IMF Executive Board Concludes 2023 Article IV Consultation with Malta
IMF News, January 29, 2024
Source details
- Canonical URL
- IMF Executive Board Concludes 2023 Article IV Consultation with Malta
Other formats
Bibliographic details
- Published: January 29, 2024
Overview and Outlook
- On January 17, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Malta.
- Staff assessment:
- Malta experienced an impressive recovery from the pandemic and demonstrated resilience to shocks resulting from Russia’s invasion of Ukraine.
- Growth is expected to decelerate somewhat with weaker growth in Europe and waning post‑pandemic pent‑up demand, but to remain strong: "6¼ percent in 2023 and 5 percent in 2024."
- Both headline and core inflation peaked a year ago and have since decelerated; inflation is expected to remain persistent and above 2 percent until late 2025, reflecting tight labor markets and sustained demand pressures.
- The financial system has demonstrated resilience to successive shocks.
- Risk assessment:
- Risks are tilted to the downside from spillovers of a possible escalation of Russia’s war in Ukraine or of the Israel‑Gaza conflict, and from a deeper‑than‑expected economic downturn in Europe.
- Domestic risks include higher and more persistent wage and inflationary pressures.
- Upside risk: lower‑than‑expected commodity prices would help decelerate inflation, ease fiscal pressures, and boost growth.
Executive Board Assessment and Policy Priorities
- Directors’ judgment:
- Commended Malta’s resilience and strong post‑pandemic recovery driven by fiscal support, persistent inflows of migrants, a strong recovery in tourism, and robust consumer demand.
- Expected continued solid growth over the medium term, albeit below pre‑pandemic levels.
- Emphasized that raising productivity growth and accelerating the green transition are crucial for sustainable, inclusive long‑term growth.
- Fiscal policy recommendations:
- With the economy above potential, tight labor markets, elevated inflationary pressures, and sizeable fiscal deficits, Directors stressed the need to accelerate fiscal consolidation to support disinflation and rebuild fiscal buffers faster to bolster fiscal sustainability.
- Energy subsidies:
- Noted that energy subsidies place a substantial burden on the budget, limit fiscal space for productivity‑enhancing reforms, and blunt incentives for energy savings and efficiency.
- Recommended phasing out such subsidies while increasing targeted support for vulnerable households.
- Revenue and spending:
- Recommended continuing steps, supported by Fund TA, to modernize revenue administration, rationalize recurrent spending, enhance public investment efficiency, and strengthen oversight of public enterprises.
- Tax reform:
- Given the EU’s adoption of the minimum tax directive (Pillar II), Directors underscored urgency of developing a well‑structured roadmap for phased implementation of the corporate income tax reform.
- Recommended that the roadmap include personal income tax reform to make the adjustment more efficient and less distortionary.
- Financial sector and macroprudential monitoring:
- Welcomed resilience of the financial system but noted need to monitor potential pockets of vulnerabilities, especially in the real estate market.
- Encouraged close assessment of how inflation and macro‑financial conditions affect vulnerable and leveraged borrowers, vigilance in monitoring property price developments, and continued efforts to strengthen cyber security.
- Welcomed progress in improving the AML/CFT framework and called for continued efforts.
- Structural reforms:
- Encouraged bolstering structural reform efforts to boost productivity amid increasing capacity constraints.
- Noted Malta’s Recovery and Resilience Plan will deliver reforms and investments in digitalization and green transition.
- Identified additional needs: enhance governance and anti‑corruption frameworks, promote research and innovation, address skill gaps, accelerate decarbonization and climate resilience, boost investment in renewables, and strengthen education outcomes—overall and for immigrant students.
Key Statistics and Projections (Selected)
- Per capita income (2022, euros): 33,496
- Quota (as of November 30, 2023; millions of SDRs): 168.3
- Real economy (year‑on‑year change, unless otherwise indicated) — Real GDP:
- 2019: 7.1
- 2020: -8.1
- 2021: 12.6
- 2022: 8.2
- 2023: 6.2
- 2024: 5.1
- Domestic demand (year‑on‑year): 2019: -3.8; 2020: 8.3; 2021: 13.8; 2022: -1.0; 2023: 3.1
- HICP (period average): 2019: 1.5; 2020: 0.8; 2021: 0.7; 2022: 6.1; 2023: 5.8; 2024: 2.9
- Unemployment rate (percent): 2019: 3.6; 2020: 4.4; 2021: 3.4; 2022: 2.5
- Public finance (Percent of GDP):
- Net lending/borrowing (overall balance): 2019: 0.5; 2020: -9.6; 2021: -7.4; 2022: -5.6; 2023: -4.8; 2024: -4.4
- Primary balance: 2019: 1.8; 2020: -8.3; 2021: -6.3; 2022: -4.7; 2023: -3.7; 2024: -3.0
- Structural overall balance 1/: 2019: -1.9; 2020: -5.7; 2021: -6.6; 2022: -5.9; 2023: -5.4; 2024: -5.0
- General government debt: 2019: 40.0; 2020: 52.2; 2021: 53.9; 2022: 51.6; 2023: 54.5
- Financial sector (Percent change year on year):
- Credit to the private sector 2/: 2019: 6.8; 2020: 6.6; 2021: 6.5; 2022: 9.1; 2023: …
- Credit to the private sector (percent of GDP): 2019: 71.6; 2020: 81.8; 2021: 75.8; 2022: 72.7
- Balance of payments:
- Current account balance: 2019: 9.0; 2020: 2.2; 2021: 1.2; 2022: 1.9
- Trade balance (Goods and services): 2019: 21.2; 2020: 16.8; 2021: 14.2; 2022: 11.0; 2023: 15.8; 2024: 16.5
- Exchange rate:
- Nominal effective rate (2010=100): 2019: 100.5; 2020: 101.6; 2021: 103.0; 2022: 103.2
- Real effective rate, CPI based (2010=100): 2019: 103.6; 2020: 104.7; 2021: 100.9
Notes:
- 1/ As a percentage of nominal potential GDP.
- 2/ Loans to corporate sector and households/individuals.
Executive Board summary transmitted to the authorities following the Article IV consultation (Press Release No. 24/30, January 29, 2024).
