## 1. Recovery from the Pandemic Crisis

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### Context and recent recovery
- Real GDP grew by 11¾ percent in 2021, the second highest in the euro area.
- Output recovered to its pre-pandemic level by end-2021.
- For the first three quarters of 2022, output grew by 7½ percent (y/y).
- Tourist arrivals recovered to around 85 percent of 2019 levels in the summer of 2022.
- Economic sentiment indicators show signs of moderation in activity in late 2022.

### Labor market and wages
- Employment growth: 4.4 percent y/y in October 2022.
- Unemployment rate: 3.1 percent.
- Net immigration inflows have yet to fully return to pre-pandemic levels.
- Government announced COLA adjustment of €9.9 per week (equivalent to 5 percent of the minimum wage) in 2023 — the highest increase since 1990.
- Wage pressures remained contained relative to past records.

### Inflation and external openness
- Headline HICP inflation: 7.3 percent in December 2022 (below euro area average of 9.2 percent).
- Core inflation (HICP excluding energy and unprocessed food): 7.6 percent y/y in October 2022 (euro area 6.4 percent y/y).
- Import-to-GDP ratio: exceeds 130 percent — large portion of core inflation is imported.

### Housing and construction
- House price growth: 7¼ percent y/y in H1 2022 (average 5.1 percent in 2021).
- Residential property prices increase since pandemic: 11½ percent (nominal GDP growth: 14.4 percent).
- Staff estimate: house prices broadly in line with fundamentals.
- Drivers: low mortgage rates, tax incentives, sharp increase in construction costs.

### Financial sector and credit
- NPLs: rose to 3½ percent in early 2020, fell to 3 percent subsequently.
- Loans previously under moratoria that turned non-performing: about 6 percent (contributing about 11 percent of stock of NPLs).
- Resident credit growth: 8.2 percent y/y in October 2022.
- Mortgage lending buoyant; credit to non-financial corporates picked up.
- Banks increased provisions due to elevated uncertainty and higher cost pressures for NFCs.
- Banks’ key metrics: Tier 1 capital ratio around 20 percent (core and non-core banks); liquidity coverage ratio around 360 percent.
- Banks’ total assets: 278 percent of GDP (about €43 billion) at June 2022; core domestic banks account for 66 percent of sector assets.
- Loan-to-deposit ratio: around 60 percent.

### External sector and current account
- Current account deficit: 5 percent of GDP in 2021 (up from 3 percent in 2020).
- In 2022 CA expected: deficit of 3.6 percent of GDP (staff assessment).
- Goods balance deteriorated; services surplus increased (tourism recovery, strong gaming exports).
- Medium-term: external position in 2022 expected broadly in line with fundamentals.

### Outlook and risks
- GDP growth projections: 6½ percent in 2022; projected to slow to 3¼ percent in 2023 (staff) / 3.3 percent in Table 1.
- Inflation: expected to peak in Q4 2022, then decline to around 3¼ percent by end-2023.
- Medium-term potential growth: 3½ percent of GDP.
- Positive output gap in 2022 expected to mostly close by 2024.
- Downside risks include:
  - abrupt global slowdown or recession, including an EU recession from a complete gas shutoff by Russia;
  - increased cyber threats from the war in Ukraine;
  - possible de-anchoring of inflation expectations forcing tighter ECB policy;
  - local outbreaks of vaccine-resistant COVID-19 variants;
  - domestic higher wage pressure producing persistent inflation;
  - uncertainty about corporate income tax changes reducing FDI and fiscal revenues;
  - high ML/TF risks in sectors such as gaming and virtual asset providers affecting correspondent banking relations and FDI.
- Upside scenario: easing of global commodity price pressures; coordinated Next Generation EU implementation could add an estimated ½–1 percentage point of GDP by 2026 (including EU spillovers).

*Source: 1mltea2023001 - 1. Recovery from the Pandemic Crisis (IMF).*

### Fiscal developments (highlights and selected figures)
- Fiscal deficit 2021: 7.8 percent of GDP (significantly lower than budget forecast of 12 percent of GDP).
- Budget measures in 2022: mitigation for higher energy and food prices amounting to 2½ percent of GDP; COVID-19-related support measures 1¾ percent of GDP.
- For first ten months of 2022: revenue collections robust; bulk of COVID-19 support measures withdrawn.
- Staff expect fiscal deficit to narrow to 5½ percent of GDP in 2022.
- Fiscal table excerpts (percent of GDP): Revenue 36.3, 36.4, 36.7, 36.3, 38.1, 35.7; Expenditure 35.7, 46.0, 48.7, 44.2, 43.6, 41.1; Overall balance 0.6, -9.6, -12.0, -7.8, -5.4, -5.4; Primary balance 1.9, -8.3, -10.8, -6.7, -4.4, -4.3; Structural balance 0.3, -6.3, -9.6, -7.4, -4.9, -6.1; Public debt 40.3, 53.0, 65.0, 55.2, 58.6, 56.6.
- Memorandum: COVID-19 related fiscal measures 5.0, 5.3, 4.7, 1.6, 1.9; Energy and food subsidies 1.4, 2.3; Total...5.0, 5.3, 4.7, 3.0, 4.2.

### Fiscal tightening, 2023 projections and medium-term targets
- Staff project overall deficit to reduce from 5½ percent of GDP in 2022 to 5 percent of GDP in 2023.
- Improvement of the primary structural balance of about one percentage point projected for 2023.
- Energy and food subsidies quantified as 3½ percentage points of GDP for 2023.
- Social spending measures for vulnerable households quantified as ½ percentage points of GDP.
- Authorities committed to:
  - keeping debt-to-GDP ratio below 60 percent;
  - reducing deficit to below 3 percent of GDP by 2025.
- Staff project structural balance remains in deficit through 2027 (compared to a pre-pandemic surplus).
- Sizable contingent liabilities: around 7½ percent of GDP in 2022 (notably related to SOEs such as Air Malta and state-owned energy companies).

### Selected staff and authorities fiscal estimates (preserved figures)
- Revenue: 36.3 (2021); 35.7 (Staff 2023); 36.3 (Budget 2023); 35.7 (Staff 2023); 36.3
- Expenditure: 44.2 (2021); 41.1 (Staff 2023); 42.1 (Budget 2023); 40.7 (Staff 2023); 41.9
- Overall balance: -7.8 (2021); -5.4 (Staff 2023); -5.8 (Budget 2023); -5.0 (Staff 2023); -5.5
- Primary balance: -6.7 (2021); -4.3 (Staff 2023); -4.7 (Budget 2023); -3.8 (Staff 2023); -4.3
- Structural balance: -7.4 (2021); -6.1 (Staff 2023); -5.9 (Budget 2023); -4.3 (Staff 2023); -5.3
- Primary structural balance: -6.3 (2021); -5.0 (Staff 2023); -4.8 (Budget 2023); -4.3 (Staff 2023); -4.1
- Public debt: 55.2 (2021); 56.6 (Staff 2023); 57.0 (Budget 2023); 58.5 (Staff 2023); 59.1

### Revenue mobilization and tax policy recommendations
- Reform taxation of multinational firms in line with Pillar II of the global agreement on corporate tax reform.
- Use reform opportunity to modernize corporate and personal income taxes and reform revenue administration to:
  - improve efficiency of the tax system;
  - reduce administration and compliance costs.
- Leverage IMF technical assistance.
- Address relatively low revenue mobilization, high reliance on corporate income tax, and large tax arrears.
- Revenue administration transformation program 2023–2025 launched to reorganize the Office of the Commissioner for Revenue and implement a digital business model.
- Additional reforms: implement a risk-based approach to compliance and establish a large taxpayer office.

### Expenditure efficiency and public investment
- Intention to streamline current spending, including measures to contain growth of the wage bill, while maintaining a relatively high level of capital spending.
- Spending review priority to:
  - assess durability of departmental budget cuts;
  - identify scope for rationalizing recurrent spending.
- IMF technical assistance under preparation.
- Efficiency review of social spending recommended; Malta’s spending on education among highest in EU while early school leavers also among highest.

### Corporate income tax reform impact
- Malta statutory CIT rate: 35 percent (flat rate).
- Full imputation system allows shareholders to deduct 6/7th of tax paid in Malta, reducing effective CIT rate to five percent.
- Because few large multinationals (above 750 million euros in global sales) operate in Malta, potential revenue loss from Pillar II reform estimated at ¾ percent of GDP (2¾ percent of total revenues).
- Details at EU and OECD level remain unsettled; uncertainty about full impact remains.

### Demographics and pensions
- 2021 EC Aging Report: Malta among top five EU countries with high projected increase in pension spending.
- Aging costs simulated: broadly flat until 2040 at around 18 percent of GDP, accelerate to 26 percent of GDP by 2070.
- Projections sensitive to assumptions on retired migrants.
- Recommendations: monitor migration patterns; consider raising effective retirement age; promote voluntary occupational and personal pensions.

### Public investment and green transition
- Public investment scaled up since pandemic; projected to remain above 4 percent of GDP over medium term.
- Recovery and Resilience Plan (RRP) quantified as 2¼ percent of GDP to support green transition and capacity through reforms.
- Use IMF’s Climate-Public Investment Management Assessment to strengthen infrastructure governance and public investment efficiency.

### Energy sector, policy response, and exit options
- Energy profile:
  - LNG provides 80 percent of energy production;
  - Other fossil fuels 12 percent;
  - Renewables 8 percent.
- Interconnector with Italy: only direct link to EU energy market.
  - Local power generation (LNG) supplies 70 percent of total electricity consumption; renewables 10 percent; interconnector 20 percent.
- Long-term fixed-price LNG contract (first leg fixed price from 2015) expired in March 2022; LNG importation now indexed to Brent.
- Government froze retail electricity and fuel prices; state fully compensates losses of state-owned energy companies.
- Fiscal cost of freeze: energy sector subsidies expected to increase from 2½ percent of GDP in 2022 to 3½ percent of GDP in 2023.
- Central Bank of Malta model: a 10 percent increase in electricity and fuel prices → close to a one percentage point increase in HICP inflation and about 0.2 percentage points decrease in GDP in the short term.

Exit options (prepare to roll out ahead of winter 2023/24):
- Adjust fuel prices to better reflect import prices in line with pre-crisis practices.
- For household electricity:
  - allow greater passthrough of market prices with targeted cash transfers to low-income and, to a lesser extent, middle-income households;
  - alternatively, make tariff structure more progressive so subsistence consumption priced below marginal cost.
  - Note: currently no framework exists to provide targeted cash transfers to individuals not on social assistance programs.
- For business electricity consumers:
  - allow greater passthrough of market prices;
  - provide temporary, conditional support to energy-intensive firms tied to energy efficiency efforts.
- Introduce a peak demand electricity charge for households and firms.
- Accelerating the green transition identified as the best way to strengthen resilience to energy shocks.
- Communicate the approach early and clearly to ease transition.

### Energy sector constraints and plans
- Renewable energy share among lowest in euro area.
- Studies underway for large-scale offshore windfarms; government soliciting investors’ interest.
- Potential cross-border collaboration (e.g., investing in renewables in Italy).

### Annex V energy statistics (preserved figures)
- Energy production share: LNG 80 percent; other fossil fuels 12 percent; renewable energy 8 percent.
- Local power generation provides 70 percent of total electricity consumption; renewables 10 percent; interconnector 20 percent.

### Financial stability, insurance, and climate stress testing
- Household sector net asset position: 148 percent of GDP; liabilities: 59 percent of GDP; variable rate mortgages account for 80 percent of total.
- NFC sector indebtedness: around 218 percent of GDP (2022:Q2) unconsolidated; consolidated excluding intracompany loans and trade credits: about 76 percent (2022:Q2).
- NFC financial asset holdings: 150 percent; intracompany loans account for 42 percent of total corporate debt.
- Insurance sector:
  - domestic life insurance assets: 25 percent of GDP;
  - solvency capital requirement: 186.8 percent in 2020, rising to 218.1 percent in 2021.
  - Half of assets invested in collective investment undertakings and government bonds; equity and corporate bonds ~30 percent of assets.
- CBM climate stress test assumptions:
  - carbon tax introduction;
  - significantly lower or negative GDP growth;
  - surge in oil prices: assumed US$71 per barrel higher than baseline in first year, US$112 in second year, US$157 in third year;
  - additional 25 percentage-point risk-weight on NFCs in energy-intensive sectors.
- Stress test result: Tier 1 capital ratio falls to 15 percent under scenario (regulatory minimum 6 percent).
- Authorities encouraged to develop a framework to assess banking sector resilience to physical climate risk and model second-round effects on NFCs.

### Supervisory and macroprudential recommendations
- Continue vigilant monitoring:
  - ensure banks update assessments and provisions for expected losses;
  - closely monitor credit quality, particularly NPLs among loans previously under moratoria;
  - monitor households’ creditworthiness and housing market developments given mortgage concentration and high proportion of variable rate loans;
  - closely monitor cyber security risks.
- Macroprudential:
  - borrower-based measures (LTV and DSTI limits) in place per 2019 FSAP recommendations;
  - countercyclical capital buffer (CCyB): currently set at zero (appropriate given negative overall credit-to-GDP gap and weak NFC credit growth);
  - CBM conducting cost-benefit analysis of introducing a sectoral systemic risk buffer (SyRB) targeting mortgage loans.

### AML/CFT and governance
- Malta successfully exited FATF’s grey list (June 2022 removal) reflecting high-level political commitment.
- Progress made in:
  - improving beneficial ownership information;
  - applying sanctions for non-compliance by companies and gatekeepers;
  - enhancing use of financial intelligence to pursue tax-based money laundering cases.
- Resources for AML/CFT supervisors boosted; new national AML/CFT strategy for 2021–2023 adopted.
- Ongoing National Risk Assessment (NRA) involves authorities and private sector.
- Continue close monitoring for high-risk sectors: virtual financial assets, gaming, Citizenship by Investment program.
- Strengthen effectiveness of supervisory sanctions.

### Governance and structural reforms
- Progress:
  - Gradual transfer of prosecuting functions from police to Attorney General’s Office (AG);
  - Introduction of judicial reviews for non-prosecution by the AG;
  - Adoption of National Anti-Fraud and Corruption Strategy and increased resources to investigative/prosecution bodies;
  - Launch of Digital Justice Strategy in December 2021.
- Remaining needs:
  - Reform the appointment process of the Chief Justice;
  - Enhance efficiency of AG and Office of the State Advocate;
  - Reduce length of proceedings and investigations of high-level corruption cases;
  - Strengthen asset declaration system.
- GRECO Fifth Evaluation Round Compliance Report (September 2021): 2 out of 23 recommendations implemented satisfactorily; 12 partly implemented; 9 not implemented.

### Structural reform priorities and RRP
- Pre-pandemic growth averaged 6½ percent in 2016–19 (EU average 2¼ percent).
- Labor productivity growth was negative pre-pandemic.
- RRP grants: €258.3 million (1¾ percent of GDP) under EU Recovery and Resilience Facility.
- RRP priorities: green transition, digital transition (public sector focus), health sector resilience, education, labor markets, pensions, judiciary reforms.
- RRP implementation underway; first payment requested in December 2022.
- Digital performance: Malta ranked sixth out of 27 in EU 2022 Digital Economy and Society Index.
- Weak spots: low number of STEM graduates (particularly women), low digital intensity in SMEs, weak technical skills.
- Labor policies: October 2021 employment plan to upskill labor force, create incentives to delay retirement, foster participation via flexible working, attract foreign workers in short term.
- Insolvency reform: New Insolvency Practitioners Act and Pre-Restructuring Act tabled in Parliament.

### Tourism sustainability
- Multiple hotel projects in pipeline could require tourist arrivals to nearly double to remain profitable — risks to sustainable development.
- Recommendation: shift focus from volume to increasing value-added in an economically, environmentally, and socially cohesive way (Malta Tourism Strategy 2021–2030).

### Poverty, inequality, and social policy
- At-risk-of-poverty and social exclusion rate increased by 0.4 percentage points in 2021; income inequality increased by 0.3 percentage points in 2021.
- Higher inflation may worsen these indicators, particularly affecting low-income individuals and elders.
- 2023 Budget introduced additional measures to support vulnerable groups.
- Authorities should monitor inflation’s impact on poverty and inequality and evaluate tax and benefit adequacy.

### Authorities’ views (summary)
- Agree with staff: output growth will slow in 2023; high import dependence adds inflationary pressures; risks tilted to the downside.
- Emphasize continuing fixed energy price policy to contain inflation, promote price stability, avoid rising inequality and poverty, and support growth.
- Plan to withdraw energy subsidies once crisis ends; seek to increase hedging coverage of LNG imports; progressive household energy price structure already in place.
- Committed to medium-term fiscal consolidation; aim to reduce overall deficit below 3 percent of GDP by 2025 while keeping debt below 60 percent of GDP.
- Support strengthening revenue administration, simplifying tax system, launching a spending review, and strengthening public investment management.
- Consider financial system sound with adequate capital and liquidity buffers, low NPL ratios, and high loan provisions; emphasize strengthening supervisory engagement and cyber risk resources.
- Reiterate commitment to structural reforms in labor markets, education, research and innovation, and digital transformation of SMEs; support environmentally and socially sustainable tourism.

### Staff appraisal — key recommendations
- Energy policy: prepare exit strategy from fixed-energy-price policy while protecting vulnerable groups; roll out options ahead of winter 2023/24; accelerate green transition.
- Fiscal and tax: fiscal tightening in 2023 appropriate but additional measures needed for medium-term consolidation; mobilize revenues and enhance spending efficiency; reform taxation of multinationals in light of Pillar II and modernize revenue administration.
- Financial vigilance: continue close monitoring of banks, update provisions, consider sectoral SyRB targeting mortgage loans, strengthen cyber resilience.
- AML/CFT: continue strengthening effectiveness; maintain boosted resources; demonstrate effectiveness of supervisory outcomes and sanctions.
- Structural reforms: address labor skill mismatches, increase STEM graduates, enhance vocational training, promote research and innovation, advance digital transformation of SMEs, continue Low Carbon Development Strategy implementation.

### Recommendation on Article IV cycle
- It is recommended that the next Article IV consultation be held in the standard 12-month cycle.

### Selected macro projections and fiscal path (preserved figures)
- Real GDP (y/y percent): 2020: -8.6; 2021: 11.7; 2022: 6.5; 2023: 3.3; 2024: 3.6; 2025–2028: 3.5 each year.
- HICP (period average): 2020: 0.8; 2021: 0.7; 2022: 6.1; 2023: 5.2; 2024: 2.8; 2025–2028: 2.1–2.0.
- Nominal GDP (millions of euros): 2020: 13,164; 2021: 14,983; 2022: 16,654; 2023: 17,798; 2024: 18,694; 2028: 23,047.
- General government balance (overall net lending/borrowing, percent of GDP): 2020: -9.6; 2021: -7.8; 2022: -5.4; 2023: -5.0; 2024: -4.0; 2025: -2.8; 2026: -2.2; 2027: -2.2; 2028: -2.1.
- Structural overall balance (percent of potential GDP): 2020: -6.3; 2021: -7.4; 2022: -6.1; 2023: -5.5; 2024: -4.3; 2025: -3.0; 2026: -2.3; 2027: -2.2; 2028: -2.1.
- Public debt (percent of GDP): 2020: 53.0; 2021: 55.2; 2022: 56.6; 2023: 58.5; 2024: 59.6; 2025: 59.3; 2026: 58.8; 2027: 58.5; 2028: 57.9.

### External sector assessment (selected metrics from Annex III and Annex VI)
- 2022 (% GDP): N IIP: 38.2; Gross assets: 1,942; Gross liabilities: 1,904.
- Current account (percent of GDP): 2020: -2.8; 2021: -4.5; 2022: -3.6; 2023: -3.5; 2024: -3.6; 2028: 0.6.
- CA assessment: Actual CA -3.6; Adj. CA -1.4; CA Norm -3.0; Adj. Norm -0.6; CA gap -0.8; Policy Gap 1.6 (2022).
- REER: CPI-based REER depreciated by 4.0 percent during first three quarters of 2022; EBA-lite model points to small REER overvaluation of about 0.9 per cent for 2022.
- Gross external debt (percent of GDP): 2020: 671.4; 2021: 620.7; 2022: 554.8; 2023: 515.7; 2028: 392.4.
- Net external debt (percent of GDP): 2020: -165.1; 2021: -139.9; 2022: -139.0; 2023: -138.1; 2028: -136.0.
- Services exports (Travel, percent of GDP): 2020: 2.6; 2021: 4.0; 2022: 8.2.
- Services exports (Non-Travel, percent of GDP): 2020: 104.5; 2021: 100.6; 2022: 93.8.

### Risk Assessment Matrix (selected relative likelihoods and policy responses)
- Intensifying spillovers from Russia’s war in Ukraine: Relative Likelihood: High; Time horizon: ST/MT; Impact: Medium; Policy response: Stand ready with fiscal and financial support; maintain structural reform momentum.
- Abrupt global slowdown or recession: Relative Likelihood: High; Time horizon: ST/MT; Impact: High/Medium; Policy response: Tighten fiscal policy; intensify financial supervision.
- De-anchoring of inflation expectations and stagflation: Relative Likelihood: Medium; Time horizon: ST/MT; Impact: High/Medium; Policy response: Tighten fiscal policy; intensify financial supervision.
- Cyber-attacks: Relative Likelihood: Medium; Time horizon: ST/MT; Impact: Medium; Policy response: Strengthen cybersecurity framework.
- Realization of ML/TF risks in high-risk sectors: Relative Likelihood: Medium; Time horizon: ST/MT; Impact: Medium; Policy response: Continue AML/CFT reforms and monitoring.
- Sharp correction in house prices: Relative Likelihood: Low; Time horizon: ST/MT; Impact: Low; Policy response: Close monitoring and readjust macroprudential measures.
- Possible changes in international taxation: Relative Likelihood: Medium; Time horizon: ST/MT; Impact: Medium; Policy response: Strengthen spending efficiency and revenue administration; holistic tax review.

*Source: IMF staff compilation from Annex I–V of 1mltea2023001 (IMF Malta Article IV documentation).*

### 1. Recovery from the Pandemic Crisis __________________________________________________________________ 25

### 1. Recovery from the Pandemic Crisis

### Context and recent recovery
- The Maltese economy rebounded strongly since the deep pandemic recession, with decisive government support mitigating the fallout.
- Real GDP grew by 11¾ percent in 2021, the second highest in the euro area, driven largely by remote gaming, information and communications technology (ICT), and professional services.
- Output recovered to its pre-pandemic level by end-2021.
- For the first three quarters of 2022, output grew by 7½ percent (y/y), driven by strong net exports and private consumption.
- Tourist arrivals recovered to around 85 percent of 2019 levels in the summer of 2022 after all COVID-19-related restrictions were lifted by July.
- Economic sentiment indicators show signs of moderation in activity in late 2022.

### Labor market and wages
- Employment growth remained robust at 4.4 percent y/y in October 2022.
- The unemployment rate remained low at 3.1 percent.
- Net immigration inflows have yet to fully return to pre-pandemic levels; inflows of foreign workers have fully recovered while outflows have increased.
- Wage pressures remained contained relative to past records.
- The government announced a cost-of-living (COLA) adjustment of €9.9 per week (equivalent to 5 percent of the minimum wage) in 2023, the highest increase since its inception in 1990.

### Inflation and external openness
- Headline HICP inflation was 7.3 percent in December 2022, below the euro area average of 9.2 percent, partly because electricity and fuel prices have been administratively frozen.
- Core inflation in October 2022 (HICP excluding energy and unprocessed food) was 7.6 percent y/y, higher than 6.4 percent y/y in the euro area.
- Malta’s import-to-GDP ratio exceeds 130 percent, making a large portion of core inflation imported.

### Fiscal developments
- The fiscal deficit in 2021 was 7.8 percent of GDP, significantly lower than the budget forecast of 12 percent of GDP due to lower-than-expected spending.
- Budget measures in 2022 included mitigation for higher energy and food prices (amounting to 2½ percent of GDP) and COVID-19-related support measures (1¾ percent of GDP) (Annex II).
- For the first ten months of 2022, revenue collections remained robust while the bulk of COVID-19 support measures were withdrawn, contributing to lower expenditure.
- Staff expect the fiscal deficit to narrow further to 5½ percent of GDP in 2022.
- Fiscal table excerpts (percent of GDP): Revenue 36.3, 36.4, 36.7, 36.3, 38.1, 35.7; Expenditure 35.7, 46.0, 48.7, 44.2, 43.6, 41.1; Overall balance 0.6, -9.6, -12.0, -7.8, -5.4, -5.4; Primary balance 1.9, -8.3, -10.8, -6.7, -4.4, -4.3; Structural balance 0.3, -6.3, -9.6, -7.4, -4.9, -6.1; Public debt 40.3, 53.0, 65.0, 55.2, 58.6, 56.6.
- Memorandum items: COVID-19 related fiscal measures 5.0, 5.3, 4.7, 1.6, 1.9; Energy and food subsidies 1.4, 2.3; Total...5.0, 5.3, 4.7, 3.0, 4.2.

### Financial sector and credit
- Banks have weathered the pandemic with ample capital and liquidity buffers and extensive government support for borrowers.
- Nonperforming loans (NPLs) increased slightly to 3½ percent in early 2020 but have since fallen to 3 percent.
- A relatively high share of loans previously under moratoria has turned non-performing (about 6 percent), contributing to about 11 percent of the stock of NPLs.
- Resident credit growth remained robust at 8.2 percent y/y in October 2022: mortgage lending remained buoyant and credit to non-financial corporates recently picked up.
- Banks increased provisions recently due to elevated economic uncertainty and higher cost pressures for non-financial corporates (NFCs).

### Housing and construction
- House price growth accelerated to 7¼ percent y/y in the first half of 2022, up from 5.1 percent on average in 2021.
- Since the outbreak of the pandemic, residential property prices have risen by 11½ percent, below nominal GDP growth of 14.4 percent.
- Factors: low mortgage rates, tax incentives, and a sharp increase in construction costs.
- Staff estimates that house prices are broadly in line with fundamentals; real estate transactions remained broadly stable.

### External sector and current account
- The current account deficit was 5 percent of GDP in 2021, up from 3 percent of GDP in 2020.
- The goods balance deteriorated due mainly to equipment imports in the aviation sector, while the services surplus increased because of the partial recovery in tourism and strong gaming sector exports.
- In the first half of 2022, the current account deficit narrowed slightly as tourism exports recovered but imports increased due to higher prices.
- Malta’s external position in 2022 is expected to be broadly in line with the level implied by medium-term fundamentals and desirable policies (Annex III).

### Outlook and risks
- GDP growth is projected to slow from 6½ percent in 2022 to 3¼ percent in 2023 due to weaker external demand, lower growth in real wages, and a tighter fiscal stance.
- Inflation is expected to peak in Q4 2022 before decreasing gradually to around 3¼ percent by end-2023, supported by assumed moderation in global inflation and administratively fixed domestic energy prices.
- Medium-term potential growth is estimated at 3½ percent of GDP; the positive output gap in 2022 is expected to mostly close by 2024.
- Key structural constraints: labor shortages, infrastructure bottlenecks, lower hours worked relative to pre-pandemic levels, and the challenge of achieving a climate-neutral economy.
- Risks are tilted to the downside and include:
  - An abrupt global slowdown or recession, including an EU recession from a complete gas shutoff by Russia.
  - Increased cyber threats from the war in Ukraine.
  - A possible de-anchoring of inflation expectations forcing tighter ECB policy.
  - Local outbreaks of vaccine-resistant COVID-19 variants.
  - Domestically, higher wage pressure could produce persistent inflation; uncertainty about corporate income tax changes could reduce FDI and fiscal revenues; high ML/TF risks persist in sectors such as gaming and virtual asset providers, potentially affecting correspondent banking relations and FDI.
- Upside scenario: Sooner-than-expected easing of global commodity price pressures could boost growth; coordinated implementation of Next Generation EU could add an estimated ½–1 percentage point of GDP by 2026 (including spillovers in the EU).

### Policy discussions — Tackling the global energy price shock
- The government froze retail electricity and fuel prices in response to the global energy price shock, fully compensating losses of state-owned energy companies rather than passing price increases to consumers.
- A long-term fixed price contract for liquefied natural gas (LNG) had maintained stable retail energy prices at 2014 levels for many years; this contract expired in March 2022, causing a substantial increase in import gas prices under new contracts.
- The freeze has helped contain headline inflation and mitigated impacts on households and businesses, contributing to Malta having among the lowest inflation rates in the EU.
- Costs and drawbacks of the freeze:
  - Significant fiscal costs: energy sector subsidies expected to increase from 2½ percent of GDP in 2022 to 3½ percent of GDP in 2023, one of the highest in the EU.
  - Blunts incentives to adjust energy demand and invest in green energy.
  - Regressive: high-income individuals benefit more since they typically consume more energy.
- Central Bank of Malta model finding: A 10 percent increase in electricity and fuel prices would lead to close to a one percentage point increase in HICP inflation and about 0.2 percentage points decrease in GDP in the short term.
- Policy recommendation: Prepare an exit strategy from the fixed price policy to contain fiscal costs and introduce market price mechanisms while protecting vulnerable groups; options to explore include:
  - Adjusting fuel prices to better reflect import prices in line with pre-crisis practices.
  - For household electricity: allow greater passthrough of market prices with targeted cash transfers to low-income and, to a lesser extent, middle-income households. Note: currently no framework exists to provide targeted cash transfers to individuals not on social assistance programs.
  - Alternatively, make the tariff structure more progressive to reflect levels of consumption and marginal cost, pricing the subsistence level of consumption below marginal cost.
  - For business electricity consumers: allow greater passthrough of market prices, providing financial support to energy-intensive firms only on a temporary basis and conditional on efforts to increase energy efficiency.
  - Introduce a peak demand electricity charge for both households and firms.

*Source: 1mltea2023001 - 1. Recovery from the Pandemic Crisis (IMF).*

### 17.      The authorities should start preparing exit options with the aim of gradually rolling

### 17.      The authorities should start preparing exit options with the aim of gradually rolling them out ahead of winter 2023/24

### Exit options and green transition
- Prepare exit options to be gradually rolled out ahead of winter 2023/24.
- Over time, develop targeted transfers to individuals not on social assistance programs, for example:
  - lump sum transfers
  - tax credits
- Accelerating the green transition is identified as the best way to strengthen Malta’s resilience to an energy shock.
- Communicating the overall approach early and clearly will ease the transition.

### Fiscal tightening and 2023 projections
- Staff project a reduction in the overall deficit from 5½ percent of GDP in 2022 to 5 percent of GDP in 2023.
- Improvement of the primary structural balance of about one percentage point is projected for 2023.
- The increase in energy and food subsidies is quantified as 3½ percentage points of GDP.
- Various social spending measures for vulnerable households are quantified as ½ percentage points of GDP.
- If downside risk materializes, automatic stabilizers should continue to be allowed to operate in full.

### Fiscal buffers and medium-term targets
- Authorities committed to:
  - keeping the debt-to-GDP ratio to below 60 percent
  - reducing the deficit to below 3 percent of GDP by 2025
- Staff project the structural balance will remain in a deficit position through 2027 (compared to a surplus before the pandemic).
- Public debt is projected to hover just below 60 percent of GDP under staff’s baseline and could rise if:
  - growth underperforms
  - contingent liability materializes
- Sizable contingent liabilities cited: around 7½ percent of GDP in 2022, notably related to SOEs (e.g., Air Malta and state-owned energy companies).

### Malta: Staff and Authorities' Fiscal Estimates and Projections (selected figures preserved as in source)
- Revenue: 36.3 (2021), 35.7 (Staff 2023), 36.3 (Budget 2023), 35.7 (Staff 2023), 36.3
- Expenditure: 44.2 (2021), 41.1 (Staff 2023), 42.1 (Budget 2023), 40.7 (Staff 2023), 41.9
- Overall balance: -7.8 (2021), -5.4 (Staff 2023), -5.8 (Budget 2023), -5.0 (Staff 2023), -5.5
- Primary balance: -6.7 (2021), -4.3 (Staff 2023), -4.7 (Budget 2023), -3.8 (Staff 2023), -4.3
- Structural balance: -7.4 (2021), -6.1 (Staff 2023), -5.9 (Budget 2023), -4.3 (Staff 2023), -5.3
- Primary structural balance: -6.3 (2021), -5.0 (Staff 2023), -4.8 (Budget 2023), -4.3 (Staff 2023), -4.1
- Public debt: 55.2 (2021), 56.6 (Staff 2023), 57.0 (Budget 2023), 58.5 (Staff 2023), 59.1

### Revenue mobilization recommendations
- Reform taxation of multinational firms in line with Pillar II of the global agreement on corporate tax reform.
- Use the reform opportunity to modernize tax system covering corporate and personal income taxes and reform revenue administration to:
  - improve efficiency of the tax system
  - reduce administration and compliance costs
- Leverage IMF technical assistance.
- Address Malta’s relatively low revenue mobilization and high reliance on corporate income tax and large tax arrears.
- Recently launched: revenue administration transformation program 2023–2025 to reorganize the Office of the Commissioner for Revenue and implement a digital business model.
- Additional reforms: implement a risk-based approach to manage compliance risk and establish a large taxpayer office.

### Expenditure efficiency and spending review
- Intention to streamline current spending, including measures to contain growth of the wage bill, while maintaining a relatively high level of capital spending.
- Spending review is a priority to:
  - assess durability of planned departmental budget cut measures
  - identify scope for rationalizing recurrent spending
- IMF technical assistance is under preparation.
- Efficiency of social spending should be reviewed; example given:
  - Malta’s spending on education is among the highest in the EU, but so is its number of early school leavers.

### Corporate income tax reform impact
- Malta’s statutory CIT rate: 35 percent (a flat rate).
- Malta’s full imputation system allows shareholders to deduct 6/7th of the tax paid in Malta, reducing the effective CIT rate to five percent.
- Because there are few large multinationals (above 750 million euros in global sales) in Malta, potential revenue loss from the reform appears relatively contained at ¾ percent of GDP (2¾ percent of total revenues).
- Details of changes remain unsettled at the EU and OECD level; uncertainty about full impact remains.

### Demographics and pension spending risks
- 2021 EC Aging Report: Malta identified as one of the top five EU countries where projected increase in pension spending is high.
- Aging costs simulated to remain broadly flat until 2040 at around 18 percent of GDP but accelerate to 26 percent of GDP by 2070.
- Projections highly sensitive to assumptions regarding the number of retired migrants.
- Monitoring migration patterns is important when considering raising an effective retirement age and other reforms.
- Continue promoting voluntary occupational pensions and personal pensions.

### Public investment and green transition
- Public investment scaled up since pandemic and projected to remain above 4 percent of GDP over the medium term.
- Increasing share of foreign funding supports sustainability of investment.
- Malta’s Recovery and Resilience Plan quantified as 2¼ percent of GDP and will support green transition and capacity through reforms.
- Upcoming review of infrastructure investment and management framework should be informed by IMF’s Climate-Public Investment Management Assessment framework to strengthen infrastructure governance and public investment efficiency.

### Financial stability: system soundness and rising risks
- Banking sector metrics:
  - Tier 1 capital ratio of both core banks and non-core banks: around 20 percent
  - Liquidity coverage ratio: around 360 percent (the highest in the EU banking system)
  - Banks primarily domestic deposit funded
- Bank loans are highly collateralized.
- Direct linkages to Ukraine and Russia are small.
  - As of September 2022, Maltese banks’ loans to Russia and Ukraine: €4 million (0.02 percent of GDP) and €2 million (0.01 percent of GDP), respectively.
  - Deposits from Russia and Ukraine: €10 million (0.06 percent of GDP) and €2 million (0.01 percent of GDP), respectively.
- Household sector:
  - net asset position: 148 percent of GDP
  - liabilities: 59 percent of GDP
  - variable rate mortgages account for 80 percent of the total
- Nonfinancial corporate (NFC) sector:
  - indebtedness around 218 percent of GDP (2022:Q2) on unconsolidated basis
  - consolidated basis excluding intracompany loans and trade credits: about 76 percent (2022:Q2)
  - NFC financial asset holdings: 150 percent
  - intracompany loans account for 42 percent of total corporate debt

### Supervisory and macroprudential recommendations
- Continue vigilant monitoring of risks:
  - ensure banks update assessments and provisions for expected losses as economic prospects change
  - closely monitor credit quality, particularly NPLs among loans previously under moratoria
  - monitor households’ creditworthiness and housing market developments due to mortgage concentration and high proportion of variable rate loans
  - closely monitor cyber security risks
- Macroprudential policy:
  - borrower-based measures (loan-to-value and debt-service-to-income limits) are in place per 2019 FSAP recommendations
  - countercyclical capital buffer (CCyB) is currently set at zero, appropriate given negative overall credit-to-GDP gap and weak NFC credit growth
  - CBM’s stress tests suggest resilience to credit risks, including mortgage exposures
  - CBM conducting cost-benefit analysis of introducing a sectoral systemic risk buffer (SyRB) targeting mortgage loans

### Insurance sector and climate stress testing
- Domestic life insurance companies:
  - total assets amount to 25 percent of GDP (largest in non-bank financial sector)
  - solvency capital requirement: 186.8 percent in 2020 rising to 218.1 percent in 2021
  - invested half of assets in collective investment undertakings and government bonds
  - equity and corporate bond portfolios account for about 30 percent of assets
- Continued supervisory vigilance recommended to monitor insurance sector risks and interconnectedness with other financial institutions.
- CBM climate stress test scenario assumptions include:
  - introduction of a carbon tax
  - significantly lower or even negative GDP growth
  - a surge in oil prices (assumed US$71 per barrel higher than baseline in first year, US$112 in second year, and US$157 in third year)
  - introduction of additional 25 percentage-point risk-weight on NFCs in energy-intensive sectors
- Results: Tier 1 capital ratio falls to 15 percent under the scenario, above the minimum regulatory requirement of 6 percent.
- Authorities encouraged to:
  - develop framework to assess banking sector resilience to physical climate risk
  - introduce a module to model second-round effects on NFCs

### AML/CFT and governance reforms
- Successful exit from FATF’s grey list reflects high-level political commitment to AML/CFT reform.
- Progress made in:
  - improving beneficial ownership information and applying appropriate sanctions for non-compliance by companies and gatekeepers
  - enhancing use of financial intelligence to pursue tax-based money laundering cases
- Resources for AML/CFT supervisors have been boosted to support long-term sustainability of reforms.
- New national AML/CFT strategy for 2021–2023 adopted to enhance coordination and supervision.
- Ongoing National Risk Assessment (NRA) exercise involves authorities and private sector to develop policy recommendations based on identified threats and vulnerabilities.
- Close monitoring should continue for high-risk sectors, especially virtual financial assets, gaming, and sectors associated with Malta’s Citizenship by Investment program.
- Ensure effective implementation of supervisory sanctions.

*Source: IMF staff and Maltese authorities as presented in the source content.*

### 29.      Further strengthening of the governance framework is critical. Over the  past two years,

### Further strengthening of the governance framework is critical

### Governance and justice system reforms
- Progress over the past two years includes:
  - A gradual transfer of prosecuting functions from the police to the Attorney General’s Office (AG).
  - Introduction of judicial reviews for non-prosecution by the AG.
  - Adoption of the National Anti-Fraud and Corruption Strategy and allocation of increased resources to investigative and prosecution bodies.
  - Launch of Digital Justice Strategy in December 2021 to strengthen the justice system’s efficiency, effectiveness, and accessibility.
- Remaining needs:
  - Reform the appointment process of the Chief Justice.
  - Enhance the efficiency and effectiveness of the operation of the AG and the Office of the State Advocate.
  - Reduce the length of proceedings and investigations of high-level corruption cases.
  - Strengthen the asset declaration system.
- GRECO’s Fifth Evaluation Round Compliance Report for Malta (September 2021) findings:
  - Malta implemented 2 out of 23 recommendations satisfactorily, 12 recommendations partly implemented, and 9 not implemented.

### Re-invigorating structural reforms — overview and growth context
- Pre-pandemic growth and structure:
  - Growth averaged 6½ percent in 2016–19, versus EU average of 2¼ percent.
  - Strong growth driven largely by labor inputs, with increased reliance on foreign immigrants (European immigrants account for two thirds of the total).
  - Labor productivity growth was negative.
- Constraints and priorities:
  - Land and human resource constraints necessitate structural reforms to boost productivity and potential growth.
  - Challenges in achieving a climate-neutral economy and strengthening resilience to climate risks as a small state.

### Recovery and Resilience Plan (RRP)
- Malta will receive €258.3 million (1¾ percent of GDP) in grants under the EU Recovery and Resilience Facility.
- RRP priorities:
  - Facilitate green transition.
  - Accelerate digital transition (primarily focusing on the public sector).
  - Increase resilience and sustainability of the health sector.
  - Address challenges in education, labor markets, pension systems, and the judiciary system.
- Implementation status:
  - Implementation is underway; Malta requested the first payment in December 2022.

### Digital transformation and innovation
- Performance and weaknesses:
  - Malta ranked sixth out of 27 in the EU’s 2022 Digital Economy and Society Index.
  - Remaining weak spots include:
    - Low number of STEM graduates, particularly for women.
    - Low digital intensity in small and medium-sized enterprises.
    - Weak technical skills and human resources.
- Policy responses:
  - Adoption of the Smart Specialization Strategy for 2021–27 to channel public and private investments in priority areas, including digital technologies, and promote research and innovation.
  - Need to enhance collaboration between academia and the private sector.
  - Strengthen cybersecurity solutions at national and firm levels given increased cyber threats.

### Labor market, insolvency framework, and skills
- Labor market policies:
  - October 2021 employment plan to upskill the labor force, especially young workers; create incentives to delay retirement; foster participation through flexible working solutions; recognize need to attract foreign workers in short term.
  - Continued efforts needed in upskilling and reskilling, including support for industry-led training.
- Insolvency reform:
  - New Insolvency Practitioners Act and Pre-Restructuring Act tabled in Parliament, aligned with the European Directive on Restructuring and Second Chance.
  - Proposed reforms aim to establish an early warning system and improve efficiency of restructuring, insolvency, and debt discharge procedures.

### Climate change, adaptation policy, and energy
- Emissions and strategy:
  - Significant reduction in GHG emissions over the past decade due to shift from heavy fuel oil to natural gas in power generation.
  - National target: A 19 percent reduction in net territorial non-Exchange Trade System GHG emission relative to 2005 by 2030.
  - Abatement measures identified in the 2021 Low Carbon Development Strategy.
- Constraints and measures:
  - Challenges due to low overall energy intensity, temperate winter climate, limited land area, and high population density.
  - Studies underway for large-scale offshore windfarms; government actively soliciting investors’ interest.
  - Potential collaboration with other countries (e.g., investing in renewables in Italy) and offering Malta as a pilot case to test new carbon technologies.

### Tourism sector sustainability
- Risks and strategic orientation:
  - Multiple hotel projects in pipeline could require tourist arrivals to nearly double to keep businesses profitable, posing risks to sustainable development (labor shortages, infrastructure bottlenecks, social and environmental concerns).
  - Recommendation to shift focus from volume to increasing value-added in an economically, environmentally, and socially cohesive way, as set out in the Malta Tourism Strategy 2021–2030.
- Need for better-coordinated approach involving all stakeholders.

### Poverty, inequality, and social policy
- Recent indicators:
  - The at-risk-of-poverty and social exclusion rate and income inequality indicators increased slightly by 0.4 and 0.3 percentage points in 2021, respectively.
- Inflation impact and policy response:
  - Higher inflation may worsen these indicators, particularly for low-income individuals and elders whose pensions fall below the poverty line.
  - 2023 Budget introduced additional measures to support vulnerable groups.
  - Authorities should closely monitor inflation’s impact on poverty and inequality and evaluate the adequacy of the current tax and benefit system.

### Authorities’ views — summary of positions
- Outlook and risks:
  - Authorities agreed with staff that output growth will slow in 2023 due to the international environment and that high dependence on imports adds inflationary pressures; risks are to the downside.
  - Noted Malta’s tendency to outperform expectations due to competitiveness gains and export market share increases.
- Energy policy:
  - Authorities emphasize continuing fixed energy price policy to contain inflation, promote price stability, increase consumer confidence, avoid rising inequality and poverty, and support growth.
  - Plan to withdraw energy subsidies once the energy crisis ends; seeking to increase hedging coverage of LNG imports; progressive household energy price structure already in place.
  - Part of their strategy includes investments in renewables and soliciting interest in large-scale offshore windfarms.
- Fiscal stance:
  - Committed to medium-term fiscal consolidation; view moderate fiscal tightening in 2023 as appropriate.
  - Aim to reduce the overall deficit to below 3 percent of GDP by 2025 while keeping debt below 60 percent of GDP.
  - Support strengthening revenue administration, improving operational efficiency, reducing compliance costs, supporting the EU directive on the Pillar 2 model, simplifying the tax system, launching a spending review, and strengthening public investment management.
- Financial system and AML/CFT:
  - Consider the financial system sound with adequate capital and liquidity buffers, low NPL ratios, and high loan provisions.
  - Emphasize strengthening supervisory engagement and resources to address cyber risk.
  - Stress progress on AML/CFT issues, high-level political commitment to governance reform, improved information sharing from the National Risk Assessment, and continued monitoring of high-risk sectors.
- Structural reforms:
  - Agree on need for structural reforms in labor markets, education, research and innovation, and digital transformation of SMEs.
  - Reiterate commitment to environmentally and socially sustainable tourism developments.
  - Note implementation of the 2021 Low Carbon Development Strategy is well underway (including vehicle electrification and increased use of public transportation).
  - Legislative amendments to strengthen the insolvency framework expected to become effective in early 2023.
- Social measures:
  - Authorities noted the 2023 Budget addressed distributional impact of high inflation with measures supporting pensioners and lower income earners.

### Staff appraisal — findings and recommendations
- Macroeconomic outlook:
  - Malta’s recovery from the pandemic is remarkable, but Russia’s war in Ukraine weighs on the outlook.
  - Strong recovery continued into 2022 driven by high net exports and consumption; GDP growth set to slow in 2023; inflation expected to gradually decline but remain elevated; risks tilted to the downside.
- Energy policy recommendations:
  - Prepare an exit strategy from the fixed-energy-price policy while protecting vulnerable groups.
  - Exit strategy should contain fiscal costs, introduce market price mechanisms to enhance incentives for energy conservation, and help accelerate the green transition.
  - Authorities should explore reform options to roll them out ahead of winter 2023/24.
  - Accelerating the green transition is the best way to strengthen resilience to an energy shock.
- Fiscal and tax recommendations:
  - Fiscal tightening planned for 2023 is appropriate, but additional actions needed for medium-term consolidation.
  - Public debt projected to remain just below 60 percent of GDP, but could rise if growth underperforms or contingent liabilities materialize.
  - Authorities need additional measures to mobilize revenues and enhance spending efficiency over the medium term.
  - In light of Pillar II of the global corporate tax reform, reform taxation of multinational firms and consider broader tax and revenue administration reforms to simplify the system and reduce administration and compliance costs while protecting revenues.
  - Continue identifying scope for rationalizing recurrent spending and improving public investment efficiency, including green investments.
  - Monitor long-term demographic trends for pension planning and promote voluntary occupational and personal pensions.
- Financial sector vigilance:
  - Financial system remains sound but emerging risks warrant continued vigilance and close monitoring of banks.
  - Monitor banks’ risk management and ensure provisions are updated as economic prospects change.
  - Given large exposure to the housing market, consider introducing a sectoral systemic capital risk buffer targeting mortgage loans.
  - Continue efforts to monitor cyber security risks and strengthen resilience against cyberattacks.
- AML/CFT and supervisory effectiveness:
  - Continue strengthening effectiveness of AML/CFT framework; maintain boosted resources for AML/CFT supervisors for long-term sustainability.
  - Demonstrate effectiveness of supervisory outcomes, including effective implementation of sanctions.
  - Implement national AML/CFT strategy for 2021–2023 and the NRA exercise to enhance coordination and supervision.
  - Continue close monitoring of high-risk sectors, especially virtual financial assets, gaming, and sectors associated with the Citizenship by Investment program.
- Structural reform priorities:
  - Continue efforts to address labor skill mismatches, increase STEM graduates, enhance vocational training, promote research and innovation, and advance digital transformation of SMEs.
  - Foster labor force participation through incentives to delay retirement and flexible working solutions.
  - Continue implementing the 2021 Low Carbon Development Strategy and seek decarbonization potential by exploiting various sources, including investing in renewable sources.

*IMF staff report chapter.*

### 48.      It is recommended that the next Article IV consultation be held in the standard 12-

### 1mltea2023001 - 48.

### Recommendation
- It is recommended that the next Article IV consultation be held in the standard 12-month cycle.

### Recovery from the Pandemic: Activity and Demand
- New Covid cases picked up in the last summer but have since dropped.
- The Maltese economy rebounded strongly; recovery is uneven across demand components and across activities.
- Employment continued to grow robustly while inflation rose sharply.
- Key growth indicators (Real GDP, demand components) — percent change, compared to Q4 2019 and trends — are shown in Figure 1 (text descriptions above).

### Short-Term Indicators and Sentiment
- Economic sentiment weakens after a strong recovery; consumer confidence and business sector uncertainty have weakened.
- Capacity utilization and export expectations have decreased.
- Consumer goods production recovered to pre-pandemic levels; capital and intermediate goods production continue expanding.
- The tourism sector continues to recover from the pandemic shock.

### Fiscal Developments and Projections (highlights)
- The fiscal balance deteriorated sharply reflecting COVID-19 related expenditures, leading to a sharp rise in the public debt ratio.
- A gradual fiscal tightening is expected through the medium-term.
- Malta's reliance on corporate income tax revenues remains well above the EU average.
- Over the long term, demographic trends may put significant pressure on age-related spending; wage spending and general government employment have increased since the pandemic.

Key fiscal numbers (selected, percent of GDP):
- General government balance (overall net lending/borrowing), 2020–2028:
  - 2020: -9.6
  - 2021: -7.8
  - 2022: -5.4
  - 2023: -5.0
  - 2024: -4.0
  - 2025: -2.8
  - 2026: -2.2
  - 2027: -2.2
  - 2028: -2.1
- Structural overall balance (percent of potential GDP), 2020–2028:
  - 2020: -6.3
  - 2021: -7.4
  - 2022: -6.1
  - 2023: -5.5
  - 2024: -4.3
  - 2025: -3.0
  - 2026: -2.3
  - 2027: -2.2
  - 2028: -2.1
- Revenue (percent of GDP), 2020–2028:
  - 2020: 36.4
  - 2021: 36.3
  - 2022: 35.7
  - 2023: 35.7
  - 2024: 34.9
  - 2025: 34.8
  - 2026: 34.8
  - 2027: 34.8
  - 2028: 34.8
- Expenditure (percent of GDP), 2020–2028:
  - 2020: 46.0
  - 2021: 44.2
  - 2022: 41.1
  - 2023: 40.7
  - 2024: 38.8
  - 2025: 37.6
  - 2026: 37.0
  - 2027: 37.0
  - 2028: 36.9
- Public debt (percent of GDP), 2020–2028:
  - 2020: 53.0
  - 2021: 55.2
  - 2022: 56.6
  - 2023: 58.5
  - 2024: 59.6
  - 2025: 59.3
  - 2026: 58.8
  - 2027: 58.5
  - 2028: 57.9

### Financial Soundness and Banking Sector
- The banking system remains well capitalized, but bank profitability fell.
- NPL ratios edged up but stayed at low levels with adequate coverage.
- High NFC intracompany loans remains a source of uncertainty.
- Loan-to-deposit ratio stayed constant at around 60 percent; banks' exposure to the real estate market remained high.

Selected financial indicators (percent or ratio, specific years mentioned):
- Regulatory capital to risk-weighted assets (Core Domestic Banks):
  - 2019: 20.1
  - 2020: 21.7
  - 2021: 22.7
  - June 2022: 21.8
- Nonperforming loans to total gross loans (Total Banks):
  - 2019: 3.2
  - 2020: 3.7
  - 2021: 3.4
  - June 2022: 3.1
- Loan-to-deposit ratio (Customer loans to customer deposits, Total Banks snapshots noted; sector-level loan-to-deposit ratio around 60 percent in text).

From Table 3 (sectoral, selected items):
- Banks’ total assets amounted to 278 percent of GDP (about €43 billion) at June 2022.
- Core domestic banks account for 66 percent of the banking sector’s total assets.
- Liquid assets and various coverage/liquidity ratios are reported in Table 3 across bank groups.

### External Sector
- The current account balance remained negative in 2021 as external demand remained weak; the goods trade deficit widened, more than offsetting a small recovery in services.
- Service exports continued to dominate total exports; market shares in both services and goods decreased.
- CPI-based REER depreciated slightly, despite a nominal appreciation, in 2021.
- Net international investment position remained stable as assets and liabilities both increased.

Key external numbers (percent of GDP, selected years and projections):
- Current account balance, 2020–2028:
  - 2020: -2.8
  - 2021: -4.5
  - 2022: -3.6
  - 2023: -3.5
  - 2024: -3.6
  - 2025: -2.4
  - 2026: -1.2
  - 2027: -0.4
  - 2028: 0.6
- Trade balance (Goods and services), 2020–2028:
  - 2020: 7.9
  - 2021: 4.2
  - 2022: 5.1
  - 2023: 5.3
  - 2024: 5.2
  - 2025: 6.3
  - 2026: 7.6
  - 2027: 8.4
  - 2028: 9.4
- Gross external debt (percent of GDP), 2020–2028:
  - 2020: 671.4
  - 2021: 620.7
  - 2022: 554.8
  - 2023: 515.7
  - 2024: 487.4
  - 2025: 460.2
  - 2026: 435.5
  - 2027: 413.0
  - 2028: 392.4
- Net external debt (percent of GDP), 2020–2028:
  - 2020: -165.1
  - 2021: -139.9
  - 2022: -139.0
  - 2023: -138.1
  - 2024: -137.1
  - 2025: -136.3
  - 2026: -136.0
  - 2027: -135.8
  - 2028: -136.0
- Services export: Travel (percent of GDP), 2020–2022:
  - 2020: 2.6
  - 2021: 4.0
  - 2022: 8.2
- Services export: Non-Travel (percent of GDP), 2020–2022:
  - 2020: 104.5
  - 2021: 100.6
  - 2022: 93.8

### Energy
- Malta has the lowest energy consumption per capita in the euro area due to its relatively small industry sector and low household needs for space heating compared to other European countries.
- Due to Government intervention, household electricity prices are among the lowest in the euro area; gasoline and diesel prices are also among the lowest.
- Electricity prices for firms remain stable while euro area prices increase markedly.

### Labor Market and Income Inequality
- Male participation rate is higher than the euro area average (except for 55-64-year-old groups); female participation (25-54 years old) has increased significantly over the past decade.
- Unemployment rate declined to historically low levels.
- Income inequality remains below the euro area average; risk of poverty and social exclusion comparable with other European countries.
- The number of early school leavers is among the highest in the EU.

Selected labor and social indicators:
- Unemployment rate (EU harmonized), 2020–2028:
  - 2020: 4.4
  - 2021: 3.4
  - 2022: 3.0
  - 2023: 3.1
  - 2024: 3.2
  - 2025: 3.3
  - 2026: 3.3
  - 2027: 3.4
  - 2028: 3.5
- Employment growth, 2020–2028:
  - 2020: 2.7
  - 2021: 2.8
  - 2022: 4.0
  - 2023: 2.5
  - 2024: 2.0
  - 2025: 2.0
  - 2026: 2.0
  - 2027: 2.0
  - 2028: 2.0

### Selected Macro Projections (Table 1 highlights)
- Real GDP (year-on-year percent change), 2020–2028:
  - 2020: -8.6
  - 2021: 11.7
  - 2022: 6.5
  - 2023: 3.3
  - 2024: 3.6
  - 2025: 3.5
  - 2026: 3.5
  - 2027: 3.5
  - 2028: 3.5
- HICP (period average), 2020–2028:
  - 2020: 0.8
  - 2021: 0.7
  - 2022: 6.1
  - 2023: 5.2
  - 2024: 2.8
  - 2025: 2.1
  - 2026: 2.0
  - 2027: 2.0
  - 2028: 2.0
- Nominal GDP (millions of euros), 2020–2028:
  - 2020: 13,164
  - 2021: 14,983
  - 2022: 16,654
  - 2023: 17,798
  - 2024: 18,694
  - 2025: 19,692
  - 2026: 20,751
  - 2027: 21,862
  - 2028: 23,047
- Gross national savings (percent of GDP), 2020–2028:
  - 2020: 19.1
  - 2021: 16.8
  - 2022: 15.1
  - 2023: 15.2
  - 2024: 15.4
  - 2025: 16.4
  - 2026: 17.6
  - 2027: 18.3
  - 2028: 19.2

*Sources: Malta Ministry of Health, NSO, Eurostat, Haver Analytics, Bloomberg Finance L.P., OWID, WEO, Central Bank of Malta, Malta Financial Services Authority, IMF World Economic Outlook, and IMF staff calculations.*

### Annex I. Implementation of IMF Recommendations

### 1mltea2023001 - Annex I. Implementation of IMF Recommendations

### Financial Sector: implementation status and key developments
- Recommendation: Resolve remaining deficiencies in the AML/CFT framework and enhance its effectiveness.
- Actions since 2021 Article IV:
  - Malta has made demonstrated progress in (i) improving beneficial ownership information and applying appropriate sanctions for non-compliance by companies and gatekeepers and (ii) enhancing the use of financial intelligence to pursue tax-based money laundering cases—key weaknesses highlighted by the FATF in June 2021.
  - In June 2022, the FATF removed Malta from its grey list of AML/CFT framework.
- Recommendation: Continue to closely monitor banks’ financial positions and risk management and ensure that banks update the assessment of expected losses.
  - Status: Ongoing.
- Recommendation: Enhancing data collection and monitoring are essential for intercompany lending.
  - Status: Ongoing.

### Fiscal policy: withdrawal of COVID-19 support, consolidation, and tax measures
- Recommendation: Pace the unwinding of COVID-19 related support measures to balance near-term support for growth and long-term economic stability.
  - Implementation: As the economy recovered strongly, the majority of the COVID-related support measures have been withdrawn.
- Recommendation: Use the planned comprehensive review of COVID-related spending to guide fiscal consolidation while retaining space for public investment.
  - Implementation: Authorities plan to launch a spending review and public investment management assessment by leveraging IMF technical assistance.
- Recommendation: Continue efforts to strengthen tax administration and conduct a holistic review of the overall tax system.
  - Implementation: Authorities supported an EU directive on the Pillar 2 model and are exploring options to make the tax system simpler by leveraging IMF technical assistance.
- Recommendation: Manage risks from contingent liabilities and ensure the sustainability of the pension system.
  - Implementation: Risks from contingent liabilities are being closely monitored. To support the sustainability of the pension system, the 2023 budget includes a measure to encourage pensioners to remain in employment.

### Structural reforms: labor market, digitalization, insolvency
- Recommendation: Further advance labor market reforms, focusing on upskilling and reskilling and leverage active labor market policies.
  - Implementation: Reforms are underway as part of Malta’s National Employment Policy 2021–2030.
- Recommendation: Promote digital transformation and decarbonization.
  - Implementation: Reforms are underway as part of Malta’s Recovery and Resilience Plan.
- Recommendation: Complete ongoing work on the corporate insolvency framework by mid-next year.
  - Implementation: The New Insolvency Practitioners Act and Pre-Restructuring Act have been tabled in the parliament.

### Annex II — Selected COVID-19 Support Measures and Energy and Other Measures in Response to the War in Ukraine (highlights)
- Wage Support
  - Wage Supplement: March 2020–May 2022. The Wage Supplement scheme provided eligible employees with a basic wage; extended multiple times and ended in May 2022.
  - Quarantine Leave: March–May 2022. One-off lump sum grant for employees on mandatory quarantine.
- Liquidity Support (major items)
  - Tax Deferral: March 2020–December 2021. Deferral extended to include all taxes; eligible taxes may be settled from May 2022 with no interest or penalties; payments will have to start from June 2022 and end December 2024.
  - Moratoria: March 2020–March 2021. Banks directed to offer moratoria; scheme reactivated January 2021 with applications before March 31, 2021.
  - MDB COVID-19 Guarantee Scheme (CGS): April 2020–30 June 2022. Final inclusion date June 30, 2022. Complemented by an interest rate subsidy.
  - Interest Rate Subsidies: April 2020–June 2022. Subsidized interest rates on working capital loans for two years and up to a maximum of 2.5 percent.
- Social Support
  - Social Measures: March 2020–June 2020. Measures for individuals made redundant or unable to work; parental benefit, additional unemployment benefit scheme, medical benefits and disability benefit schemes.
- Real Estate Market Support
  - Reduction in Property Tax Rate and Stamp Duty: July 2020–December 2023. 2023 Budget measures include reduced stamp duty for first-time buyers and for property situated in Gozo; cash grants for first-time buyers ranging from €10,000 to €30,000 spread over 10 years subject to specific conditions; refund of duty paid on the first €86,000 for replacement property for second-time buyers; exemption from income tax and duty on the first €750,000 for transfers in urban conservation areas subject to conditions; VAT scheme for restoration of qualifying property.
  - Postponement and Relaxation of Certain Macroprudential Measures: July 2020–July 2021. Phasing-in of LTV lowering postponed to July 1, 2021; temporary relaxation of stressed DSTI limits in effect until December 1, 2020.
- Economic Recovery Support
  - COVID-19 Business Assistance Program: July 2020–in place. Subsidies for utility bills and commercial rents, reduced fuel prices, refunds of commercial licenses, contributions to support business investment.
  - Stimulating Domestic Demand: September 2020 (Second scheme announced in June 2021). €100 voucher to residents aged 16 and over to be spent locally at hotels, licensed accommodations, restaurants, bars, diving schools, and retail outlets that were required to be closed during the pandemic.
  - Direct Business Support: July 2020–in place. Support for logistics, digital promotion, underwriting facilities, international fairs, export credit guarantee scheme, assistance to nursing homes and NGOs.
- Energy and Other Measures Related to the War in Ukraine
  - Energy Support Measures: March 2022–in place. Aimed at stabilizing the price of gas, petroleum, and electricity; projected to be about 2.3percent of GDP in 2022 and 3.3 percent of GDP in 2023.
  - Subsidized Loans Scheme (MDB): May 2022–in place. Support for companies importing/manufacturing/wholesale of grains and similar products. Total loan portfolio of up to €30 million, backed by a government guarantee of 90 percent. Loan term maximum two years. Maximum interest rate subsidy of 2 percent, subject to a minimum interest payment by the borrower of 0.1 percent. Last date for inclusion of loans is December 31, 2022, with a maximum 2-year maturity.
  - Liquidity Support Guarantee Scheme – Measure A (LSGS-A): May 2022–in place. Portfolio-capped guarantee scheme intermediated by partner credit institutions. Guarantee covers 90 percent of each new individual loan, capped at 50 percent of the portfolio. Last date for inclusion of loans is December 31, 2022, with loan term up to maximum 6 years. Scheme covered by a maximum interest rate subsidy of 2.5 percent, subject to a minimum interest payment by the borrower of 0.1 percent.
  - Liquidity Support Guarantee Scheme – Measure B (LSGS-B): May 2022–in place. Uncapped guarantee scheme for importers of fuel and oil. Guarantee covers 80 percent of each new individual loan, without portfolio cap. Last date for inclusion of loans is December 31, 2022, with loan term up to maximum 6 years. Scheme covered by a maximum interest rate subsidy of 2.5 percent, subject to a minimum interest payment by the borrower of 0.1 percent.

### Annex III — External Sector Assessment: key metrics and staff assessment
- Overall assessment: Malta’s external position in 2022 is expected to be broadly in line with fundamentals and desirable policy settings, but subject to uncertainty from measurement challenges identifying ultimate ownership of profits and savings between domestic and foreign investors or firms.
- Foreign assets and liabilities:
  - Background: Malta has maintained large net asset positions over the past decade, with sizable gross assets and liabilities (close to 20 times GDP).
  - Expected N IIP path: Deterioration from 51.8 per cent of GDP in 2021 to 38.2 per cent of GDP in 2022, returning to levels similar to those in 2015.
  - Gross assets: expected to increase from 18 times GDP in 2021 to 19.4 times GDP in 2022, primarily due to increases in FDI and portfolio investment assets (measured in per cent of GDP).
  - Gross liabilities: expected to increase from 17.5 times GDP in 2020 to 19 times GDP in 2022, mostly related to an increase in FDI liabilities.
  - Assessment: Gross liabilities are sizable; volatility of financial flows and investment returns could present risk, but majority of liabilities are direct investment and the large gross asset position mitigates risks.
  - 2022 (% GDP): N IIP: 38.2; Gross assets: 1,942; Gross liabilities: 1,904.
- Current Account (CA):
  - Background: CA expected to be in a deficit of 3.6 per cent of GDP in 2022, down from a deficit of 4.5 per cent of GDP in 2021. Medium-term expectation: CA returns to positive territory by 2028 as pandemic effects recede, energy prices come down, and external demand recovers, though still below pre-pandemic levels (around 4.0 percent of GDP, on average).
  - Assessment adjustments: COVID-19 adjustor capturing tourism impact: 0.9 percent of GDP; cyclical contributions: 0.8 percent of GDP; adjustment due to natural disasters and conflicts relative to world average: 0.5 percent of GDP. Actual CA (-3.6 per cent of GDP) is adjusted to -1.4 per cent of GDP.
  - Tourism: Expected to remain 20 per cent below 2019 levels in 2022 on average; no scarring in the tourism sector expected in the medium run.
  - EBA-lite CA model: CA norm of -3 per cent of GDP. Norm adjusted by 2.4 percentage points to -0.6 per cent by removing the negative contribution of the remittance variable. Resulting CA gap: -0.8 per cent of GDP. Policy gaps contribute 1.6 percentage points to the gap, of which the domestic component of the gap was –1.0 per cent of GDP.
  - 2022 (% GDP): Actual CA: -3.6; Adj. CA: -1.4; CA Norm: -3.0; Adj. Norm: -0.6; CA gap: -0.8; Policy Gap: 1.6.
- Real Exchange Rate (REER):
  - Background: CPI-based REER depreciated by 4.0 per cent during the first three quarters of 2022, following a slight appreciation of 0.3 per cent in 2021.
  - Assessment: EBA-lite CA model points to a small REER overvaluation of about 0.9 per cent for 2022.
  - 2022 (% GDP): Actual REER: 4.5; REER Norm: 4.6; REER gap: -9.2; Implied REER gap (from CA model): 0.9.
- Capital and Financial Accounts:
  - Background: Capital account expected to record a surplus of 0.7 per cent of GDP in 2022. Financial account balance expected to turn into a deficit of 2.9 per cent in 2022, with higher net FDI outflows more than offsetting higher net other investment inflows.
  - Assessment: As net external demand recovers, Malta’s financial account balance is expected to return to a surplus position over the medium term.
- FX Intervention and Reserves:
  - Background and assessment: The euro is a global reserve currency. Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

### Annex IV — Risk Assessment Matrix (selected entries)
- Global Risks
  - Intensifying spillovers from Russia’s war in Ukraine.
    - Relative Likelihood: High
    - Time horizon: ST/MT
    - Impact if realized: Medium. Higher uncertainty and a negative trade shock could lower private consumption and prevent the recovery in the tourism sector.
    - Policy response: Stand ready with fiscal and financial support measures, if needed. Maintain structural reform momentum to spur investment and promote higher productivity growth (*).
  - De-anchoring of inflation expectations and stagflation.
    - Relative Likelihood: Medium
    - Time horizon: ST/MT
    - Impact if realized: High/Medium. Import prices will rise, feeding into domestic inflation. Domestic financial conditions will tighten.
    - Policy response: Tighten fiscal policy, and intensify financial supervision to identify most affected groups and pockets of vulnerability.
  - Abrupt global slowdown or recession.
    - Relative Likelihood: High
    - Time horizon: ST/MT
    - Impact if realized: High/Medium. Malta’s export demand, including tourism, will weaken, affecting overall growth.
    - Policy response: Same as (*) above.
  - Local Covid-19 outbreaks.
    - Relative Likelihood: Medium
    - Time horizon: ST/MT
    - Impact if realized: Medium. Reinstatement of containment measures will undermine recovery in the tourism sector.
    - Policy response: Same as (*) above.
  - Cyber-attacks on critical infrastructure, institutions, and financial systems.
    - Relative Likelihood: Medium
    - Time horizon: ST/MT
    - Impact if realized: Medium. Payment and financial systems are disrupted.
    - Policy response: Continue efforts to strengthen the cybersecurity framework.
- Malta-specific Risks
  - Realization of money laundering and terrorist financing risks in high-risk sectors (gaming, virtual asset providers, Citizenship by Investment program).
    - Relative Likelihood: Medium
    - Time horizon: ST/MT
    - Impact if realized: Medium. Pressure on correspondent banking relationships will rise, and Malta’s attractiveness as a financial and business location may deteriorate.
    - Policy response: Continue efforts to address remaining shortcomings in the AML/CFT framework, and continue monitoring of high-risk sectors.
  - Sharp correction in house prices.
    - Relative Likelihood: Low
    - Time horizon: ST/MT
    - Impact if realized: Low. Risks largely mitigated by banks’ strong capital and liquidity positions, households’ high financial wealth, and strong labor markets.
    - Policy response: Continue close monitoring of risks and readjust macro-prudential measures.
  - Possible changes in international corporate and personal taxation.
    - Relative Likelihood: Medium
    - Time horizon: ST/MT
    - Impact if realized: Medium. Malta’s attractiveness as a financial and business location may deteriorate, weakening fiscal revenues and foreign investment.
    - Policy response: Strengthen spending efficiency and revenue administration. Conduct a holistic review of the overall tax system.

*The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood categories reflect staff subjective assessments as of the time of discussions with the authorities.*

*Source: IMF staff compilation from Annex I–IV of the provided IMF Malta Article IV documentation.*

### Annex V. Malta’s  Energy Sector

### Annex V. Malta’s  Energy Sector

### Overview
- Malta is a small island economy and largely disconnected from the European energy network.
- The Maltese energy sector has some unique characteristics in the European context.

### Energy mix and imports
- Malta overwhelmingly relies on imported liquefied natural gas (LNG) for energy production.
- LNG provides the main source of electricity: 80 percent of Malta’s energy production.
- Other fossil fuels account for 12 percent of energy production.
- Renewable energy (including solar and bioenergy) accounts for 8 percent of energy production, which is one of the lowest shares in the euro area.
- Malta is not connected to gas pipelines in Europe.

### Infrastructure and external linkages
- The interconnector with Italy is the only direct link to the EU energy market.
- Local power generation (using LNG) provides 70 percent of total electricity consumption.
- The remaining electricity consumption is supplied by:
  - Renewables: 10 percent
  - The interconnector with Sicily in Italy: 20 percent
- Electricity supplied through the interconnector is subject to daily spot price volatility, which can be substantial; interconnector prices shot up in the months following the war in Ukraine.

### Market structure and contracts
- Maltese energy markets are not fully liberalized.
- ENEMALTA is the solo electricity company, and ENEMED is a petroleum product importer and distributer with a dominant market share. Both are state-owned enterprises.
- The long-term LNG contract signed in 2015 expired in March 2022. The first leg of the contract, establishing a fixed price, expired in March 2022, resulting in a substantial increase in costs.
- LNG importation is now indexed to the Brent oil price.

### Consumption patterns and energy intensity
- Malta’s energy consumption per capita is the lowest in the EU.
- Household consumption is relatively low due to temperate climate and lower needs for space heating.
- The structure of the economy suggests low energy intensity, due to the relatively low weight of industry (that consumes 6 percent of total energy, compared to 35 percent in EU).
- High intensity sectors (industry, agriculture, trade, transport and accommodation), jointly:
  - Account for 80 percent of energy consumption
  - Represent only 30 percent of Gross Value Added

*Source: IMF staff.*

### Annex Figure VI.6 Malta: External Debt Sustainability—Bound Tests 1/ 2/

### Annex Figure VI.6 Malta: External Debt Sustainability—Bound Tests 1/ 2/

### Key findings from the figure and associated table
- Historical and baseline paths for net external debt and scenario shocks are shown for 2017–2027.
- Individual shocks are permanent one-half standard deviation shocks; shaded areas represent actual data. 1/  
- For historical scenarios, historical averages are calculated over the ten-year period and used to project debt dynamics five years ahead. 2/
- Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. 3/
- One-time real depreciation of 30 percent occurs in 2010 (figure note). 4/

### Baseline and scenario projections (selected values and labels shown)
- Baseline: Net external debt (percent of GDP) series headline value shown as -136 (present in many figure labels).
- Historical, baseline, and scenario labels appearing in the figure: Historical (-146), Baseline (-136), Historical (other labels repeat -136 in figure boxes).
- Baseline / Scenario / Historical summary statistics presented in figure boxes:
  - Baseline: 3.0; Scenario: 3.2; Historical: 2.7 (label block, likely growth assumptions)
  - Baseline: 3.5; Scenario: 0.6; Historical: 5.7
  - Baseline: -6.3; Scenario: -8.8; Historical: -4.5
- Gross financing need under baseline shown on right scale (figure).

### Bound tests — scenarios and headline outcomes (from Annex Table VI.1, B. Bound Tests)
- B1. Nominal interest rate is at historical average plus one standard deviation: sequence includes -139.0, -138.3, -137.5, -137.0, -136.9, -137.0, -83.0
- B2. Real GDP growth is at historical average minus one standard deviations: sequence includes -139.0, -142.2, -145.7, -149.6, -154.1, -159.0, -99.9
- B3. Non-interest current account is at historical average minus one standard deviations: sequence includes -139.0, -135.5, -132.0, -128.8, -125.9, -123.2, -82.7
- B4. Combination of B1-B3 using 1/2 standard deviation shocks: sequence includes -139.0, -139.0, -139.0, -139.3, -140.0, -141.0, -90.9
- B5. One time 30 percent real depreciation in 2006: sequence includes -139.0, -201.2, -199.7, -198.6, -198.1, -197.9, -120.5

### Identified external debt-creating flows and key projection numbers (Annex Table VI.1)
- 1 Baseline: Net external debt (percent of GDP) headline series begins: -199.6 (2017), -175.3 (2018), -158.5 (2019), -165.1 (2020), -139.9 (2021), -139.0 (2022), -138.1 (2023), -137.1 (2024), -136.3 (2025), -136.0 (2026), -135.8 (2027), -82.8 (final column label).
- 2 Change in external debt series: 10.4, 24.3, 16.8, -6.6, 25.2, 0.9, 0.9, 1.0, 0.7, 0.4, 0.1
- 3 Identified external debt-creating flows (4+8+9) series: -58.2, -59.4, -67.8, -81.5, -35.5, -69.1, -74.0, -73.6, -74.8, -76.0, -76.8
- 4 Current account deficit, excluding interest payments: -1.6, -1.6, -0.4, 8.0, 9.0, 7.5, 7.5, 7.6, 6.5, 5.2, 4.4
- 5 Deficit in balance of goods and services: -17.4, -15.6, -13.9, -7.9, -4.2, -5.1, -5.3, -5.2, -6.3, -7.6, -8.4
- 6 Exports (level or index): 142.0, 133.0, 130.9, 129.9, 124.8, 125.3, 125.5, 126.5, 125.8, 125.0, 124.3
- 7 Imports (level or index): 124.6, 117.4, 117.1, 122.0, 120.6, 120.1, 120.2, 121.3, 119.4, 117.4, 115.9
- 8 Net non-debt creating capital inflows (negative): -80.6, -76.7, -69.2, -75.4, -65.3, -81.9, -81.9, -81.9, -81.9, -81.9, -81.9
- 9 Automatic debt dynamics 1/ series: 24.0, 19.0, 1.8, -14.1, 20.7, 5.3, 0.3, 0.6, 0.6, 0.7, 0.6
- 10 Contribution from nominal interest rate: -4.3, -4.8, -4.5, -5.1, -4.5, -3.9, -4.0, -4.1, -4.0, -4.0, -4.0
- 11 Contribution from real GDP growth: 19.8, 10.9, 11.8, -14.4, 16.4, 9.2, 4.4, 4.7, 4.6, 4.7, 4.6
- 12 Contribution from price and exchange rate changes 2/: 8.5, 12.9, -5.5, 5.5, 8.8, ..........
- 13 Residual, incl. change in gross foreign assets (2-3) 3/: 68.6, 83.7, 84.6, 74.9, 60.7, 70.0, 74.9, 74.6, 75.6, 76.4, 77.0

### Ratios and financing need metrics
- External debt-to-exports ratio (in percent): -140.5, -131.8, -121.0, -127.1, -112.1, -111.0, -110.1, -108.4, -108.4, -108.8, -109.3
- Gross external financing need (in billions of US dollars) 4/: 6.0, -3.2, -4.9, -18.2, -1.7, -0.5, -2.3, -2.6, -2.9, -3.3, -3.6
- Gross external financing need (in percent of GDP) series includes values and labels: 44.5, -21.0, -31.1, -121.2, -9.4, 10-Year, 10-Year, -2.9, -12.9, -13.8, -14.9, -16.4, -17.4 (table layout indicates mixed labels and numbers).

### Key macroeconomic assumptions underlying baseline (selected series)
- Real GDP growth (in percent): 10.9, 6.2, 7.0, -8.6, 11.7, 5.7, 5.7, 6.5, 3.3, 3.6, 3.5, 3.5, 3.5
- GDP deflator in US dollars (change in percent): 4.2, 6.9, -3.0, 3.6, 5.6, 0.8, 6.3, -7.4, 0.2, 1.0, -0.2, -0.5, -1.1
- Nominal external interest rate (in percent): 2.3, 2.7, 2.7, 3.1, 3.2, 2.7, 0.4, 2.7, 3.0, 3.1, 3.0, 3.0, 3.0
- Growth of exports (US dollar terms, in percent): 14.4, 6.3, 2.1, -6.1, 13.4, 3.9, 6.3, -1.0, 3.6, 5.5, 2.7, 2.3, 1.7
- Growth of imports (US dollar terms, in percent): 8.8, 7.0, 3.4, -1.3, 16.6, 3.7, 5.7, -1.8, 3.5, 5.6, 1.8, 1.2, 1.0
- Current account balance, excluding interest payments: 1.6, 1.6, 0.4, -8.0, -9.0, -4.5, 5.1, -7.5, -7.5, -7.6, -6.5, -5.2, -4.4
- Net non-debt creating capital inflows: 80.6, 76.7, 69.2, 75.4, 65.3, 80.6, 14.3, 81.9, 81.9, 81.9, 81.9, 81.9, 81.9

### Definitions and methodological notes (selected)
- 1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
- 2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
- 3/ For projection, line includes the impact of price and exchange rate changes.
- 4/ Gross external financing need defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
- 5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
- 6/ Debt-stabilizing non-interest current account: Long-run, constant balance that stabilizes the debt ratio assuming that key variables remain at their levels of the last projection year.

*Source: International Monetary Fund, Country desk data, and staff estimates.*

### 3.      RRP supports the Malta’s broader  climate policy objectives, including the European

### 3.      RRP supports the Malta’s broader  climate policy objectives, including the European

### RRP alignment with Malta’s climate strategy
- The government has identified “higher priority” areas over 2020–2030, which include active transport, electrification, and expanding free public transport.
- The RRP supports this strategy with identified qualitative indicators or milestones.
- Sources: European Commission and IMF staff calculations.

### RRP's estimated expenditure towards climate objectives (breakdown)
- Zero-emission electric vehicles, 35%
- Energy-efficiency programme, 35%
- Ferry landing site, 10%
- Other, 20%
- Source: European Commission and IMF staff calculations.

### RRP spending composition (categories shown)
- Green transition (percent axis presented)
- Digital transition (percent axis presented)
- Economic and social resilience (percent axis presented)
- (Charts labeled “RRP Spending Composition (Percent)” and “Contribution to the climate objectives” presented; specific numeric allocations by these categories are shown graphically in the source.)

### Contextual notes from the Malta staff report
- The content is part of the MALTA STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (Prepared By European Department).
- Membership and reserves data excerpted in the source:
  - Quota 168.30 SDR Million 100.00 Percent
  - Fund holdings of currency 123.68 SDR Million 73.49 Percent
  - Reserve Tranche Position 44.65 SDR Million 26.53 Percent
  - Net cumulative allocation 256.71 SDR Million 100.00 Percent
  - Holdings 249.98 SDR Million 97.38 Percent
- Projected obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs): Principal Charges/Interest 0.20 (each year) for forthcoming 2023, 2024, 2025, 2026, 2027; Total 0.20 (each year).
- The currency of Malta is the euro. Malta has been a member of the euro area since January 1, 2008.
- Data provision and statistical coverage summaries (selected): quarterly national accounts with ~two-month lag; consumer prices monthly within 30 days; quarterly BOP and IIP with three-month lag; SDDS subscription since December 2009; preparing for SDDS Plus adherence.

*Source: 1mltea2023001 - 3.      RRP supports the Malta’s broader  climate policy objectives, including the European (European Commission and IMF staff calculations).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mltea2023001.pdf_