan would help mitigate congestion and increase business productivity.
- While Malta’s public investment efficiency is broadly at par with the average of advanced economies, higher efficiency would improve infrastructure quality and quantity and foster a greater impact on growth.
- Staff’s analysis indicates a public investment efficiency gap of about 20 percent. Closing this gap would reduce the financing need of the road upgrade plan by €140 million.
- Staff’s analysis suggests that a budget-neutral increase of public investment by one percentage point of GDP over a period of 7 years would result in a GDP gain of about 5 percent in net present value terms over 30 years. If the investment boost is permanent and accompanied with an increase in public investment efficiency, the output gain would increase significantly.
- The NPV is discounted over 30 years at a 3 percent interest rate.

### Fiscal policy, financing, and prioritization
- Public investment should increase in a budget-neutral manner and be well-prioritized, based on a prudent cost-benefit assessment, to avoid unwarranted fiscal stimulus when output is estimated at above potential.
- Raising EU funds’ absorption and spreading it evenly within the programming period as well as strengthening revenue collection would help finance additional investment needs.
- Closing half of Malta’s estimated VAT gap would free around €100 million per year.
- Potential savings from spending reviews: previous spending reviews point to savings of €25 million over a 3-years in social security benefits, and €11 million over a 2-year period in healthcare. An additional spending review is envisaged to cover Management Efficiency Unit and the Malta College for Arts, Science and Technology.
- Authorities expect the 2017 overall budget balance to remain in surplus of nearly one percent of GDP; strong IIP proceeds and some potential delays in capital spending pose an upside risk. Authorities reaffirmed medium-term fiscal targets and intend to ensure compliance with the MTO, net of IIP.

### Banking system soundness and risks
- The domestic banking system remains well-capitalized and profitable, but faces challenges: core domestic banks expanded balance sheets and remained highly liquid with a loan-to-deposit ratio at below 60 percent.
- Stable net interest margin and contained operating costs kept banks’ profitability at healthy levels, supporting loss-absorption capacity.
- Going forward, banks’ profitability is subject to headwinds from subdued lending to NFCs, a prolongation of the ECB’s accommodative monetary policy stance, and upcoming regulatory changes (IFRS9 and MREL) which may require higher loan-loss provisions and lead to higher funding costs.
- Further challenges stem from elevated legacy NPLs, especially among small banks, and the high and increasing concentration of property-related loans.

### Non-performing loans (NPLs), provisioning, and insolvency
- Higher loan-loss provisions and an enhanced insolvency framework would support further NPL reduction.
- The recent regulatory response requires credit institutions to reduce their overall NPL ratio to below 6 percent over five years.
- The introduction of IFRS9 will result in higher provision coverage ratios and support NPL reduction.
- Lengthy insolvency proceedings remain a key impediment for NPL resolution; recent amendments to the Companies Act (March 2017) and further improvements in the insolvency process remain critical. Recent amendments introduce a streamlined process to wind up firms, including through out-of-court mediation, and a time limit of approximately one year for the restructuring process.
- With persistent real estate appreciation, it is important to maintain prudent collateral valuation.
- NPLs in construction and real estate activities—although declining—stood at 25 percent in 2017Q2.

### Access to finance for SMEs and nonbank funding risks
- Malta Development Bank (MDB): planned to commence operations in the second half of 2018; could alleviate SMEs financing constraints by providing loans and guarantees, via commercial banks, to viable firms with limited access to finance due to insufficient collateral and required loan duration. As MDB’s operational framework is set up, ensure robust governance, prudent risk assessments, adequate supervision, and well-designed origination rules to contain contingent liability risks to public finances. (The MDB Act was enacted in May 2017.)
- Non-Bank Financial Institutions (NBFIs): corporate loans issued by NBFIs are about 2 percent of GDP (2017Q2) and have quadrupled since 2007; they could emerge as an important funding source for NFCs. Closing data gaps and better monitoring would help ensure that credit provision by these institutions does not lead to excessive buildup of corporate leverage or large indirect exposure of banks to corporates.
- Intercompany lending: intercompany loans within Malta have replaced bank loans as the largest financing source for NFCs. Strong linkages between corporates may increase contagion risks. Lending between unrelated corporates is subject to licensing by MFSA, but evidence suggests large exposures between resident corporates are not monitored as closely as bank lending. Stepping up efforts to better monitor intercompany liabilities would help mitigate financial stability risks.

### Supervision, financial integrity, and AML/CFT
- The growing size and complexity of the financial sector represent a challenge for supervision. The increasing number of financial firms, rapid product developments, and evolving regulatory environment have put the MFSA under strain. Tight labor market conditions contributed to high MFSA staff turnover.
- Ensuring that the MFSA has adequate resources is critical to preserve operational independence, improve capacity to retain experienced staff, and support effective supervision. The recently launched public consultation aiming to strengthen the MFSA could be a useful platform.
- Sustained efforts are needed to contain financial integrity risks. Effective implementation of the Anti-Money Laundering (AML) framework is critical given the size of Malta’s financial sector, fast-growing remote gaming activity, and high demand for the IIP.
- Continue strengthening collaboration between competent supervisors and regulators, step-up enforcement to ensure robust and consistent compliance with AML requirements. The recent transposition of the EU’s 4th AML Directive into national law (December) is a step in the right direction. Finalizing the National Risk Assessment to inform a risk-based approach to AML should complement these efforts.
- Malta’s assessment against the FATF standards is tentatively scheduled for 2018.

### Housing market pressures and macroprudential policy
- Household balance sheets are generally sound with a low default rate and financial wealth exceeding peer levels.
- Given high exposure of core domestic banks to property-related loans, a sharp drop in house prices or increases in interest rates may lead to a negative spiral of low lending and investment with adverse macro-financial repercussions.
- Staff does not see immediate financial stability risks, but persistent strength in mortgage lending and sustained demand for properties without a corresponding increase in household income could lead to significant imbalances. Staff’s analysis indicates that housing prices have entered a modest overvaluation territory by several metrics (Annex IV). About 80 percent of respondents to a recent central bank survey viewed residential properties as overpriced in 2016.
- Recommended steps to pre-empt housing market risks:
  - Deploy targeted macro-prudential limits for mortgages (e.g., limits on loan-to-value and debt service-to-income ratios). Closing remaining data gaps on borrower characteristics would help calibrate these measures effectively.
  - Ensure fiscal incentives do not amplify the housing cycle by aligning the tax rate on rental income with tax rates on other sources of income. Introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values, to help curb housing demand and improve fiscal revenue predictability.
  - Repair corporate balance sheets in the construction sector to increase housing supply.
- Accelerated delivery of social housing would mitigate the impact of rising housing prices on the poor. Measures include incentivizing private investment through tax exemptions and providing financial incentives for restoration of old properties for social housing. Ensure eligibility criteria for rent subsidies and social home loans are prudently assessed and means-tested.
- Authorities view: regard property prices as broadly in line with fundamentals but acknowledge strong demand pressures from inflows of foreign workers and tourists; they plan to publish a White Paper to strengthen the legal framework in the rental market, including registration of rental contracts, and highlight measures in the 2018 Budget to increase availability of social housing.

### Labor market, inclusiveness, and structural reforms
- Addressing structural weaknesses would support sustained and inclusive growth: upgrade human capital, address structurally-low female labor force participation, and increase investment in infrastructure and innovation to boost productivity and social inclusion.
- Increase female labor-force participation further. Recent make-work-pay policies—including the free childcare scheme, in-work benefits, and tapering of benefits for those entering employment—have significantly increased female participation, but the gender gap remains large, especially among older cohorts.
- Upskilling and reskilling: Malta’s share of early school leavers remains elevated, with about half of adults having a lower-secondary education attainment or less. Participation in lifelong learning and second chance education programs remains low.
- Recent initiatives to strengthen vocational and training systems include the proposed Work-Based Learning Act (framework for work-placements, apprenticeships, internships) and the establishment of the National Skills Council (December 2016) to better align education with business needs.
- Labor and skill shortages have emerged in high-skilled sectors; firms increasingly rely on foreign labor. Continued efforts to upskill and reskill would help contain the skill gap, decrease inactivity, and reduce income disparities.

*International Monetary Fund staff summary of Malta: “Increasing capital expenditure would buttress Malta’s competitiveness and welfare.”*

### 35.      Strengthening innovation would sustain productivity growth. Malta continues to lag its

### 35.      Strengthening innovation would sustain productivity growth.

### Innovation status and challenges
- Malta "continues to lag its peers on many fronts", reflecting low, albeit increasing, levels of investment in R&I in both public and private sectors.
- Continued implementation of the National R&I Action Plan would:
  - enhance research infrastructure,
  - upscale financial support for enterprises,
  - improve knowledge transfer through stronger links between academia and the private sector,
  - enhance SMEs’ productivity and boost their growth prospects.

- Innovation Activities, 2016 (normalized scores; a score of one reflects the best performer). Values shown in the source:
  - 20.3
  - 16.0
  - 4.7
  - 13.7
  - 10.1
  - 1.1
  - 33.2
  - 15.7
  - 26.5
  - 7.0
  - 6.6
  - 29.4
  - 11.5
  - 3.2

- Most pressing problems that Maltese firms face (percent): category labels shown in source:
  - Finding customers
  - Competition
  - Access to finance
  - Costs of production or labour
  - Availability of skilled staff or experienced managers
  - Regulation
  - Other

- Long-Term Unemployment and Participation in Education and Training: data points in the source reference years 2011 and 2016 and multiple countries including MLT; underlying sources are Eurostat and IMF staff.

### Authorities' view
- Authorities agree on the importance of addressing structural challenges and have new plans prioritizing:
  - reshaping and redefining road networks,
  - enhancing multi-modal transportation,
  - increasing the availability of social housing,
  - improving waste management.
- National Skills Council (NSC) initiatives:
  - developing strategies to improve work-based learning and digital skills to tackle labor and skills shortages.
- Jobsplus (Public Employment Services) actions:
  - strengthened efficiency and monitoring of training programs for low-skilled workers,
  - invested in targeted intervention and vocational programs to reduce early school leaving.
- Measures to increase R&D intensity:
  - schemes for small firms offered by Malta Enterprise and the National R&I Fund,
  - new NSC initiatives to strengthen links between the private sector and academia.

### Staff appraisal — macroeconomic outlook and risks
- Economic outlook and drivers:
  - Maltese economy remains on a strong growth trajectory.
  - Rapid expansion of export-oriented services, improved balance sheets, and solid job creation contributed to robust growth in 2017 and historically-low unemployment, despite continued inflows of foreign workers.
  - Favorable performance expected to persist in the coming years, albeit at a more moderate pace, with domestic demand as the main driver.
  - Inflation is expected to pick up gradually, reflecting an increase in import prices and tighter labor market conditions.
  - Buoyant services exports are projected to sustain current account surpluses.
  - Risks to the outlook are broadly balanced; the external position is assessed to be broadly in line with fundamentals.

- Fiscal policy and public finances (recommendations and findings):
  - Reducing remaining fiscal risks and building larger fiscal buffers would add strength to Malta’s fiscal position.
  - As the economy operates above potential, fiscal policy should be geared toward addressing infrastructure challenges while avoiding unwarranted stimulus.
  - Government strategy to continue complying with the MTO and building larger fiscal buffers is welcome, though identifying further structural measures to attain the MTO, net of IIP proceeds, would strengthen the fiscal position.
  - With fiscal risks still elevated, priorities include:
    - broadening the tax base and strengthening revenue collection,
    - advancing restructuring of financially-weak SOEs,
    - addressing age-related spending pressures.
  - A budget-neutral public investment push would help narrow Malta’s infrastructure gap.

- Financial sector resilience and oversight:
  - Advance balance sheet repair and strengthen oversight of nonbank lending to enhance resilience.
  - Continued resolution of legacy corporate NPLs, with enhanced supervisory oversight, would promote investment and improve shock absorption.
  - Expected increase in the provision coverage ratio and improvements in the insolvency process would support these efforts.
  - Address data gaps and enhance oversight of nonbank lending.
  - Ensure robust governance and well-designed origination rules for MDB operations to contain contingent liabilities.
  - Ensure the MFSA has adequate resources to preserve operational independence and effective supervision.

- Financial integrity and AML:
  - Sustained efforts needed to safeguard the financial system’s integrity.
  - Robust implementation and effective enforcement of the Anti-Money Laundering framework is critical given the size of Malta’s financial sector, fast-growing remote gaming activity, and high demand for the IIP.
  - Continue strengthening collaboration between competent supervisors and regulators and finalize the related National Risk Assessment.

- Housing market and macroprudential recommendations:
  - Strong momentum in the housing market calls for policy measures.
  - Targeted macroprudential limits for mortgages would strengthen resilience of bank and household balance sheets to possible housing price corrections and higher interest rates.
  - Close data gaps on borrower characteristics to calibrate measures effectively.
  - Align the tax rate on rental income with tax rates on other sources of income.
  - Introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values, to curb housing demand pressure.
  - Accelerate corporate balance sheet repair in the construction sector to improve housing supply response to price signals.

- Structural and inclusiveness priorities:
  - Safeguard reform momentum to sustain high growth and promote inclusiveness.
  - Policy focus areas:
    - reducing severe congestion by improving road quality and increasing utilization of alternative transport,
    - upskilling and reskilling the labor force to better align education with business needs,
    - increasing female labor force participation further, particularly among older cohorts,
    - strengthening innovation by developing research infrastructure, increasing financial support for research and innovation, and improving links between academia and the private sector to enhance productivity and boost growth prospects.

*International Monetary Fund*

### 43.      Staff proposes that the next Article IV consultation with Malta follow the standard 12-

### cr1819 - 43.      Staff proposes that the next Article IV consultation with Malta follow the standard 12-

### Economic indicators and growth
- The economy is estimated to have grown strongly in 2017.
- Real GDP (Year-on-year percent change): charts show Malta and Euro area comparisons for 2005–2017 (Proj. noted).
- Contribution to Growth (Percentage points): components listed include Private cons., Public cons., Investment, Inventories, Net exports, GDP (Proj. noted).
- Private-sector wage pressures: "At the aggregate, wage pressures in the private sector remained subdued."
- Headline and core inflation: "Both headline and core inflation picked up recently... due to acceleration of prices of services."
- HICP and sub-indices (Year-on-year percent change): Non-Energy Goods, Services, HICP tracked for 2011Q1–2017Q2.

### Short-term indicators (2008–2017)
- Overall economic sentiment: "Overall economic sentiment remained strong, and above that in the Euro Area."
- Labor market and consumer confidence: "Supported by strong labor market conditions, and robust consumer confidence."
- Sectoral confidence: "Services sector confidence remained positive while that in construction improved significantly."
- Industry conditions: "Capacity utilization has increased recently as new orders remain high."
- Industrial production: "Production of consumer and intermediate goods lagged that of capital goods."
- Tourism: "Tourism flows remained buoyant."
- Economic Sentiment Indicator (Long-term average=100): Malta and Euro area series shown for Jan-08–Aug-17.
- New orders, export expectations, capacity utilization: series shown for Jan-08–Aug-17.
- Industrial Production (2010=100) broken into Intermediate Goods, Capital Goods, Consumer Goods.
- Tourist Arrival (Year-on-year percent change): series for Jan-08–Aug-17.

### Fiscal developments and projections
- Fiscal surpluses are projected to persist owing in part to buoyant IIP proceeds.
- Public debt-to-GDP ratio: "Together with strong growth, further lower the public debt-to-GDP ratio."
- Primary surplus: "The primary surplus is expected to moderate but remain large over the medium term."
- Structural balance: "The structural balance is projected to improve modestly over the medium term."
- Long-term spending pressures: "Malta is facing significant long-term spending pressures."
- Public debt ratio: "The public debt ratio remains somewhat above the average of small EA members."
- Table 2 (Percent of GDP, projections 2018–2022):
  - Revenue: 38.9 (2018), 38.7 (2019), 38.4 (2020), 38.4 (2021), 38.4 (2022)
  - Taxes: 26.9 (2018), 26.9 (2019), 26.8 (2020), 26.8 (2021), 26.8 (2022)
  - Social contributions: 6.4 (2018–2022, with 6.3 in 2022)
  - Expenditure: 38.1 (2018), 38.1 (2019), 37.8 (2020), 37.8 (2021), 37.9 (2022)
  - Gross Operating Balance: 3.9 (2018), 3.8 (2019), 3.9 (2020), 4.0 (2021), 4.0 (2022)
  - Net lending/borrowing (overall balance): 0.8 (2018), 0.7 (2019), 0.6 (2020), 0.6 (2021), 0.5 (2022)
  - Structural balance 1/: 0.8 (2017), 0.1 (2018), 0.2 (2019), 0.3 (2020), 0.5 (2021), 0.4 (2022)
  - Structural balance excl. IIP proceeds 1/: -1.4 (2017), -1.0 (2018), -0.9 (2019), -0.7 (2020), -0.5 (2021), -0.5 (2022)
  - Public debt: 50.1 (2017), 47.3 (2018), 44.4 (2019), 42.4 (2020), 41.2 (2022)
  - Nominal GDP (millions of euros): 10,794 (2017 Est.), 11,640 (2018), 12,420 (2019), 13,177 (2020), 13,915 (2021), 14,656 (2022)

### Financial soundness and banking sector
- Capitalization and profitability:
  - "Banks are adequately capitalized."
  - Regulatory capital ratios (2012–2017H1) show regulatory capital to risk weighted assets series; examples include 2017H1 values plotted.
  - "Bank profitability—although moderating—remained healthy."
- Asset quality and coverage:
  - "Non-performing loans moderated and coverage ratios were raised... to prevent capital impairments in the future."
  - Nonperforming Loans and Coverage Ratio series (2012–2017H1): NPLs (percent of total loans) and Coverage Ratio (RHS).
  - Nonperforming Loans Net of Provisions (Percent of capital) series provided.
- Credit and deposits:
  - "Loan-to-deposit ratio slightly increased following a prolonged decline."
  - Resident Credit Growth, Deposit Growth and Loan-to-Deposit Ratio series (2012–2017H1).
- Exposure to housing market:
  - Share of property-related loans remains high with series for Construction, Real estate, House purchase, Total (Share of total loans to the private sector, percent).
- Table 4 (Financial Soundness Indicators, 2013–2017H1): selected indicators (percent unless otherwise indicated) include:
  - Regulatory capital to risk weighted assets (Core Domestic Banks, Non-Core Domestic Banks, International Banks, Total Banks) with series across 2013–2017H1.
  - Regulatory Tier 1 capital to risk-weighted assets series.
  - Non-performing loans to total gross loans: values include 9.0, 7.6, 7.1, 5.3, 4.6, 3.7, 4.4, 3.9, 3.1, 2.3, 1.4, 0.7, 0.9, 1.7, 2.5, 5.6, 4.0, 4.3, 3.8, 3.7 across subgroups and periods.
  - Return on assets and Return on equity series across bank groups and years.
  - Customer loans to customer deposits series with values across periods (e.g., 67.8, 64.0, 58.2, 56.0, 58.8, 96.2, 75.7, 60.7, 46.5, 45.3, 79.5, 93.1, 104.1, 108.1, 102.2, 72.3, 71.8, 67.9, 65.7, 66.3).
- Sector size note: "Banks’ total assets amounted to 467 percent of GDP (about €46 billion) at 2016. About 48 percent of these assets are owned by international banks... Core domestic banks... account for 47 percent of the banking sector’s total assets..."

### External sector and balance of payments
- Current account and trade:
  - "The current account surplus increased in 2016... supported by improvement in the services balance."
  - Exports of Goods and Services (Percent of GDP) rose over 2006–2016; Services share increased considerably in recent years, raising export market share.
  - Market Share in World Exports (2006=100) series for Goods, Services, Total.
- Exchange rates and IIP:
  - "The REER remained broadly stable. Sustained increase in assets kept the net IIP positive."
  - NEER and REER, CPI Based (2005=100) series shown.
  - International Investment Position (Billion Euro): Assets, Liabilities, Net (RHS) series for 2006–2016.
- Balance of Payments (Table 3, Millions of euros and Percent of GDP projections 2018–2022):
  - Current account balance (millions of euros): 4 (2015), 246 (2016), 58 (2017 Est.), 1,110 (2018), 1,113 (2019), 1,139 (2020), 1,179 (2021), 1,222 (2022)
  - Current account balance (Percent of GDP): 4.6 (2015), 6.6 (2016), 10.3 (2017 Est.), 9.6 (2018), 9.2 (2019), 8.9 (2020), 8.8 (2021), 8.7 (2022)
  - Trade balance (Goods and services) (millions of euros): 681 (2015), 1,119 (2016), 1,723 (2017 Est.), 1,890 (2018), 2,068 (2019), 2,257 (2020), 2,458 (2021), 2,673 (2022)
  - Services balance (millions of euros): 2,613 (2015), 3,028 (2016), 3,751 (2017 Est.), 4,072 (2018), 4,358 (2019), 4,689 (2020), 5,009 (2021), 5,360 (2022)
  - Exports of services (millions of euros): 10,689 (2015), 11,487 (2016), 12,195 (2017 Est.), 12,885 (2018), 13,553 (2019), 14,254 (2020), 14,992 (2021), 15,768 (2022)
  - Primary income, net (Percent of GDP): -5.0 (2015), -6.9 (2016), -7.9 (2017 Est.), -8.9 (2018), -9.7 (2019), -10.4 (2020), -11.1 (2021), -11.8 (2022)
  - Financial account, net (Percent of GDP): 4.5 (2015), 13.6 (2016), 11.1 (2017 Est.), 10.4 (2018), 10.0 (2019), 9.7 (2020), 9.6 (2021), 9.5 (2022)
  - Direct investment (Percent of GDP): -96.1 (2015), -83.7 (2016), -86.7 (2017 Est. and projections 2018–2022)
  - Portfolio investment (Percent of GDP): 52.9 (2015), 48.0 (2016–2022 projected)
  - Memorandum: Gross external debt (Percent of GDP) series include 961.2 (2015), 872.5 (2016), 812.6 (2017 Est.), projections 763.2, 724.4, 691.7, 663.8, 639.0; Net external debt (Percent of GDP) shown as -257.8, -222.0, -224.9, -227.7, -230.6, -233.6, -236.8, -240.0.

### Labor market and income inequality
- Labor participation and unemployment:
  - "While increasing, the female labor market participation rate falls short compared to EA peers, especially among middle-aged and older cohorts."
  - "Unemployment continued to decline to a record-low... reflecting strong employment growth."
  - Unemployment Rate (Percent) series for Malta and Euro area (2005–2017) with Malta below Euro area in later years.
  - Employment (Thousands): series for Part-time and Full-time; Share of part-time employment (percent, RHS).
- Income inequality and poverty:
  - "Despite strong growth, income inequality remains elevated compared to the pre-crisis period."
  - Income Inequality (Gini coefficients) before and after social transfers: Malta and Euro area series for selected years (e.g., 26.3, 28.6, 27.9, 28.5; 40.4, 42.7, 43.8, 44.7; 30.0, 30.3, 30.7, 30.7; 49.3, 49.6, 51.3, 51.6 referenced in chart).
  - "The share of population at risk of poverty increased marginally relative to 2007."
  - Risk of Poverty or Social Exclusion (Percent of total population) change 2007–16: Malta positioned among comparators in chart.
- Labor participation by age and gender: series for female and male participation rates (15-24 years, 25-54 years, 55-64 years) comparing Malta and Euro area.

### Selected economic indicators (Table 1 highlights, 2015–2022 projections)
- Real GDP (Year-on-year percent change):
  - 2015: 7.2
  - 2016: 5.5
  - 2017 Est.: 6.8
  - 2018: 5.7
  - 2019: 4.6
  - 2020: 4.0
  - 2021: 3.5
  - 2022: 3.2
- Domestic demand, Consumption, Fixed investment, Exports and Imports: series with values across 2015–2022 (examples: Domestic demand 12.4 (2015), 1.4 (2016), 1.8 (2017); Exports of goods and services 4.1 (2015), 4.5 (2016), 2.5 (2017 Est.), 3.2 (2018); Imports 7.4 (2015), 1.6 (2016), -1.5 (2017 Est.))
- Potential GDP growth: 5.8 (2015), 6.1 (2016), 6.4 (2017), 5.9 (2018), 5.1 (2019), 4.5 (2020), 4.0 (2021), 3.3 (2022)
- Output gap (% potential GDP): 1.9 (2015), 1.4 (2016), 1.8 (2017), 1.6 (2018), 1.2 (2019), 0.7 (2020), 0.3 (2021), 0.1 (2022)
- HICP (period average): 1.2 (2015), 0.9 (2016), 1.3 (2017), 1.7 (2018), 1.8 (2019), 1.9 (2020), 1.9 (2021), 2.0 (2022)
- Unemployment rate EU standard: 5.4 (2015), 4.7 (2016), 4.2 (2017), 4.4 (2018), 4.6 (2019), 4.7 (2020–2022)
- Employment growth: 2.3 (2015), 3.0 (2016), 3.4 (2017), 2.9 (2018), 2.5 (2019), 2.1 (2020), 2.0 (2021), 2.0 (2022)
- Gross national savings (percent of GDP): 29.1 (2015), 30.1 (2016), 30.8 (2017), projections 30.7, 30.5, 30.3, 30.1, 29.8
- Gross capital formation (percent of GDP): 24.5 (2015), 23.5 (2016), 20.5 (2017), projections 21.1, 21.4, 21.3, 21.1
- Public finance (Net lending/borrowing overall balance): -1.1 (2015), 1.1 (2016), 1.4 (2017 Est.), 0.8 (2018), 0.7 (2019), 0.6 (2020), 0.6 (2021), 0.5 (2022)
- Balance of payments (Current account balance percent of GDP): 4.6 (2015), 6.6 (2016), 10.3 (2017 Est.), projections 9.6 (2018), 9.2 (2019), 8.9 (2020), 8.8 (2021), 8.7 (2022)
- Nominal GDP (millions of euros): 9,266 (2015), 9,927 (2016), 10,794 (2017 Est.), 11,639.9 (2018), 12,419.8 (2019), 13,177.2 (2020), 13,915.3 (2021), 14,655.5 (2022)
- Per capita income (2016, euros) and At-risk-of-poverty rate: noted in source table (data as of 2016).

*International Monetary Fund. Staff report material for Malta (cr1819), Chapter/section content as provided.*

### Annex I. Implementation of IMF Recommendations

### Annex I. Implementation of IMF Recommendations

### Fiscal issues
- 2016 Art. IV advice: Continue with fiscal consolidation, enhance efficiency of tax collection, and contain growth of wage bill and expenditure on goods and services.
- Actions since 2016 Art. IV:
  - The government attained its Medium-Term Objective of a structural balance in 2016, three years ahead of schedule.
  - The Updated Stability Program 2017-20 aims to maintain a small surplus over the medium term and further reduce the public debt ratio.
  - Measures to enhance tax collection: strengthening the IT system and establishing the Joint Enforcement Unit to strengthen tax compliance.
  - Merger of various revenue departments is underway.
- 2016 Art. IV advice: Reduce fiscal risks by improving the financial health of SOEs and containing long-term, age-related spending pressures.
- Actions since 2016 Art. IV:
  - Ongoing. The 2017 budget included fiscal incentives for contributions to private pension plans.
  - National Strategy for Retirement and Financial Capability was launched in January 2017.
  - Policy recommendations from in-depth spending review of health carried out in 2015 are being implemented.
  - Following an internal restructuring, the state-owned carrier, Air Malta, is expected to break even in 2017/18.

### Financial sector issues
- 2016 Art. IV advice: Close data gaps, strengthen macroprudential measures, and review fiscal incentives related to the property market.
- Actions since 2016 Art. IV:
  - Ongoing. The Central Credit Register is looking to broaden the coverage of individual debt, beyond bank loans.
  - The Joint Financial Stability Board is evaluating possible macro-prudential measures to mitigate risks.
- 2016 Art. IV advice: Promote a faster resolution of legacy NPLs, including by further increases in loan-loss provisions.
- Actions since 2016 Art. IV:
  - Ongoing. Recent regulatory changes require banks to reduce NPLs to below 6 percent within 5 years; implementation is underway.
  - The insolvency framework has been strengthened.
- 2016 Art. IV advice: Ensure strong governance, prudent risk assessment, and adequate supervision of the Malta Development Bank.
- Actions since 2016 Art. IV:
  - Ongoing. Malta Development Bank (MDB) Act, approved in May 2017, envisages creation of Risk, Audit, Ethics and Governance Committees, and defines role of the MDB’s Supervisory Board.
- 2016 Art. IV advice: Maintain a robust implementation of the AML/CFT framework.
- Actions since 2016 Art. IV:
  - Ongoing. The Fourth EU Anti-Money Laundering was fully transposed into national law.
  - The ML/FT National Risk Assessment is being finalized.

### Structural reforms
- 2016 Art. IV advice: Further increase female labor force participation and reduce skill mismatches.
- Actions since 2016 Art. IV:
  - Ongoing. Recent make-work-pay measures with focus on supporting female employment continue to be implemented.
  - Training and work placement schemes are being provided to reduce the skill gap and support employment of low-skilled individuals.
- 2016 Art. IV advice: Enhance SMEs’ research and innovation.
- Actions since 2016 Art. IV:
  - Revised National R&I Action Plan, approved at end-2016, is being implemented.
  - New tax credit on expenses incurred on research projects.
- 2016 Art. IV advice: Further improve the judicial system efficiency.
- Actions since 2016 Art. IV:
  - Ongoing. Amendments to the Companies Act adopted in March 2017 include changes to legal framework on “company reconstructions”, including voluntary mediation between companies and creditors, allowing creditors to file “company recovery” application, and shortening the restructuring period.

*Source: IMF staff compilation in Annex I. Implementation of IMF Recommendations.*

---

### Annex II. External Sector Assessment

### Key findings
- Malta’s external competitiveness remained strong.
  - Fast expansion of knowledge-intensive services sectors and related productivity gains supported competitiveness.
  - ULC-based REER reached levels last seen in 2009.
  - CPI-based REER moved in a relatively narrow range, reflecting stability in nominal exchange rate and inflation differentials with Malta’s key trading partners.
- Robust growth in services exports:
  - Widened the services balance.
  - Reduction of import intensity and higher private and public savings contributed to sizable current account surpluses.
  - Malta’s market share in world exports remained broadly stable despite moderation in the share of goods exports.
- Recent current account surpluses supported increases of Malta’s NIIP.
  - Portfolio investment position is the main positive driver of the NIIP.
  - Large FDI flows partly offset accumulation of foreign assets.
  - The overall net FDI stock amounted to 10 times of GDP in 2016 and is subject to volatile valuation changes.

### Staff assessment and model results
- Staff assess that the external position is broadly in line with fundamentals and desirable policy settings.
- Model indications:
  - EBA-lite REER estimates suggest a modest REER undervaluation of 2.2 percent, implying an external position in line with fundamentals.
  - The Current Account (CA) model suggests a larger undervaluation, with the CA-gap at 4.7 percent and the external position substantially stronger than fundamentals.
- Staff judgement caveats:
  - CA model may partly miss Malta’s idiosyncratic factors:
    - Services exports—particularly the gaming sector—require very little capital investment while producing significant export flows broadly unrelated to exchange rate movements.
    - Contribution of the credit/GDP gap variable in the CA regression may create a downward bias because recent growth of credit is almost entirely related to non-tradables (real estate).
  - In both models, rapid fiscal consolidation largely explains the undervaluation.

- Quantitative model outputs (as presented):
  - CA-Cyclically Adj.6.8 ln(REER)-Actual4.6
  - CA-Cyclically Adj. Norm*2.0 ln(REER)-Norm4.6
  - CA-Gap4.7
  - Policy gap1.7
  - Policy gap -1.0
  - Residual3.0 Residual (percent) -1.2
  - REER-Gap (percent) -4.8 REER-Gap (percent) -2.2

*Source: IMF staff estimates as reported in Annex II.*

---

### Annex III. Risk Assessment Matrix

### Overview
- The Risk Assessment Matrix (RAM) lists events that could materially alter the baseline path. Relative likelihoods: “low” (<10 percent), “medium” (10–30 percent), “high” (30–50 percent). “Short term” = within 1 year; “medium term” = within 3 years.

### Main risks, likelihood, impact, and policy responses
- Structurally weak growth in key advanced and emerging economies.
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Rationale: Maltese exports about 142 percent of GDP in 2016; secular weak external demand and lower FDI would hurt domestic confidence and growth.
  - Policy response:
    - Allow automatic stabilizers to operate in the short run if growth disappoints.
    - Improve infrastructure quality and maintain structural reform momentum.
    - Continue diversifying trade and financial activities.
    - Fiscal policy could be used to mitigate impact on vulnerable groups.

- Policy and geo-political uncertainties (post-Brexit, US policymaking).
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Rationale: Could weigh on confidence, investment, and trade; mitigants include Malta’s trade diversification, tourism excess demand, potential relocation of firms from the UK to Malta.
  - Policy response:
    - Allow automatic stabilizers to operate if growth disappoints.
    - Monitor developments and develop contingency plans.
    - Close supervision and further improve banks’ asset quality.
    - Fiscal policy could be used to mitigate impact on vulnerable groups.

- Tighter and more volatile global financial conditions.
  - Relative Likelihood: High
  - Impact if Realized: Medium/Low
  - Rationale: Malta relatively insulated due to domestic financing but vulnerable to weak external demand and lower FDI.
  - Policy response:
    - ECB should stand ready to provide liquidity support to euro-system banks if needed.
    - Continue to reduce fiscal and financial vulnerabilities and diversify trade and financial activities.

- Retreat from cross-border integration.
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy response:
    - Participate in coordinated European policy responses.
    - Allow automatic stabilizers to operate.
    - Maintain structural reform momentum and improve infrastructure.

- Slow progress in addressing remaining structural weaknesses.
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/Low
  - Policy response:
    - Sustain and monitor implementation of structural reforms (education, labor market, infrastructure).
    - Safeguard long-term fiscal sustainability and improve quality of public finances.

- A sharp correction in housing prices.
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Rationale: Property-related loans account for more than 60 percent of the loan portfolio of core domestic banks.
  - Policy response:
    - Monitor risks and implement targeted macro-prudential measures.
    - Limit banks’ exposure to property-related loans if a bubble emerges.
    - Ensure fiscal measures related to the property market do not exacerbate imbalances and address housing supply constraints.

- Possible changes in international corporate taxation.
  - Relative Likelihood: Medium/Low
  - Impact if Realized: Medium
  - Rationale: Could weaken Malta’s attractiveness as a financial and business location, affecting tax revenues and FDI.
  - Policy response:
    - Continue diversifying the economy and accelerate structural reforms.
    - Strengthen quality of public finances, improve spending efficiency, and enhance revenue collection to reduce reliance on CIT revenue.
    - Scrutinize associated new risks.

*Source: Risk Assessment Matrix described in Annex III.*

---

### Annex IV. Property Price Valuation

### Summary of methods and findings
- Alternative methods produce varying indications; results subject to uncertainty due to rapid increase in household financial wealth improving housing affordability.

- Price-to-income and price-to-rent ratios:
  - House price-to-income ratio: increasing but remained relatively stable at about 10 percent below its historical average, suggesting a small undervaluation.
  - Price-to-rent ratio: increased continuously and stood at about 11 percent above its long-term average (2016Q4), broadly similar to 2005-07 levels.

- HP filter:
  - A simple HP filter indicates house prices at end-2016 shifted to above-trend territory for the first time since 2008, though the deviation was modest.

- Econometric approach (error correction model):
  - Model includes demand-side factors: growth rates of income per capita, population, and credit; long-term equilibrium relationship with price-to-income ratio.
  - Results for 2016Q4:
    - Model with credit growth predicts a 13 percent overvaluation.
    - Model without credit growth predicts an overvaluation of about 7 percent.
  - Caveat: Findings treated with caution given model limitations in capturing supply-side dynamics.

*Source: Annex IV analyses and IMF staff calculations.*

---

### Annex V. Debt Sustainability Analysis

### Key findings
- Malta’s public debt has moderated in recent years due to fiscal consolidation, strong growth, and favorable financing conditions.
- Debt dynamics are robust to most shocks, but under a contingent liability shock combined with a low growth scenario, the public debt ratio would increase considerably and remain elevated.
- Moderate gross financing needs and low share of debt held by non-residents limit potential vulnerabilities.
- Large external assets comfortably cover external liabilities, indicating resilience of the external position.

### Public debt outlook and projections
- Public debt trajectory:
  - Strong nominal GDP growth (7.1 percent) and a higher primary fiscal balance lowered public debt to 57.7 percent of GDP in 2016, from 60.3 percent of GDP in 2015.
  - Projected to moderate to about 41 percent of GDP by 2022 due to favorable growth prospects, strong fiscal revenues (including from the International Investor Program (IIP)), and improved financing conditions.

- Government guaranteed debt to non-financial SOEs:
  - Declined to 14.1 percent of GDP in 2016 from 15.2 percent of GDP in 2015.
  - Projected to remain elevated in coming years, even after termination of temporary guarantees to ElectroGas Malta (about 4 percent of GDP).

### Adverse scenarios and results
- Scenarios considered: low growth, high borrowing costs, deterioration in the primary balance, and materialization of contingent liabilities.
- Scenario outcomes:
  - Growth shock:
    - Reduction of output by 3.0 percentage points in 2018 and 2019 relative to the baseline (equivalent to one standard deviation of growth over the past 10 years).
    - Decline in inflation by 0.8 percentage points in 2018-19 relative to the baseline.
    - Debt would peak at 55.2 percent of GDP in 2019, 7.9 percentage points higher than the baseline, and decline to 48.9 percent of GDP in 2022.
  - Sustained interest rate shock:
    - 200bps increase would slow debt moderation; by 2022 debt would reach 42.0 percent of GDP, 0.8 percentage points higher than the baseline.
  - Primary fiscal balance shock:
    - A shock of 0.5 percentage points in both 2018-19 relative to the baseline would bring public debt to 42.3 percent of GDP in 2022, 1.1 percentage points higher than baseline.
  - Combined macro-fiscal shock (growth, interest rate, and primary balance shocks above):
    - Debt would peak at 55.3 percent of GDP in 2019, 8.0 percentage points higher relative to baseline, and decline to 49.8 percent of GDP in 2022.
  - Contingent liability shock:
    - One-time increase in non-interest expenditures equivalent to 5 percent of the domestic banks’ total assets, accompanied by the growth shock noted above and revenue-to-GDP ratio remaining same as baseline.
    - Deterioration of the primary balance and higher interest rates while slowdown in GDP growth lowers inflation.
    - Overall, this shock would increase public debt to 72.1 percent of GDP in 2019.

*Source: Annex V. Debt Sustainability Analysis as presented in the document.*

### 24.8 percentage points higher relative to the baseline. At the end of the projection horizon,

### cr1819 - 24.8 percentage points higher relative to the baseline. At the end of the projection horizon,

### Public debt projections
- Under the scenario described, public debt would decline to 65.6 percent of GDP at the end of the projection horizon.
- In an alternative scenario referenced earlier, debt was 24.8 percentage points higher relative to the baseline.

### Government guarantee shock
- The government guarantee shock reflects a contingent liability risk from SOEs.
- It includes a one-time increase in non-interest expenditures equivalent to 50 percent of government guaranteed debt.
- The shock is accompanied by a transitory negative confidence impact on Malta’s spread.
- Under this shock:
  - The debt ratio would peak at 57.1 percent of GDP in 2018, 7.0 percentage points higher than in the baseline.
  - The debt ratio would decline to 47.7 percent in 2022.

### Overall risk assessment
- The key risk to public debt is assessed to be originating from contingent liabilities, and low growth.

### External debt sustainability
- (No additional details provided in the supplied content.)

*Source: cr1819 - 24.8 percentage points higher relative to the baseline. At the end of the projection horizon,*

### 4.      Malta’s external position remains strong, notwithstanding a very large gross external

### Malta’s external position remains strong, notwithstanding a very large gross external debt

### External position and NIIP
- Malta’s gross external debt stood at 873 percent of GDP in 2016.
- Large amounts of external assets more than cover the gross external debt.
- Malta has been building a very large NIIP surplus, on the back of current account surpluses, which are projected to continue boosting external assets in the medium term.
- External liabilities include large amounts of stable inter-company lending and liabilities of offshore institutions (banks and nonbanks) that have little connection to domestic residents and are unlikely to spill potential vulnerability into the domestic economy.

### Key public debt and fiscal projections (Public DSA – baseline)
- Nominal gross public debt (in percent of GDP): 2015: 66.1; 2016: 60.3; 2017: 57.7; 2018: 54.2; 2019: 50.1; 2020: 47.3; 2021: 44.4; 2022: 42.4; 2023: 41.2 (table shows series through 2022).
- Public gross financing needs (in percent of GDP): 2015: 4.6; 2016: 4.6; 2017: 5.9; 2018: 8.8; 2019: 4.9; 2020: 5.1; 2021: 5.0; 2022: 4.5; 2023: 3.6; 2024: 5 (table format).
- Real GDP growth (in percent) projections: 2015: 3.0; 2016: 7.2; 2017: 5.5; 2018: 6.8; 2019: 5.7; 2020: 4.6; 2021: 4.0; 2022: 3.5; 2023: 3.2.
- Inflation (GDP deflator, in percent): 2015: 2.6; 2016: 2.3; 2017: 1.5; 2018: 1.8; 2019: 2.1; 2020: 2.0; 2021: 2.0; 2022: 2.0.
- Nominal GDP growth (in percent): 2015: 5.7; 2016: 9.7; 2017: 7.1; 2018: 8.7; 2019: 7.8; 2020: 6.7; 2021: 6.1; 2022: 5.6; 2023: 5.3.
- Effective interest rate (in percent): 2015: 5.0; 2016: 4.2; 2017: 3.9; 2018: 3.8; 2019: 3.5; 2020: 3.4; 2021: 3.2; 2022: 3.3; 2023: 3.0.
- Change in gross public sector debt (annual, in percent of GDP): 2015: -0.7; 2016: -3.5; 2017: -2.6; 2018: -3.5; 2019: -4.1; 2020: -2.8; 2021: -3.0; 2022: -1.9; cumulative through projection: -16.5.
- Identified debt-creating flows (cumulative): -24.3.
- Primary deficit (in percent of GDP, annual series shown): 2015: -0.5; 2016: -1.3; 2017: -3.3; 2018: -3.4; 2019: -2.6; 2020: -2.4; 2021: -2.2; 2022: -2.1; cumulative primary deficit: -14.8.
- Primary (noninterest) revenue (in percent of GDP): 2015: 39.1; 2016: 40.1; 2017: 39.2; 2018: 39.6; 2019: 38.9; 2020: 38.7; 2021: 38.4; 2022: 38.4; cumulative: 32.3.
- Primary (noninterest) expenditure (in percent of GDP): 2015: 38.6; 2016: 38.8; 2017: 35.9; 2018: 36.2; 2019: 36.3; 2020: 36.3; 2021: 36.2; 2022: 36.2; cumulative: 17.6.
- Automatic debt dynamics contribution (cumulative): -9.5.
- Real interest rate contribution (percent points): 2015: 1.5; 2016: 1.0; 2017: 1.3; 2018: 1.0; 2019: 0.7; 2020: 0.6; 2021: 0.5; 2022: 0.5; cumulative: 3.7.
- Real GDP growth contribution (percent points): 2015: -1.9; 2016: -4.2; 2017: -3.1; 2018: -3.6; 2019: -2.8; 2020: -2.2; 2021: -1.8; 2022: -1.5; cumulative: -13.2.
- Residual, including asset changes (cumulative): 7.8 (table shows series across years summing to 7.8).

### Public DSA alternative scenarios and stress tests
- Alternative scenario assumptions excerpt:
  - Historical scenario real GDP growth (percent): 2017–2022: 6.8, 3.8, 3.8, 3.8, 3.8, 3.8.
  - Constant Primary Balance scenario primary balance (percent of GDP): 3.4 across 2017–2022.
- Stress test scenarios shown: Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Shock; Contingent Liability Shock.
- Example stress-test outcome snapshots (gross nominal public debt in percent of GDP shown across scenarios for 2017–2022 in figures; detailed series plotted in figures).

### External debt sustainability (EDSF) highlights and key indicators
- Baseline net external debt (in percent of GDP) path excerpt: 2012 through projections—Baseline: -477.7 (2012), -375.4, -303.5, -257.8, -222.0, -224.9, -227.0, -230.3, -233.4, -236.4, -239.3 (table shows series through 2022 with change in external debt of -10.0 cumulative).
- Change in external debt (annual): 16.5; 102.4; 71.9; 45.7; 35.7; -2.9; -2.0; -3.3; -3.1; -3.0; -2.9 (series for 2012–2022).
- Identified external debt-creating flows (cumulative): -75.8; -21.0; -16.9; 45.8; -0.9; -17.6; -14.7; -15.2; -15.6; -16.2; -16.4.
- Current account deficit, excluding interest payments (in percent of GDP, annual): -12.5; -9.9; -0.7; -2.3; 1.1; -12.6; 11.7; 5.6; 4.1; 3.2; 2.4; 1.9; 1.7 (table lists historical and projection values).
- Deficit in balance of goods and services (in percent of GDP): -4.9; -6.3; -12.0; -7.4; -11.3; -16.0; -16.2; -16.6; -17.1; -17.6; -18.2.
- Net non-debt creating capital inflows (negative values recorded): -97.6; -47.8; -44.1; 22.5; -11.5; -21.0; -16.5; -15.8; -15.4; -15.2; -15.1.
- Automatic debt dynamics (contribution, percent points): 9.3; 16.9; 26.5; 21.0; 11.6; 9.0; 5.9; 3.8; 2.2; 0.9; 0.3.
- Contribution from nominal interest rate (percent points): -14.2; -12.5; -9.5; -6.9; -5.5; -4.7; -5.4; -6.0; -6.5; -6.8; -6.9.
- Contribution from real GDP growth (percent points): 13.3; 19.9; 27.6; 23.8; 13.3; 13.7; 11.3; 9.8; 8.7; 7.8; 7.3.
- Residual, including change in gross foreign assets (annual series): 92.3; 123.4; 88.8; -0.1; 36.7; 14.7; 12.6; 11.9; 12.5; 13.3; 13.5.
- External debt-to-exports ratio (in percent): -288.5; -238.9; -203.8; -179.6; -157.6; -165.9; -172.3; -177.4; -181.6; -185.2; -188.4.
- Gross external financing need (in billions of US dollars): 8.4; 6.6; 7.7; 17.7; 8.4; 1.2; 3.2; 3.2; 2.9; 2.5; 2.1 (table shows series 2012–2022).
- Gross external financing need (in percent of GDP): 91.5; 65.2; 68.5; 172.3; 76.1; 10-Year; 10-Year; 9.5; 23.4; 22.0; 18.5; 15.5; 12.4 (table lists various decade comparisons).
- Scenario with key variables at their historical averages projects external debt path down to -224.9; -274.2; -314.8; -353.4; -389.0; -423.6; -56.2 (table format shows longer-run scenario).

### Data, statistics, and coverage notes
- Data provision is adequate for surveillance purposes; Malta has subscribed to the SDDS since December 1, 2009.
- National accounts compiled in accordance with ESA 2010 since October 2014; effect on 2010 GDP level: upward revision of 0.5 percent.
- Quarterly national accounts data released with about a two-month lag; monthly retail/consumer prices, labor market indicators, and tourism arrivals released monthly with a short lag.
- National accounts data have been subject to substantial revisions affecting several years; reasons include large statistical discrepancies (captured under changes in inventory stocks) and revisions of deflators.
- External sector statistics: summary data (current account balance and selected financial account data) released quarterly with a lag of about three months; more detailed BOP and IIP data released quarterly (IIP sometimes with about one-year lag).
- Malta transitioned to BPM6 and revised estimates back to 2004; BPM6 implementation and backcasting entailed a series of data revisions recently.
- Table of common indicators (as of December 31, 2017) shows latest-observation dates and reporting frequencies for exchange rates, international reserve assets, central bank balance sheet, consolidated banking system balance sheet, interest rates, CPI, government finance, external current account balance, exports/imports, GDP/GNP, gross external debt, and IIP.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1819.pdf_