## IMF Executive Board Concludes 2019 Article IV Consultation with Malta

_IMF News, February 27, 2019_

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## Bibliographic details
- Published: February 27, 2019

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### Overview
- 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).

### Growth, labor market, and inflation
- 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.

### Fiscal position and current account
- 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.

### Financial sector, FSAP findings, and recommended actions
- 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.

### Structural reforms and labor market policies
- 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.

### Selected economic indicators, 2015–2020 (year-on-year percent change, unless otherwise indicated)
- Per Capita GDP (2017): €24.2 thousand
- Quota: 168.3 million SDR, .04% of total

Real economy (constant prices) — Percent change year on year
- Real GDP:
  - 2015: 10.6
  - 2016: 5.7
  - 2017: 6.6
  - 2018: 6.4
  - 2019 (projection): 5.2
  - 2020 (projection): 4.4
- Domestic demand:
  - 2015: 14.5
  - 2016: 1.1
  - 2017: -1.5
  - 2018: 6.0
  - 2019 (projection): 5.3
  - 2020 (projection): [value not provided in table]
- CPI (harmonized, average):
  - 2015: 1.2
  - 2016: 0.9
  - 2017: 1.3
  - 2018: 1.7
  - 2019 (projection): 2.0
  - 2020 (projection): 2.1
- Unemployment rate (percent):
  - 2015: 5.4
  - 2016: 4.7
  - 2017: 4.0
  - 2018: 4.1
  - 2019 (projection): 4.3

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)
- Interest rate for mortgage purposes: 3.1 (year not specified)
- Ten-year government bond yield: 1.5 (year not specified)

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
- Exchange rate regime: Joined EMU on January 1, 2008.
- Nominal effective rate (2010=100):
  - 2015: 97.7
  - 2016: 97.9
  - 2017: 99.6
- Real effective rate, CPI-based (2010=100):
  - 2015: 98.4
  - 2016: 99.5

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).*

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## 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/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/02/27/pr1961-malta-imf-executive-board-concludes-2019-article-iv-consultation_