IMF Executive Board Concludes 2019 Article IV Consultation with Malta

IMF News, February 27, 2019

Source details

Canonical URL: IMF Executive Board Concludes 2019 Article IV Consultation with Malta

Date of release: February 27, 2019.
The Executive Board concluded the Article IV consultation with Malta on February 22, 2019.
The discussion included an assessment of the financial system based on the work of the Financial Sector Assessment Program (FSAP).

Malta has been one of the fastest growing countries in Europe post-crisis, driven by rapid rebalancing toward export-oriented services, notably remote gaming.
Authorities have started to explore development areas around blockchain technology.
GDP is estimated to have expanded by 6.4 percent in 2018.
Growth remains rapid and increasingly driven by domestic demand, but a cyclical peak may have been reached.
Over the medium term, growth is projected to gradually moderate to slightly above 3 percent as wage and inflation stabilize and the current account surplus remains large, driven by strong export of services.
Despite tight labor market conditions, generalized wage and price pressures are yet to materialize.
Strong inflows of foreign workers have helped keep wage pressure contained, while putting rising pressure on infrastructure and housing prices.

The fiscal balance is estimated to have registered a surplus in 2018, owing to favorable economic conditions and buoyant proceeds from the Individual Investor Program.
Directors encouraged the authorities to maintain a prudent fiscal policy and called for further efforts to strengthen the structural fiscal position excluding revenues from the Individual Investor Program.
Key fiscal priorities recommended:
- Contain long-term fiscal risks by addressing age-related spending pressures.
- Further restructure vulnerable state-owned enterprises (SOEs).
- Shift the balance of expenditure towards growth-enhancing public investment.
- Strengthen public investment management and risk analysis.
- Explore avenues for broadening the tax base.
The current account balance has remained on a positive trend, driven by a continued surplus in services.

The banking system is described as well-capitalized, liquid, profitable and resilient, but faces some challenges.
FSAP stressed shortcomings in banking supervision, including implementation gaps in the anti-money laundering and countering the financing of terrorism (AML/CFT) framework.
FSAP identified weaknesses in the bank liquidation and insolvency framework.
Executive Directors and staff recommendations:
- Pursue ongoing reforms to mitigate money laundering and terrorist financing (ML/TF) risks and swiftly close gaps in supervisory and enforcement capacities.
- Continue implementing the recently-enacted 50-point action plan and emphasize the importance of effective enforcement.
- Supervise virtual financial asset service providers in line with the Financial Action Task Force standards.
- Guarantee the long-term financial and operational independence of the supervisor.
- Strengthen the crisis management framework, including by adopting an administrative bank insolvency regime.
- Strengthen oversight of the nonbank financial sector and close remaining data gaps in light of rapid diversification of corporate financing.
- Introduce borrower-based macroprudential instruments to mitigate the build-up of vulnerabilities in the real estate sector.
- Support further measures to improve housing affordability for low-income households.

Directors emphasized structural reforms to foster sustained and inclusive growth.
Recommended measures:
- Bridge infrastructure gaps.
- Upskill and reskill the labor force.
- Further encourage female and elderly participation in the labor market.
- Stimulate innovation through SMEs’ enhanced access to finance.
- Improve the efficiency of the judicial system.

Real economy (constant prices) — Percent change year on year

Public finance (General government, percent of GDP)

Overall balance:
- 2015: -1.1
- 2016: 3.5
- 2017: 0.6
- 2018: [value not provided in table]
Primary balance:
- 2015: 3.0
- 2016: 2.5
- 2017: 1.9
- 2018: [value not provided in table]
Structural balance 1/:
- 2015: -2.1
- 2016: 3.4
- 2017: 0.4
- 2018: 0.3
Gross debt:
- 2015: 57.9
- 2016: 55.4
- 2017: 50.2
- 2018: 45.4
- 2019 (projection): 42.4
- 2020 (projection): 39.0

Financial sector

Credit to the private sector (percent GDP):
- 2015: 87.3
- 2016: 84.4
- 2017: 79.4
- 2018: [value not provided in table]
Credit to nonfinancial private sector 2/: […] (loans to nonfinancial corporate sector and households/individuals)

Interest rates (year average)

Balance of payments (Percent of GDP)

Current account balance:
- 2015: 2.4
- 2016: 10.4
- 2017: 10.1
- 2018: 9.3
- 2019 (projection): 8.8
Trade balance (goods and services):
- 2015: 9.0
- 2016: 13.2
- 2017: 20.9
- 2018: 21.4

Exchange rate

Notes

Sources: National Statistical Office of Malta; Central Bank of Malta; European Central Bank; Eurostat; European Commission; and IMF staff estimates.
1/ As a percentage of Nominal Potential GDP.
2/ Loans to nonfinancial corporate sector and households/individuals.

IMF Executive Board Concludes 2019 Article IV Consultation with Malta — Press Release No. 19/61 (February 27, 2019).