Mission Concluding Statement 

Valletta, Malta: An IMF mission led by Mr. Nick Gigineishvili conducted discussions for the 2025 Article IV consultation with Malta during December 2-15, 2025. At the conclusion of the mission, Mr. Gigineishvili issued the following statement:

Context

Malta’s economy has demonstrated remarkable resilience and dynamism over the past decade, consistently outpacing the EU in growth and nearly doubling per capita income since 2013. This expansion has been driven by robust tourism, online gaming, and professional services, supported by a significant inflow of foreign workers. In view of the aging population and pressure on infrastructure and public services, sustaining high growth for longer will require a strategic shift from labor-driven to productivity-driven growth, with greater investment in human capital, innovation, and infrastructure, as outlined in the authorities’ Malta Vision 2050 strategy.

Recent Developments, Outlook and Risks

Growth is slowing from 6.8 percent in 2024 to an expected 3.9 percent in 2025, with domestic demand and tourism remaining strong. Growth will continue at its potential level of about 4 percent over the medium term. Headline inflation is estimated at 2.4 percent in November and is expected to be close to 2 percent in the medium term. Public debt, projected to remain at about 47 percent of GDP, is sustainable with low risk of distress. Unemployment remains low at about 3 percent, although labor shortages and skills mismatches are becoming increasingly acute.

The outlook is subject to downside risks. Possible spillovers from geopolitical tensions could result in commodity price spikes and higher energy subsidies, disrupt trade, tourism and other services, and coupled with a slowdown in the EU, could reduce Malta’s exports and growth. Wage pressures could fuel inflation and weaken competitiveness, while softening of the property market could negatively affect the banking sector. Intensification of competition in the gaming industry from other jurisdictions could reduce growth and fiscal revenues, while cyberthreats could negatively affect e-business. On the upside, stronger than anticipated demand for tourism and other services could boost growth.

Given these risks, the policy priorities are to strengthen resilience to shocks and to maintain macroeconomic stability while advancing structural reforms to empower Malta’s transition from predominately labor-intensive services to a productivity-driven economy.

Fiscal Policy

The medium-term fiscal strategy should be anchored on maintaining prudent deficits and public debt, while creating fiscal space for more spending on infrastructure, education, innovation, and the green transition. In this regard, the authorities’ commitment to fiscal consolidation is welcome. The 2026 budget targets an overall deficit of 2.8 percent of GDP, down from an estimated 3.3 percent in 2025. Preserving the overall deficit at around 2.6 percent of GDP in the medium term would keep public debt at the current level of about 47 percent of GDP, which provides a significant buffer for shocks in an increasingly volatile global environment.

Fiscal space for key investments in infrastructure, education, innovation, and the green transition could be created by both revenue and expenditure measures. Recent tax administration reforms have delivered tangible improvements through the introduction of electronic filing and payments, reducing a VAT refund period, and operationalizing the large taxpayer unit. Further gains are expected from the planned roll out of real-time reporting, a central data warehouse, and improved risk management tools. Expenditure savings could be achieved by phasing out energy subsidies while protecting vulnerable households and providing temporary support to energy-intensive firms. Energy price reform should include a gradual move to cost-recovery tariffs for electricity while preserving a lifeline rate for households for minimal use at the current levels, increasing progressivity of tariffs linked to consumption amounts, and implementing an automatic price adjustment mechanism. Fuel prices should be market-determined.

The authorities should develop a roadmap for phased reform of the Corporate Income Tax (CIT) to provide predictability to investors. In view of heightened uncertainty about global tax agreements, the authorities have decided to delay implementation of the Qualified Domestic Minimum Top-up Tax under OECD Pillar II until end-2029. However, without a clear roadmap on possible future tax changes, uncertainty may delay investment decisions while Malta may forego top-up tax revenues collected by other jurisdictions. As part of the CIT reform, gradual phasing out of the refund system paired with a lower statutory rate for domestic enterprises would help align effective tax rates across taxpayer groups. The CIT reform should be considered in conjunction with changes to the personal income tax to align effective tax rates across income sources.

Financial Sector Policies

Malta’s banking system has sufficient capital and liquidity to withstand shocks. Systemic risks remain contained, but high concentration of the banking sector and growing exposures of banks to real estate warrant monitoring even if the risk is low. The mission supports the authorities’ proactive measures to safeguard financial stability, including application of more granular risk weights for real estate exposures under the EU’s Capital Requirements Regulation III and the planned broadening of a sectoral systemic risk buffer to include construction and commercial real estate. Supervisors should continue to ensure robust underwriting and appraisal practices. The authorities should enhance data coverage in commercial real estate and continue to periodically review the effectiveness of borrower-based measures.

Malta’s non-bank financial institutions, mostly life insurance companies, are well-capitalized and liquid but should be closely watched given their potential to amplify shocks through interlinkages. Fast growth in digital banks and crypto service providers also requires close monitoring and prudential oversight. The authorities have strengthened regulatory and supervisory frameworks, which are essential to monitor and mitigate potential spillovers. The mission also welcomes significant progress in strengthening Malta’s AML/CFT framework, but continued vigilance is needed to address emerging threats such as trade-based money laundering and risks linked to virtual assets.

Structural Reforms

Labor shortages and skills mismatches are emerging constraints to growth. More strategic labor market policies, focused on upskilling and reskilling, would alleviate bottlenecks and support further investment in higher value-added sectors. The authorities' reform program appropriately targets AI education and skills-based immigration, enhanced incentives for retention of skilled workers, and migrant training to improve workforce productivity.

Addressing inefficiencies and persistent delays in the judicial system would help improve the business environment. The authorities have taken steps to strengthen judicial institutions, expand staffing, revamp judicial appointments and compensation, enhance accountability, and modernize Malta's debt restructuring toolkit. Continued efforts are needed to strengthen court capacity and infrastructure, increase judicial specialization, and digitize courts’ processes and case management.

The authorities should build on progress in nurturing innovation and digitalization. Malta has made strides in boosting firm-level investment in innovation, including ICT usage and digitalization, but continues to lag EU peers in government financing for innovation, human capital development, and product innovation. To advance further, it would benefit Malta to incentivize R&D and support start-ups by streamlining access to the allocated public funding and to strengthen cybersecurity and digital preparedness through training.

The authorities have strengthened the climate framework and are making progress on a second electricity interconnector to Italy and on rooftop solar panel implementation. Energy security could be reinforced through streamlined permitting for renewable energy and grid upgrades, phaseout of fossil fuel subsidies, especially for high-use commercial customers, and improved incentives for EV adoption.

Gains from national reforms would be amplified by EU-level measures aimed at deepening market integration. These would enable Maltese firms to access larger markets and attract investment.

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The IMF mission team would like to thank the authorities for open and constructive discussions and their hospitality.