IMF Executive Board Concludes 2021 Article IV Consultation with Malta
IMF News, September 17, 2021
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- Published: September 17, 2021
Economic impact and outlook
- COVID-19 impact:
- Real GDP contracted by 7¾ percent in 2020.
- Tourist arrivals fell sharply; contact-intensive services were severely affected due to domestic mobility restrictions.
- Authorities’ swift and bold policy response helped mitigate the impact, preventing large-scale layoffs, bankruptcies, and credit disintermediation.
- Recovery and projections:
- Staff expect the economy to grow by around 5¾ percent in 2021 and 6 percent in 2022, assuming further progress in global vaccination, an unleashing of pent-up demand for contact-intensive services, and a gradual recovery in international tourist arrivals.
- Consumer and business confidence have recovered to pre-COVID-19 levels; signs of labor markets tightening are emerging.
- Uncertainty is very high; risks are tilted to the downside, including from a global resurgence of the COVID-19 pandemic and a prolonged placement in the Financial Action Task Force (FATF) grey-list.
- Upside scenario: recovery could be faster than expected due to swift global vaccination boosting confidence and economic activity.
Executive Board Assessment and policy stance
- Commendations and general guidance:
- Directors commended the authorities for the swift and bold response to the COVID-19 pandemic.
- Targeted, coordinated policy support should continue until the recovery firmly takes hold, balancing near-term growth with long-term stability while pursuing structural reforms to strengthen resilience.
- Fiscal policy recommendations:
- The pace of unwinding fiscal support should be managed carefully and flexibly.
- Once recovery is fully entrenched, focus on rebuilding buffers gradually and fostering infrastructure investment and economic transformation.
- Encourage strengthening tax administration, managing contingent liabilities, and ensuring pension system sustainability.
- Recommend a holistic review of the overall tax system, taking into consideration the global minimum corporate tax proposal.
- Planned review of the infrastructure investment and management framework is critical to boosting Malta’s capacity to absorb EU funds.
Financial sector and stability
- Banking sector:
- Directors noted that the banking system has proved resilient but stressed the importance of safeguarding financial stability.
- Encourage authorities to closely monitor banks’ financial positions and risk management, continuously analyze vulnerabilities from the corporate and real estate sectors, and enhance data collection.
- AML/CFT:
- Recent progress noted in strengthening the AML/CFT framework, but Directors called for urgent action to address remaining deficiencies and exit the FATF’s grey list.
- Recommended prioritizing transparency on beneficial ownership information and financial intelligence related to money laundering and tax evasion.
- Advised continuous assessment of high-risk activities and their impact on correspondent banking relationships.
Structural reforms and priorities
- Labor market and insolvency:
- Encourage further advancement of labor market reforms and leverage active labor market policies to facilitate resource reallocation.
- Completing the corporate insolvency framework reform remains an important priority.
- Sectoral and long-term priorities:
- Further efforts needed to promote stronger and more sustainable tourism, and support digital transformation and decarbonization.
- Directors welcomed the authorities’ commitment to reducing greenhouse gas emissions in line with EU targets.
Key statistics and selected indicators (2017–2022)
- Real economy (percent change year on year):
- Real GDP: 2017: 8.6; 2018: 5.2; 2019: 5.5; 2020: -7.8; 2021: 5.7; 2022: 6.0
- Domestic demand: 2017: 2.0; 2018: 8.0; 2019: 7.4; 2020: -2.5; 2021: 5.3; 2022: 3.2
- CPI (harmonized, average): 2017: 1.3; 2018: 1.7; 2019: 1.5; 2020: 0.8; 2021: 0.7; 2022: 1.8
- Unemployment rate (percent): 2017: 4.0; 2018: 3.7; 2019: 3.6; 2020: 4.3; 2021: 3.5
- Public finance (General government, percent of GDP):
- Overall balance: 2017: 1.9; 2018: 0.4; 2019: -10.2; 2020: -11.8; 2021: -6.5
- Primary balance: 2017: 5.0; 2018: 3.4; 2019: -8.9; 2020: -10.4; 2021: -5.2
- Structural balance 1/: 2017: 1.2; 2018: 0.1; 2019: -7.3; 2020: -9.4; 2021: -5.3
- Gross debt: 2017: 48.5; 2018: 44.8; 2019: 42.0; 2020: 54.8; 2021: 64.6; 2022: 66.9
- Financial sector and interest rates:
- Credit to nonfinancial private sector 2/: 2017: 6.7; 2018: 6.6; 2019: …
- Credit to the private sector (percent GDP): 2017: 76.5; 2018: 76.1; 2019: 75.4; 2020: 86.0
- Interest rate for mortgage purposes (year average, percent): 2017: 3.1; 2018: 3.0
- Ten-year government bond yield (year average, percent): 2017: 1.4; 2018: 0.5
- Balance of payments (percent of GDP):
- Current account balance: 2017: 6.3; 2018: -3.6; 2019: -0.3
- Trade balance (goods and services): 2017: 17.5; 2018: 15.6; 2019: 15.2; 2020: 7.6; 2021: 7.8; 2022: 10.0
- Exchange rate:
- Exchange rate regime: Joined EMU on January 1, 2008.
- Nominal effective rate (2010=100): 2017: 99.8; 2018: 101.9; 2019: 100.7; 2020: 101.8
- Real effective rate, CPI-based (2010=100): 2017: 99.6; 2018: 101.4; 2019: 100.2; 2020: 101.3
IMF Press Release No. 21/269, September 17, 2021.
