## IMF Executive Board Concludes 2022 Article IV Consultation with Malta _IMF News, February 8, 2023_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2022 Article IV Consultation with Malta](https://www.imf.org/en/news/articles/2023/02/07/pr2333-malta-imf-executive-board-concludes-2022-article-iv-consultation-with-malta) ## Other formats - [Markdown version](/en/news/articles/2023/02/07/pr2333-malta-imf-executive-board-concludes-2022-article-iv-consultation-with-malta/index.md) - [Structured JSON version](/en/news/articles/2023/02/07/pr2333-malta-imf-executive-board-concludes-2022-article-iv-consultation-with-malta/index.json) - [Bundle manifest](/en/news/articles/2023/02/07/pr2333-malta-imf-executive-board-concludes-2022-article-iv-consultation-with-malta/bundle-manifest.json) ## Bibliographic details - Published: February 8, 2023 --- ### Recent economic performance - Output grew by 11¾ percent in 2021 following the COVID-19 recession. - Staff expect growth of 6½ percent in 2022. - The economy continued to expand for the first three quarters of 2022, driven by strong net exports and private consumption. - Inflation has picked up but has remained among the lowest in the euro area, reflecting the government’s policy to freeze retail electricity and fuel prices for all consumers. ### Outlook and risks - GDP growth is expected to slow to 3¼ percent in 2023 due to lower consumer purchasing power, dampening domestic demand and weakening external demand from Europe. - Inflation is expected to gradually decline but remain elevated. - Uncertainty is exceptionally high, and risks are tilted to the downside: - Deeper-than-expected recession in Europe. - Possible de-anchoring of inflation expectations. - Realization of money laundering and terrorist financing risks. - Upside scenario: lower-than-expected commodity prices would lead to stronger growth than forecast. ### Executive Board assessment — key findings - Malta’s economic recovery from the pandemic is remarkable, but the indirect impact of Russia’s war in Ukraine weighs on the outlook. - Strong recovery continued into 2022, driven by high net exports and consumption. - Growth is set to slow in 2023 as the confluence of global shocks weighs on the economy. - Inflation to gradually decline but remain elevated. - Risks to the outlook are tilted to the downside, mainly because the growth slowdown in Europe could be deeper than expected. ### Policy recommendations — energy policy - Prepare an exit strategy from the fixed-energy-price policy while protecting vulnerable groups. - Exit strategy objectives: - Contain fiscal costs. - Introduce market price mechanisms to enhance incentives for energy conservation. - Help accelerate the green transition. - Explore reform options with the aim of gradually rolling them out ahead of winter 2023/24. - Accelerating the green transition is emphasized as the best way to strengthen Malta’s resilience to an energy shock. ### Policy recommendations — fiscal policy and revenue - The fiscal tightening planned for 2023 is appropriate to slow inflation and improve public finances, but additional actions are needed to pursue consolidation over the medium term. - Public debt is projected to remain just below 60 percent of GDP, but could be forced upward if growth underperforms or contingent liabilities materialize. - Authorities need additional measures to mobilize revenues and enhance spending efficiency over the medium term. - In light of Pillar II of the global corporate tax reform, authorities need to: - Reform the taxation of multinational firms. - Consider broader reforms to the tax system and to revenue administration to simplify and improve efficiency and reduce administration and compliance costs while protecting revenues. - Continue efforts to identify scope for rationalizing recurrent spending. - Further steps to improve the efficiency of public investment, including green investments. - Monitor long-term demographic trends to properly plan pension-related reforms. - Continue to promote voluntary occupational pensions and personal pensions. ### Policy recommendations — financial sector and supervision - Financial system remains sound, but emerging risks warrant continued vigilance and close monitoring of banks. - Authorities should closely monitor banks’ risk management to ensure provisions are continuously updated as economic prospects change. - Consider introducing a sectoral systemic capital risk buffer targeting mortgage loans given the banking sector’s large exposure to the housing market. - Continue efforts to monitor cyber security risks and strengthen resilience against cyberattacks. ### Policy recommendations — AML/CFT framework - Continue efforts to strengthen the effectiveness of the AML/CFT framework. - Boosted resources for AML/CFT supervisors should remain in place to help the long-term sustainability of reforms. - Authorities need to continue to demonstrate the effectiveness of supervisory outcomes, including through effective implementation of sanctions. - Implement the national AML/CFT strategy for 2021–2023 and the NRA exercise to enhance coordination and supervision. - Closely monitor high-risk sectors, especially virtual financial assets, gaming, and sectors associated with Malta’s Citizenship by Investment program. ### Policy recommendations — structural reforms and climate - Structural reforms needed to improve long-term growth and address climate challenges. - Malta’s Recovery and Resilience Plan will address part of its structural challenges, but more efforts needed, especially to: - Address labor skill mismatches. - Increase STEM graduates. - Enhance vocational training. - Promote research and innovation. - Advance the digital transformation of SMEs. - Foster labor force participation through incentives for workers to delay retirement and flexible working solutions to address structural labor shortages. - Continue implementing the 2021 Low Carbon Development Strategy and seek decarbonization potential by exploiting various sources, including investing in renewable sources. ### Selected economic indicators (highlights from table) - Real GDP: 6.2 (2018); 7.0 (2019); -8.6 (2020); 11.7 (2021); 6.5 (2022); 3.3 (2023 projections). - Domestic demand: 8.8 (2018); 8.1 (2019); -3.7 (2020); 7.8 (2021); 4.0 (2022); 3.7 (2023 projections). - CPI (harmonized, average): 1.7 (2018); 1.5 (2019); 0.8 (2020); 0.7 (2021); 6.1 (2022); 5.2 (2023 projections). - Unemployment rate (percent): 3.6 (2018); 4.4 (2019); 3.4 (2020); 3.0 (2021); 3.1 (2022); (2023 not listed). - Overall balance (general government, percent of GDP): 2.1 (2018); 0.6 (2019); -9.6 (2020); -7.8 (2021); -5.4 (2022); -5.0 (2023 projections). - Gross debt (percent of GDP): 43.7 (2018); 40.3 (2019); 53.0 (2020); 55.2 (2021); 56.6 (2022); 58.5 (2023 projections). - Current account balance (percent of GDP): 6.4 (2018); 4.9 (2019); -2.8 (2020); -4.5 (2021); -3.6 (2022); -3.5 (2023 projections). - Trade balance (goods and services, percent of GDP): 15.6 (2018); 13.9 (2019); 7.9 (2020); 4.2 (2021); 5.1 (2022); 5.3 (2023 projections). - Exchange rate regime: Joined EMU on January 1, 2008. - Nominal effective rate (2010=100): 101.8 (2018); 100.5 (2019); 101.6 (2020); 103.0 (2021). - Real effective rate, CPI-based (2010=100): 104.9 (2018); 103.6 (2019); 104.7 (2020); 103.7 (2021). *IMF Executive Board Concludes 2022 Article IV Consultation with Malta — Press Release No. 23/33, February 8, 2023.* --- ## References - [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/2023/02/07/pr2333-malta-imf-executive-board-concludes-2022-article-iv-consultation-with-malta_