{
  "title": "IMF Executive Board Concludes 2017 Article IV Consultation with Malta",
  "publication": "IMF News, January 29, 2018",
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  "summary": "Press Release No. 18/28; January 29, 2018. IMF Communications Department.",
  "publishDate": "2018-01-29",
  "sections": [
    {
      "heading": "Summary of the consultation",
      "content": "- Press Release No. 18/28; January 29, 2018. IMF Communications Department.\n- The Executive Board concluded the 2017 Article IV consultation with Malta on January 26, 2018, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.\n- Key recent outcomes: Output is estimated to have expanded by 6.8 percent in 2017, accompanied by dynamic job creation and record-low unemployment. The fiscal balance is estimated to have registered a surplus for the second consecutive year in 2017."
    },
    {
      "heading": "Economic performance and drivers",
      "content": "- Output and labor:\n  - Real GDP growth (2017 Est.): 6.8 percent.\n  - Dynamic job creation brought unemployment to a record-low.\n  - Strong inflows of foreign workers and rising labor force participation kept wage pressures contained in most sectors.\n- Inflation and external sector:\n  - Low inflation despite a positive output gap.\n  - The 2017 current account is estimated to have remained in surplus, driven largely by a sizable balance of services.\n- Structural pressures:\n  - Rapid economic expansion and growing population have put pressure on physical infrastructure.\n  - Continued housing market appreciation."
    },
    {
      "heading": "Executive Board assessment and policy guidance",
      "content": "- Overall assessment:\n  - The Maltese economy remains on a strong growth trajectory. Risks to the outlook are broadly balanced, and the external position is assessed to be broadly in line with fundamentals.\n- Fiscal policy recommendations:\n  - Reduce remaining fiscal risks and build larger fiscal buffers.\n  - Ensure fiscal policy is geared towards addressing infrastructure challenges while avoiding unwarranted stimulus as the economy operates above potential.\n  - Continue complying with the MTO and identify further structural measures to attain the MTO, net of IIP proceeds.\n  - Broaden the tax base and strengthen revenue collection.\n  - Advance restructuring of financially-weak SOEs and address age-related spending pressures.\n  - Consider a budget-neutral public investment push to narrow Malta’s infrastructure gap.\n- Financial sector and oversight recommendations:\n  - Continue resolution of legacy corporate NPLs with enhanced supervisory oversight to promote investment and resilience.\n  - Increase provision coverage ratio and further improve the insolvency process.\n  - Address data gaps and enhance oversight of nonbank lending, including intercompany lending.\n  - Ensure robust governance and well-designed origination rules of the MDB’s operations to contain contingent liability risks.\n  - Ensure the MFSA has adequate resources to preserve operational independence and effective supervision.\n- Financial integrity and AML:\n  - Robust implementation and effective enforcement of the Anti-Money Laundering framework is critical given the size of Malta’s financial sector, fast-growing remote gaming activity, and high demand for the IIP.\n  - Continue strengthening collaboration between competent supervisors and regulators and finalize the related National Risk Assessment.\n- Housing market measures:\n  - Introduce targeted macroprudential limits for mortgages to strengthen resilience of bank and household balance sheets to possible housing price corrections and higher interest rates.\n  - Close data gaps on borrower characteristics to calibrate macroprudential measures effectively.\n  - Align the tax rate on rental income with tax rates on other sources of income.\n  - Introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values, to curb housing demand pressure.\n  - Accelerate corporate balance sheet repair in the construction sector to improve housing supply response to price signals.\n- Structural and inclusion policies:\n  - Reduce severe congestion by improving road quality and increasing utilization of alternative means of transport.\n  - Upskill and reskill the labor force to better align education with business needs.\n  - Increase female labor force participation further, particularly among older cohorts.\n  - Strengthen innovation by developing research infrastructure, increasing financial support for research and innovation, and improving links between academia and the private sector."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Growth outlook:\n  - Growth is expected to decelerate gradually and converge to about 3 percent over the medium term.\n  - Short- to medium-term projections: Growth driven largely by domestic demand, backed by rising incomes and historically-low unemployment; buoyant services exports will continue to sustain current account surpluses.\n- Inflation and fiscal outlook:\n  - Inflation is set to pick up gradually, reflecting an increase in import prices and tighter labor market conditions.\n  - Headline fiscal surpluses are forecast to continue and contribute to a further moderation of public debt.\n- Staff recommendation on consultation cycle:\n  - Staff proposes that the next Article IV consultation with Malta follow the standard 12-month cycle."
    },
    {
      "heading": "Financial sector details and concerns",
      "content": "- Banking sector:\n  - Domestic banks remain profitable and well-capitalized.\n  - High legacy corporate non-performing loans represent a persistent challenge despite continued improvement in banks’ asset quality.\n  - Bank lending remains focused on mortgages; concentration of property-related loans continued to grow.\n- Nonbank financing:\n  - Non-financial corporate sector has increased reliance on nonbank financing, particularly on intercompany lending.\n- Supervisory priorities:\n  - Enhance oversight of nonbank lending and close data gaps.\n  - Ensure MFSA resourcing to maintain effective supervision."
    },
    {
      "heading": "Malta: Selected Economic Indicators (2014–2019) — key figures",
      "content": "- Per Capita GDP (2016): €22.8 thousands\n- Quota: 168 million SDR, .04% of total\n- Real economy (Percent change year on year)\n  - Real GDP: 2014: 8.2; 2015: 7.2; 2016: 5.5; 2017 Est.: 6.8; 2018: 5.7; 2019: 4.6\n  - Domestic demand: 2014: 2.9; 2015: 12.4; 2016: 1.4; 2017 Est.: 1.8; 2018: 5.4; 2019: 4.0\n  - CPI (harmonized, average): 2014: 0.8; 2015: 1.2; 2016: 0.9; 2017 Est.: 1.3; 2018: 1.7\n  - Unemployment rate (percent): 2014: 5.8; 2015: 4.7; 2016: 4.2; 2017 Est.: 4.4\n- Public finance (General government, percent of GDP)\n  - Overall balance: 2014: -1.8; 2015: -1.1; 2016: 1.1; 2017 Est.: 0.7\n  - Primary balance: 2014: 1.0; 2015: 3.3; 2016: 3.4; 2017 Est.: 2.6; 2018: 2.4\n  - Structural balance 1/: 2014: -2.3; 2015: -2.1; 2016: 0.6; 2017 Est.: 0.1; 2018: 0.2\n  - Gross debt: 2014: 63.9; 2015: 60.3; 2016: 57.7; 2017 Est.: 54.2; 2018: 50.1; 2019: 47.3\n- Financial sector\n  - Credit to nonfinancial private sector 2/: 2014: 3.8; 2015: …\n  - Credit to the private sector (percent GDP): 2014: 95.9; 2015: 90.8; 2016: 87.9\n- Interest rates (year average) (Percent)\n  - Interest rate for mortgage purposes: 2014: 3.5; 2015: 3.1\n  - Ten-year government bond yield: 2014: 1.5\n- Balance of payments (Percent of GDP)\n  - Current account balance: 2014: 8.8; 2015: 6.6; 2016: 10.3; 2017 Est.: 9.6; 2018: 9.2\n  - Trade balance (goods and services): 2014: 12.0; 2015: 7.4; 2016: 11.3; 2017 Est.: 16.0; 2018: 16.2; 2019: 16.7\n- Exchange rate\n  - Exchange rate regime: Joined EMU on January 1, 2008.\n  - Nominal effective rate (2010=100): 2014: 101.6; 2015: 97.7; 2016: 97.9\n  - Real effective rate, CPI-based (2010=100): 2014: 101.0; 2015: 98.4\n\nExecutive Board endorsement of staff appraisal; press release dated January 29, 2018.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Malta and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation"
    }
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    "Published: January 29, 2018",
    "Press Release No. 18/28; January 29, 2018. IMF Communications Department.",
    "The Executive Board concluded the 2017 Article IV consultation with Malta on January 26, 2018, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.",
    "Key recent outcomes: Output is estimated to have expanded by 6.8 percent in 2017, accompanied by dynamic job creation and record-low unemployment. The fiscal balance is estimated to have registered a surplus for the second consecutive year in 2017.",
    "Output and labor:",
    "Inflation and external sector:",
    "Structural pressures:",
    "Overall assessment:",
    "Fiscal policy recommendations:",
    "Financial sector and oversight recommendations:",
    "Financial integrity and AML:",
    "Housing market measures:",
    "Structural and inclusion policies:",
    "Growth outlook:",
    "Inflation and fiscal outlook:",
    "Staff recommendation on consultation cycle:",
    "Banking sector:",
    "Nonbank financing:",
    "Supervisory priorities:",
    "Per Capita GDP (2016): €22.8 thousands",
    "Quota: 168 million SDR, .04% of total",
    "Real economy (Percent change year on year)",
    "Public finance (General government, percent of GDP)",
    "Financial sector",
    "Interest rates (year average) (Percent)",
    "Balance of payments (Percent of GDP)",
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    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Malta and the IMF](http://www.imf.org/external/country/MLT/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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