## IMF Executive Board Concludes 2017 Article IV Consultation with Malta

_IMF News, January 29, 2018_

## Source details

**Canonical URL:** [IMF Executive Board Concludes 2017 Article IV Consultation with Malta](https://www.imf.org/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation)

## Other formats

- [Markdown version](/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation/index.md)
- [Structured JSON version](/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation/index.json)
- [Bundle manifest](/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation/bundle-manifest.json)

## Bibliographic details
- Published: January 29, 2018

---

### Summary of the consultation
- 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.

### Economic performance and drivers
- Output and labor:
  - Real GDP growth (2017 Est.): 6.8 percent.
  - Dynamic job creation brought unemployment to a record-low.
  - Strong inflows of foreign workers and rising labor force participation kept wage pressures contained in most sectors.
- Inflation and external sector:
  - Low inflation despite a positive output gap.
  - The 2017 current account is estimated to have remained in surplus, driven largely by a sizable balance of services.
- Structural pressures:
  - Rapid economic expansion and growing population have put pressure on physical infrastructure.
  - Continued housing market appreciation.

### Executive Board assessment and policy guidance
- Overall assessment:
  - 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.
- Fiscal policy recommendations:
  - Reduce remaining fiscal risks and build larger fiscal buffers.
  - Ensure fiscal policy is geared towards addressing infrastructure challenges while avoiding unwarranted stimulus as the economy operates above potential.
  - Continue complying with the MTO and identify further structural measures to attain the MTO, net of IIP proceeds.
  - Broaden the tax base and strengthen revenue collection.
  - Advance restructuring of financially-weak SOEs and address age-related spending pressures.
  - Consider a budget-neutral public investment push to narrow Malta’s infrastructure gap.
- Financial sector and oversight recommendations:
  - Continue resolution of legacy corporate NPLs with enhanced supervisory oversight to promote investment and resilience.
  - Increase provision coverage ratio and further improve the insolvency process.
  - Address data gaps and enhance oversight of nonbank lending, including intercompany lending.
  - Ensure robust governance and well-designed origination rules of the MDB’s operations to contain contingent liability risks.
  - Ensure the MFSA has adequate resources to preserve operational independence and effective supervision.
- Financial integrity and AML:
  - Robust implementation and effective enforcement of the Anti-Money Laundering framework is critical given the size of Malta’s financial sector, fast-growing remote gaming activity, and high demand for the IIP.
  - Continue strengthening collaboration between competent supervisors and regulators and finalize the related National Risk Assessment.
- Housing market measures:
  - Introduce targeted macroprudential limits for mortgages to strengthen resilience of bank and household balance sheets to possible housing price corrections and higher interest rates.
  - Close data gaps on borrower characteristics to calibrate macroprudential measures effectively.
  - Align the tax rate on rental income with tax rates on other sources of income.
  - Introduce periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values, to curb housing demand pressure.
  - Accelerate corporate balance sheet repair in the construction sector to improve housing supply response to price signals.
- Structural and inclusion policies:
  - Reduce severe congestion by improving road quality and increasing utilization of alternative means of transport.
  - Upskill and reskill the labor force to better align education with business needs.
  - Increase female labor force participation further, particularly among older cohorts.
  - Strengthen innovation by developing research infrastructure, increasing financial support for research and innovation, and improving links between academia and the private sector.

### Outlook and risks
- Growth outlook:
  - Growth is expected to decelerate gradually and converge to about 3 percent over the medium term.
  - 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.
- Inflation and fiscal outlook:
  - Inflation is set to pick up gradually, reflecting an increase in import prices and tighter labor market conditions.
  - Headline fiscal surpluses are forecast to continue and contribute to a further moderation of public debt.
- Staff recommendation on consultation cycle:
  - Staff proposes that the next Article IV consultation with Malta follow the standard 12-month cycle.

### Financial sector details and concerns
- Banking sector:
  - Domestic banks remain profitable and well-capitalized.
  - High legacy corporate non-performing loans represent a persistent challenge despite continued improvement in banks’ asset quality.
  - Bank lending remains focused on mortgages; concentration of property-related loans continued to grow.
- Nonbank financing:
  - Non-financial corporate sector has increased reliance on nonbank financing, particularly on intercompany lending.
- Supervisory priorities:
  - Enhance oversight of nonbank lending and close data gaps.
  - Ensure MFSA resourcing to maintain effective supervision.

### Malta: Selected Economic Indicators (2014–2019) — key figures
- Per Capita GDP (2016): €22.8 thousands
- Quota: 168 million SDR, .04% of total
- Real economy (Percent change year on year)
  - Real GDP: 2014: 8.2; 2015: 7.2; 2016: 5.5; 2017 Est.: 6.8; 2018: 5.7; 2019: 4.6
  - Domestic demand: 2014: 2.9; 2015: 12.4; 2016: 1.4; 2017 Est.: 1.8; 2018: 5.4; 2019: 4.0
  - CPI (harmonized, average): 2014: 0.8; 2015: 1.2; 2016: 0.9; 2017 Est.: 1.3; 2018: 1.7
  - Unemployment rate (percent): 2014: 5.8; 2015: 4.7; 2016: 4.2; 2017 Est.: 4.4
- Public finance (General government, percent of GDP)
  - Overall balance: 2014: -1.8; 2015: -1.1; 2016: 1.1; 2017 Est.: 0.7
  - Primary balance: 2014: 1.0; 2015: 3.3; 2016: 3.4; 2017 Est.: 2.6; 2018: 2.4
  - Structural balance 1/: 2014: -2.3; 2015: -2.1; 2016: 0.6; 2017 Est.: 0.1; 2018: 0.2
  - Gross debt: 2014: 63.9; 2015: 60.3; 2016: 57.7; 2017 Est.: 54.2; 2018: 50.1; 2019: 47.3
- Financial sector
  - Credit to nonfinancial private sector 2/: 2014: 3.8; 2015: …
  - Credit to the private sector (percent GDP): 2014: 95.9; 2015: 90.8; 2016: 87.9
- Interest rates (year average) (Percent)
  - Interest rate for mortgage purposes: 2014: 3.5; 2015: 3.1
  - Ten-year government bond yield: 2014: 1.5
- Balance of payments (Percent of GDP)
  - Current account balance: 2014: 8.8; 2015: 6.6; 2016: 10.3; 2017 Est.: 9.6; 2018: 9.2
  - Trade balance (goods and services): 2014: 12.0; 2015: 7.4; 2016: 11.3; 2017 Est.: 16.0; 2018: 16.2; 2019: 16.7
- Exchange rate
  - Exchange rate regime: Joined EMU on January 1, 2008.
  - Nominal effective rate (2010=100): 2014: 101.6; 2015: 97.7; 2016: 97.9
  - Real effective rate, CPI-based (2010=100): 2014: 101.0; 2015: 98.4

*Executive Board endorsement of staff appraisal; press release dated January 29, 2018.*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2018/01/29/pr1828-malta-imf-executive-board-concludes-2017-article-iv-consultation_