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Malta

Author(s):
International Monetary Fund
Published Date:
June 1995
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Basic Data

Area316 sq. kilometers (122 sq. miles)
Population (in thousands, 1993)366.4
Domestic labor force (in thousands, 1993)138.4
GNP (1993, at current prices) 1/Lm 977.1 million
GNP per capita, 1993Lm 2,669 or US$6,985 (SDR 5,002)
Social indicators (1991)
Infant mortality9.6 per 1,000 live births
Life expectancy (years)Male: 73.6 Female: 78.3
Number of students (in thousands)Total: 91.8 University: 2.8
Demand and output, 19931/In millions of Maltese liriIn percent of total
Private consumption566.260.7
Public consumption189.120.3
Fixed investment271.329.1
Stockbuilding-0.1
Total domestic demand1029.4110.3
Exports of goods and services874.993.7
Imports of goods and services970.8104.0
Gross domestic product933.1100.0
Selected economic indicators
1991199219931/19942/
percentage change from the preceding year
Demand, output, and prices
GDP at current market prices9.88.17.49.2
GDP at constant 1973 prices6.34.33.84.9
Total consumption5.65.52.54.2
Private consumption3.84.41.44.3
Public consumption10.98.96.14.2
Gross fixed investment0.0-0.25.57.0
Exports of goods and services7.59.71.97.6
Imports of goods and services5.43.02.87.7
Consumer prices2.51.64.24.1 3/
GDP deflator3.33.63.54.2
Total employment (end-period)2.91.40.9
Unemployment rate (end-period, in percent)3.64.04.54.0 4/
19911992199319945/
Fiscal indicators (in percent of GDP)
General government
Total revenue37.437.337.939.8
Of which: foreign grants(2.0)(1.9)(0.9)(1.3)
Total expenditure42.040.240.843.1
Balance-4.5-3.0-3.0-3.3
Memorandum items:
Official estimate of deficit 7/-5.0-3.4-3.4-3.9 6/
Public debt (end of period)26.228.232.7
19911992199319942/
Monetary survey (percentage changes - end period stocks)
Monetary base6.86.31.06.4 7/
Broad money (M2)8.89.310.313.9 3/
Narrow money (M1)5.80.44.19.7 3/
Domestic credit20.59.112.912.7 3/
Net foreign assets1.716.26.611.1 3/
Velocity (GDP/M2, in percent)71.270.468.3
Six-month time deposit (period average, in percent)4.54.5-4.54.5 4/
External sector (in millions of liri)
Exports of goods and services780.0881.7950.71,061.0
Of which: goods (f. o. b.)414.9496.6516.5550.1
Imports of goods and services819.8902.0993.51,109.7
Of which: goods (f. o. b.)613.3671.1746.7834.0
Balance of goods and services-39.8-20.3-42.8-48.7
Of which: net tourism receipts132.5136.5155.9191.7
Net transfers37.429.923.225.2
Current account-2.59.6-19.5-23.5
(In percent of GDP)(-0.3)(1.1)(-2.1)(-2.3)
Long-term capital34.846.773.3
Short-term capital 8/-30.5-38.39.7
Errors and omissions-27.4-5.3-38.1
Overall balance 9/-25.612.725.4
External debt as percent of GDP5.65.76.1
Net total external reserves582.2676.6721.7791.6 10/
Nominal effective exchange rate 11/
(Average percentage change)-0.1-1.7-7.50.1 3/
Real effective exchange rate 11/
(Average percentage change)-2.3-3.7-6.62.2 3/

National accounts figures for 1993 are partly estimated.

Staff estimates, unless otherwise stated.

12-month change to August.

August.

Budget estimates.

The authorities’ presentation includes as expenditure contributions to a sinking fund for debt repayment.

12-month change to July.

Including changes in net foreign position of commercial banks and other financial institutions.

The overall balance figures are not necessarily comparable to changes in net official reserves because of exchange rate effects and differences in the timing of valuation.

As of end-August.

IMF, International Financial Statistics.

National accounts figures for 1993 are partly estimated.

Staff estimates, unless otherwise stated.

12-month change to August.

August.

Budget estimates.

The authorities’ presentation includes as expenditure contributions to a sinking fund for debt repayment.

12-month change to July.

Including changes in net foreign position of commercial banks and other financial institutions.

The overall balance figures are not necessarily comparable to changes in net official reserves because of exchange rate effects and differences in the timing of valuation.

As of end-August.

IMF, International Financial Statistics.

I. Overview

Since 1987, Malta’s economy has been undergoing a process of structural change. The policy thrust has been toward deregulation, the encouragement of greater private sector initiative, and the opening up of the economy to external competition. While progress has been slow at times, changes have been effected in a number of areas including tax reform, the lifting of price and import controls, and the partial deregulation of-financial markets. Moreover, in line with Malta’s application to join the EU, further structural changes are in the planned: by 1997, Malta envisages having a modern market economy with free flows of external capital.

Chapter II presents an overview of some of the main structural policies in recent years and describes recent developments in the domestic economy. It notes that, whereas policies have favored private initiative, the Government has retained a significant presence in the economy both through its direct control of resources (two out of every five workers are still employed in the public sector in some form) and through an active industrial policy. The policy mix has helped to accentuate certain trends in the structure of output since 1987: in particular, the importance of services has continued to grow at the expense of manufacturing. However, within manufacturing, there has been a distinct shift toward a greater export orientation of sales.

Coming off several years in which growth was rapid, growth slowed in 1992–93 owing mainly to the effects of fiscal consolidation and to recession in Europe. The slowdown might have been more marked in 1993 had it not been for a devaluation of the Maltese lira in November 1992. At the same time, though, the depreciation helped to push up prices significantly. Signs were emerging in the first half of 1994 of a recovery of growth in some sectors of the economy, notably tourism.

Chapter III describes recent developments in the public accounts. 1992 and 1993 were years of fiscal consolidation following the build up of large, unsustainable deficits at the turn of the decade. More recently, the path of fiscal consolidation has been reversed and a small budgeted rise in the deficit in 1994 appears likely to be exceeded. Chapter III also describes the main features of the VAT, which is scheduled to be introduced at the beginning of 1995. The VAT will largely complete the process of tax reform and permit a substantial reduction in tariff barriers.

Chapter IV describes changes in the structure of the financial system as well as recent developments in monetary policy and conditions. It notes that several initiatives have been taken to liberalize and develop financial markets in the last couple of years. At the same time, the Central Bank of Malta has set in place the framework for pursuing a more active monetary policy. The Chapter notes that monetary conditions as measured by broad money growth and low real interest rates loosened in 1993 and remained on the loose side in the first nine months of 1994.

Chapter V analyzes exchange rate policy and recent developments in Malta’s external balance of payments. It observes that, in the context of eschewing protectionism since 1987, the authorities have perhaps been more willing to use exchange rate policy to pursue competitiveness goals than in the past. However, in considering the merits of different exchange rate arrangements, the Chapter argues that Malta is best served by maintaining a fixed rate and one that is perhaps more oriented to the stability-oriented economies of Europe. The Chapter notes that exports and imports have both grown rapidly since 1987 in the context of a more liberal trade environment and a surge in investment, and the current account has tended to be in deficit. At the same time, there have been large capital outflows associated with fewer restrictions on the portfolio behavior of banks. In recent years, these have been more than countered by short-term capital inflows and public sector borrowing abroad.

Chapter VI describes Malta’s exchange and trade system and the several recent measures that have been enacted to remove restrictions both on current and capital account transactions. It is noted that tariff barriers are high by international standards (although they are set to be lowered in 1995 with the introduction of the VAT) and have been supplemented in recent years by import levies in selected sectors. In addition, external capital flows remain heavily controlled.

This paper also contains three technical Appendices.Appendix I examines indicators of the real exchange rate. It concludes that correcting existing estimates to account for tourism trade and for deficiencies in using CPIs to proxy costs makes only a marginal difference to the interpretation of recent trends in competitiveness, which appear to have been highly favorable.Appendix II describes the structure of social security and health spending. It notes that under projected demographic trends, the social security system is likely to come under increasing strains in the not too distant future.Appendix III describes a small model for constructing medium-term scenarios for the Maltese economy. A key element of the model is a link between the fiscal deficit and the premium paid on domestic interest rates over rates in international capital markets. It concludes that a prudent fiscal policy would enhance medium-term macroeconomic performance.

II. Domestic Economy

Since 1987, the authorities have been gradually working to liberalize Malta’s heavily regulated economy and open it up to greater external competition—a policy, which is set to gain further momentum under the objective of satisfying the conditions for eventual EU membership. Progress has been made in several areas, including price deregulation, the reduction of import barriers, privatization, and financial liberalization. The changes have already begun to leave their mark on the structure of output and the pattern of savings and investment. Nevertheless, much remains to be done and the Government continues to maintain a strong direct role in the economy both through its industrial policy and a high level of public expenditure.

Macroeconomic performance since 1987 has generally been highly satisfactory. In the context of an ambitious public investment program and favorable external demand, real GDP growth was notably strong (in the range 6–8 percent a year) in the period 1987–91 (Chart 1). This growth fully eliminated earlier excess capacity in the economy, and, by 1991, inflationary pressures were building up. Real output growth slowed in 1992–93 to a 4 percent pace owing to a large extent to fiscal consolidation and the recession in other European countries. The slowdown might have been greater in 1993 had it not been for a 10 percent devaluation of the Maltese lira in November 1992. However, the devaluation also added significantly to prices with inflation increasing to 5 percent in the second half of 1993 despite a modest rise in unemployment. In the first half of 1994, signs of a pickup in growth were emerging, led by the important tourism sector. Inflation, meanwhile, eased to around 4 percent as the direct effects of the devaluation dissipated.

CHART 1MALTA: OUTPUT, UNEMPLOYMENT, AND INFLATION

(In percent)

Source: Data provided by the Maltese authorities.

1/ Staff estimates for 1994.

2/ August figures for 1994.

3/ Four-quarter percentage changes.

This chapter is divided into two main sections. The first presents a review of structural policies and trends in the Maltese economy since 1987. The second details more recent economic developments.

1. Structural developments

a. Policies

Malta’s economic development during the past seven years has been shaped by a mixture of deregulation, liberalization, and selected government intervention. Through its structural reform program some of the distortions to economic decision taking have been removed and incentives provided to improve competitiveness. The deregulation and development of the financial system has also helped to support an increase in saving rates, thereby facilitating the financing of a prolonged phase of sustained growth (Chart 2). At the same time, the ongoing transformation of the Maltese economy toward a more market-oriented and open system has been accompanied by a high level of public expenditure, both current and capital, and an active industrial policy.

CHART 2MALTA: SAVING AND INVESTMENT

(In percent of GNP)

Source: Data provided by the Maltese authorities; and staff estimates.

Regarding deregulation of the economy, the authorities almost completed the dismantling of the state bulk-buying and price stabilization scheme for imports of commodity goods during 1992 and 1993. From all the goods originally included in the scheme, only barley, maize, wheat and frozen beef are still subject to control. In addition, the system of Price controls (essentially the regulation of maximum profit margins) has been eased significantly since 1988–89 and retail prices are now only loosely monitored for the purpose of consumer protection. Furthermore, Parliament recently passed legislation to regulate anti-trust activities, which envisages the creation of an independent body that will be responsible for overseeing competition in Malta. This will permit the total abolition of price controls and will be complemented by a soon-to-be-enacted Consumer Affairs Bill to strengthen consumer protection. Significant deregulation has also been achieved in the financial sector where the Government’s majority shareholding in one of the three commercial banks has been privatized, interest rates have been partially liberalized, and steps have been taken to develop financial markets.1/

In the area of trade barriers, most quotas have now been eliminated, import licensing requirements have been simplified, and tariff rates reduced.2/ Further tariff reductions are scheduled for January 1, 1995 as the introduction of a VAT will not only complete a far-reaching tax reform, but also permit the adoption of an EU tariff structure.3/ Earlier tax reform had included a radical reduction in marginal income tax rates. Finally, in the field of privatization, some 66 publicly owned enterprises have been sold off or liquidated in the past two years.

At the same time that structural policies have encouraged greater private sector initiative, the Government’s direct command of resources has remained at a high level. Public consumption grew at about 10 percent a year in real terms between 1987–91, primarily fueled by public sector wage rises and increasing expenditure on social programs, while capital expenditure by the combined general government and public enterprise sector increased by almost 40 percent a year in real terms in the same period. Current public spending continued to rise rapidly in 1992–93. However, an easing of the capital spending program from 1991 onward helped to contain overall public spending growth. Nevertheless, the government sector remains large as indicated by the fact that some 42 percent of the employed labor force currently works in the public sector.

In the case of industrial policy, the Government has placed a heavy emphasis on active promotion of investment in high value added export-oriented manufacturing activities. The principal vehicle for this policy is the Malta Development Corporation (MDC), which administers a comprehensive program of investment incentives established by the Government in 1987 and aimed primarily, but not solely, at foreign investors. The main incentives are low interest rate (3 percent) loans for investment in plant and equipment, tax holidays, the provision of rent-subsidized government-built factories, and training grants.1/ Up to 1993, MDC granted soft loans averaging around Lm 1.4 million per annum to companies operating mainly in the electronics and electrical, medical and pharmaceutical, and textiles and clothing subsectors. MDC grants to companies for employee training totaled approximately Lm 2.6 million over the period 1987–92, benefiting around 470 companies and 19,600 employees (or around 17 percent of all persons employed in the manufacturing sector). On a per person basis, the training grants have amounted to approximately Lm 140 or around 3 weeks average earnings.

MDC operations expanded in 1993. In particular, it reached an agreement with Hambro European Ventures Limited to set up a venture capital fund “The Malta Development Fund” that will make equity investments in companies seeking development capital and it developed the Mosta Technopark, a custom-designed technology park that offers companies advanced levels of factory premises with supporting infrastructure, targeted at high technology electronics and information technology companies. Moreover, the Industrial Development Act was amended to recognize the potential growth in the services sector, allowing the Corporation to translate government economic policy into effective support to promote targeted service industries.

Direct subsidies are a further important element of industrial policy. The tourism sector has benefited in particular from a forward exchange rate subsidy provided to British package tour operators that in some years has exceeded 1 percent of GDP. The forward buying arrangement is scheduled to be phased out by the 1997 winter season. The shipbuilding and ship repair sectors have also been receiving heavy government subsidies, although lately the assistance has become more a means for survival than a promotion device. In recognition of the lack of profit potential, the authorities reached agreement in October 1994 on a restructuring of the sectors. The two sectors are to be merged, and part of the shipbuilding arm is to be split into two new companies, constructing cranes and containers. Some slimming of the 5,000 plus workforce is also envisaged through early retirement schemes.

b. Output trends

The policy framework in Malta has reinforced three trends in the structure of output since 1987. First, service activities have been growing at the expense of the industrial sector, with the insurance, banking, and real state sector, together with tourism-related sectors constituting the fastest growing sectors (Chart 3). Second, the declining relative share of the manufacturing sector includes subsectors that have maintained or even expanded their contribution to national output as a consequence of export- oriented strategies. Third, the public sector’s output share has continued to rise as a result of high government spending and investment by public enterprises.

CHART 3MALTA: SECTORAL DISTRIBUTION OF GDP

(In percent of GDP at factor cost)

Source: Data provided by the Maltese authorities.

(1) Industry

The share of industry in GDP at factor cost has declined since 1987, falling from over 40 percent in 1987 to 35 percent in 1993 (Table A1). Much of this decline was accounted for by the relatively poor performance of the manufacturing sector. The share of the construction and quarrying sector, which was sustained to some extent through 1991 by public infra-structure projects, declined only modestly.

The experiences of various subsectors of manufacturing have differed considerably since 1987. For example, the textiles, footwear and clothing industries, which still account for the largest share of value added (19 percent) and employment (23 percent) in the manufacturing sector, has experienced a further shakeout in their share of value added and employment following import liberalization in 1987. At the same time the export orientation of these industries has increased with 87 percent of combined sales going abroad in 1993 compared with 81 percent in 1987.

By contrast, the machinery sector (which includes electronics) has benefited from significant foreign investment in recent years and has seen its share of output rise. Most of the investment has been in the electronics industry, which is dominated by a single firm, SGS Thomson Micro-electronics, which imports most of it component inputs from Italy where its parent company is based. The machinery sector is almost wholly export oriented.

The chemical, paper and printing, and leather and rubber sectors have also competed successfully in the more open environment of recent years. Together they represent 13 percent of manufacturing sales, 15 percent of employment in manufactures, and 15 percent of its value added. Chemical exports as well as domestic sales have been growing impressively in recent years: between 1987 and 1993, total sales nearly doubled and exports have trebled. The paper and printing sector has also been experiencing strong growth since 1987, following a period of re-structuring in the mid-to late-1980s. Similarly, the heavily export-oriented leather and rubber sector has grown at an average rate of 15 percent in the last four years.

Another sector that has grown steadily in recent years is the relatively protected food and beverages sector, which in 1993 contributed about 19 percent of manufacturing value added and over 14 percent of manufacturing employment. While this sector remains highly domestically oriented with over 90 percent of sales dependent on the local market, export sales increased markedly over 1990–92 (averaging almost 50 percent per year), albeit from a low level.

Finally, structural adjustment has been slow in the large parastatal shipbuilding and ship repair companies which dominate the transport sector and provides about 7 percent of total jobs in the manufacturing sector. Both companies made persistent, large trading losses throughout the 1980s and remain heavily dependent on government subsidies for their survival. Although there has been some employment decrease, mainly because of an Early Retirement Scheme agreed between the Government and Malta Drydocks in 1989, the shipbuilding and ship repair companies still employ about 5,300 people (almost 4 percent of total employment). The restructuring agreement made in October of this year (see above) holds promise of a more radical restructuring.

(2) Services

The services sector experienced more than 10 percent growth on average in 1987–93, with the result that the share of service activities in GDP at factor cost has grown from 55 percent in 1987 to 62 percent in 1993. The strong expansion in the services sector has been broadly based, with notable strength in the tourism sector, which, in turn, has supported a strong expansion in tourism-related services (transport, retail trade, private and property services). Other areas of rapid growth have been banking, insurance, and real estate activities (which have increased as a share of GDP from around 5 percent in 1987 to 7.7 percent in 1993), and public administration (which has risen from around 13.9 percent of GDP in 1987 to over 16 percent in 1993).

Tourism is a key sector of the Maltese economy, accounting for a quarter of exports of goods and nonfactor services and contributing both directly and through related activities as much as one third of GDP.1/ While direct employment in the tourism sector is only 6 percent of total employment, many downstream jobs are reliant on tourism. Tourism earnings and employment grew markedly over 1987–93, foreign exchange earnings increased by more than 16 percent per annum on average and tourism arrivals grew by almost 10 percent per annum on average.

The tourism sector has also undergone significant structural shifts. The proportion of tourists originating from the United Kingdom has declined from more than 70 percent in the early 1980s to about 50 percent, in part because of a deliberate strategy on the part of the tourism industry and Government to reduce dependence on the lower income segment of the U.K. market by increasingly targeting growth in earnings per tourist rather than tourist numbers. Correspondingly, tourists from continental European markets have expanded rapidly in numbers with German tourists now accounting for almost 17 percent of all tourist arrivals (up from around 3 percent in 1981). In pursuing this strategy, a number of initiatives (targeted marketing campaigns, ongoing upgrading of accommodation and other facilities, etc.) have been set in place. Somewhat anomalously, the authorities have continued the exchange rate subsidy provided to United Kingdom and Irish package tour operators, which distorts tourism market shares in a manner that is inconsistent with the objectives of diversification.1/

2. Recent economic developments

a. Expenditure

The slowdown in real GDP growth in 1992 from its early rapid pace reflected a reduction in domestic demand growth to 0.3 percent from 4.9 percent in 1991, which offset a continued large contribution to growth from the external sector. In turn, the weak performance of domestic demand in 1992 reflected stagnant investment and heavy destocking; consumption continued to expand steadily. Conversely, led by a recovery in investment growth, domestic demand rebounded in 1993 to 4.5 percent in real terms, thereby supporting overall growth at a time when the recession in continental Europe dampened exports considerably (Tables A2 and A3 and Table 1 below).

Table 1.Expenditure Components of GDP(Real rates of growth, in percent)
19891990199119921993 1/
Private consumption9.23.83.84.41.4
Public consumption12.75.710.98.96.1
Gross fixed capital formation1.017.9-0.25.5
Increase in stocks3.03.54.1-0.42.7
Total domestic demand8.37.64.9-0.34.5
Exports of goods and nonfactor services10.713.37.59.71.9
Imports of goods and nonfactor services11.115.75.43.02.8
Gross domestic product8.26.36.34.33.8
Source: Table A2.

First three quarters over corresponding period a year earlier.

Source: Table A2.

First three quarters over corresponding period a year earlier.

(1) Consumption

Real private consumption growth increased slightly in 1992 to 4.4 percent from 3.8 percent in 1991 as a slowdown in real disposable income growth (largely due to a sizable fall in net factor income from abroad) was more than made up for by a decline in the household saving rate (Table A4). In 1993, a further slowdown in real disposable income growth led to a pronounced reduction in private consumption growth, despite a further, albeit small, decline in the saving rate to 15.1 percent in the first three quarters of the year.1/

Rising nominal incomes in recent years have mainly reflected strong growth in income from employment. The pace of growth in wage and salary income, which had accelerated in 1990–91 with the continued rapid expansion in economic activity and employment, remained at a high level in 1992–93. Nevertheless, this high growth was counterbalanced by declining income from foreign transfers and higher tax payments, while higher inflation eroded its real value.

Real public consumption continued to rise rapidly in 1992–93, due mainly to growth in general government wage and salary costs, attributable to both rising employment and increases in wage rates.2/ As in previous years, expenditure outlays on education and health absorbed the highest amount of current expenditure in 1992–93, accounting for over 55 per cent of total general government final consumption.

(2) Investment and saving

After exceptionally strong growth in 1987–90, real investment stagnated in 1991–92 owing to a decline in real public investment growth as a number of key projects were completed. In 1993, while public investment remained weak, a strengthening of private investment led to a revival in overall investment growth to over 5 percent.

In recent years, machinery and equipment investment growth has been notably strong, and has especially supported the expansion in export and tourism capacity (Table A5). In 1992 and 1993, private investment was boosted by new purchases of aircraft by Air Malta, which accounted for all of the growth in investment in the transport and services sectors (amounting to some 15 percent in 1992 and almost 20 percent in 1993).1/ By contrast, construction investment, after a prolonged period of continued growth, slowed down after 1991, mainly because of the completion of a number of public sector projects in infrastructure in the last three years. In 1992, real construction investment was broadly flat and in 1993 fell by more than 10 percent. This decline, however, masks an increase in construction registered by private sector initiative of Lm 2.6 million.

Since 1987 a high level of private savings has provided the main source of finance for investment (Table A6). Increasingly, these savings have been generated domestically, perhaps stimulated to some extent by the effects of tax reform and gradual financial liberalization. At the same time, there has been a corresponding decline in net factor income and transfers from abroad. Although private savings remained high in 1992–93, a decline in public savings (as cuts in public investment were the main source of budget consolidation) led to some decline in overall national savings. In 1993, national savings were supplemented by foreign savings as the current account moved back into deficit.

(3) Foreign balance

The pace of growth of exports of goods and nonfactor services, which had been substantial in the period 1987–91 (averaging 10 percent per annum in real terms), maintained its strength in 1992, before easing considerably in 1993 due to the recession in Europe and some special factors. The earlier performance had been attributable to strong growth in both tourism and manufactured exports, in particular semi-conductors and related products, and ships. The slowdown in 1993 was concentrated in the electrical machinery goods sector following particular weakness (partly cyclical) in the semi-conductor market, which counterbalanced the benefits to competitiveness of the devaluation in November of 1992.

Real imports increased by 3 percent in 1992–93, down from an annual average of 121/2 percent over 1987–91. The slowdown partly reflected the end of the adjustment of imports to the replacement of import quotas that had begun in 1987, and (particularly in 1992) the weakening in domestic demand growth. However, “lumpy factors", in particular the delivery of the aircraft for Air Malta also distort the underlying trends. In 1992, the import slowdown in the presence of rapid export growth implied a large net contribution to growth from the external sector. In 1993, the slowdown in export growth was associated with a negative contribution from net exports.

b. Sectoral output

In line with earlier trends, service activities, in particular, the insurance, banking, and real estate sector, together with tourism-related sectors, and public administration, continued to be the fastest growing sectors over 1992–93. The relative importance of industry thus continued to decline, although strong growth persisted in export-oriented sectors such as chemicals, printing and paper, and leather and rubber. Provisional estiamtes for the first half of 1994 indicate that real output was about 31/2 percent above its level in the first half of 1993.1/

(1) Industry

Among the industrial sectors, construction and quarrying presented the most noticeable drop in activity in 1992–93 due to the completion of both public infrastructure projects and tourism-related projects in the private sector. Moreover, in 1993, increased environmental awareness also slowed down the issuance of new building permits. Although more applications for building permits were submitted in 1993 than in 1992, the number of permits granted by the Planning Authority was down by 13.8 percent. Indicators for the early part of 1994 pointed to the beginnings of a recovery in construction output.

Manufacturing continued to decline as a share of GDP in 1992–93, although relatively strong growth persisted in the export-oriented chemical, paper and printing, and leather and rubber sectors. Steady output growth was also observed in the public enterprise sector, but at a lower pace than in earlier years.2/ In 1992, public enterprises’ output growth was slightly over 4 percent in real terms and almost 2 percent in 1993.

The performance of the textiles, footwear and clothing, and machinery sectors was mixed during 1992–93. In the case of textiles, footwear and clothing, the lira devaluation helped boost domestic sales which recorded a 25.7 percent growth in value terms compared with a fall of 10 percent in the previous year. On the other hand, the machinery sector, after its exports increased by almost 30 percent in 1992, stagnated in 1993, as the fall in the prices of electronic machinery offset the more competitive value of the maltese lira after the devaluation. Finally, the transport sector continued to face serious difficulties reflecting the general situation of the shipbuilding and ship repairing companies, which suffered sales declines and further trading losses (Table A7).

(2) Services

The tourism sector strengthened markedly in 1992–93 after a pause to growth due to the impact of the Gulf crisis in 1991. Tourism arrivals grew by 9 percent on average in 1992–93, reaching the total of 1 million in 1992 (Table A8). However, in 1992, a marked reduction in earnings per tourist was observed, which was attributable to the effects of a weaker international climate on both spending per tourist and the composition of arrivals (with some return to Malta’s more traditional Italian and British tourist markets taking place that year). By contrast, earnings per tourist increased by almost 22 percent in 1993, despite a fall in the average length of stay per tourist from 12.2 days to 11.2 days. For 1994 further growth is in prospect, with the number of arrivals recorded in the first half of the year 17 percent higher than a year before.

(3) Agriculture

Primary sector production recovered considerably in 1993 as a result of various forms of assistance from the Government provided in order to enhance productivity in the sector. This assistance took the form of more trained staff and facilities at the agricultural experimental farm, infrastructural work to advance the computerization of the markets for primary products and financial assistance to farmers and herdsmen. For the local fisheries, assistance included provision of cold storage facilities, improvements and maintenance works in several fishing ports and the upgrading and management of the fish market.

c. Labor market

The strong growth in the economy after 1987 was accompanied by a substantial pickup in employment, which reduced the unemployment rate from about 8 percent in the mid-1980s to about 4 percent in 1989. The unemployment rate remained around this level in 1990–91 as an expansion of the labor supply (in part due to the use of migrant labor but also to the introduction of separate income tax assessments in 1990, which encouraged more married women to enter the labor force) and rapid productivity growth offset the effects of continued high economic growth. Nevertheless, cost pressures did arise in these years. These were attenuated somewhat in 1992–93 as economic growth slowed.

(1) Employment and unemployment

Employment growth slowed from 1.0 percent in 1992 to 0.5 percent in 1993, as fairly brisk private employment growth was offset by a modest fall in the number of public sector jobs (Tables A9 and A10). Employment growth continued to be strong and relatively evenly distributed in all market services, while it decreased in direct production activities in both 1992 and 1993. Among the latter, manufacturing employment dropped in 1992, but remained fairly stable in 1993 with sectors such as electrical machinery, rubber products and leather and leather goods creating net jobs while textiles, machinery, tobacco and miscellaneous manufacturing showing net job losses. In 1992–93, job creation was lower than the increase in labor force, partly due to the decrease of labor demand from the quarrying and construction sectors, and the unemployment rate rose to 4.5 percent by the end of 1993. However, after a modest first quarter, the second quarter of 1994 showed a stronger pace of job creation and the unemployment rate had fallen back to 4 percent in August.

A number of structural weaknesses remain in the labor market. In particular, while its share of the labor force has decreased somewhat, the public sector is still the dominant employer, accounting for 42 percent of total employment (Table A10). There has long been widespread acknowledgment that a major problem of low productivity exists in the public sector. Moreover, large numbers of public sector employees are known to work one or more secondary jobs in the informal sector in addition to their public sector jobs. In recognition of the strains created by the public sector’s large share in total employment, the Government announced in the 1993 budget a target of reducing the public sector’s share of total employment to 25–30 percent over a number of years. The latter objective is to be achieved by attrition in the general government sector and rationalization and privatization in the public enterprise sector. The targeted reduction in public employment would have the desirable effect of releasing labor for other sectors where the availability of labor is a constraint on growth.

A large informal employment sector has developed over the years in response to a number of factors: the low level of performance required from public sector employees; persistent labor shortages in some sectors following the sustained period of strong growth; and distortions relating to the taxation and social security systems. Employers have been able to avoid the cost of social security contributions by hiring informal labor, and informal workers have been able to avoid paying taxes on informal income. In addition, the earlier system of joint income taxation, which was changed in 1990, had provided a disincentive for women to participate in the formal job market. The introduction of VAT is expected to reduce opportunities for tax evasion.

Labor and skill shortages present a constraint to economic development. In particular, the tourism sector finds it difficult to attract sufficient numbers of workers for jobs involving variable hours and work over the summer months. Shortages of labor with technical and manufacturing skills are also being experienced. The Government has taken a number of measures to improve skills and promote training, including the establishment of the Employment and Training Corporation and an Institute for Tourism Studies, together with the provision of significant training subsidies to the manufacturing sector.

(2) Wages

Increasing strains in the labor market pushed up wage growth to 91/2 percent per year in 1990–91 (Table A12). In real terms, wage growth in that period reached 61/2 percent per year, or some 2 percent faster than productivity growth. Despite a modest rise in unemployment and an incomes policy agreement that established a framework for the inflation compensation component of wage bargaining, wage growth continued at a high pace (over 8 percent) in 1992–93.1/ Some of the increase in 1993 reflected an adjustment to compensate for the devaluation. However, with price inflation increasing in 1993, real wages showed an annual increase of only 2 percent after increasing by 5 percent in 1992.

d. Prices

The rate of consumer price inflation crept up to 4.1 percent on average in 1993, compared with a rate of around 2 percent in 1990–92. Prices increased sharply during the course of 1993, and particularly in the second quarter, fueled by the passthrough of the devaluation. By the second half of the year, they were 5 percent above their level a year earlier. The largest price rises were felt in seasonal foods, clothing and footwear, transport and communications, and education and entertainment. Inflation decelerated in the first half of 1994 as the direct effect of the devaluation washed out, and in September, prices were less than 4 percent above their level a year earlier.

Malta’s inflation performance over the 1980s and 1990s has compared favorably with that of its main trading partners and competitors (Table A13). The low inflation rates achieved have reflected a number of factors: a fixed exchange rate policy; the imposition of a price and wage freeze from 1983 to 1987; the system of price controls; and the limited coverage of the former retail price index. The latter, which suffered from a number of deficiencies including low coverage of services, was replaced by a new retail price index in January 1992. The expenditure weights used in the new index are based on a household survey conducted over 1988–89. While the new index incorporates higher weights for services, it suffers from the weakness that the response to the expenditure survey was extremely low and is unlikely to have generated accurate expenditure patterns. Consequently, a new household survey is being conducted this year, which will be used to further refine the consumer price index.

III. Public Finance

1. Background and institutions

The public sector, which comprises the central government, the social security system, and a large number of public enterprises and parastatal companies, plays an important role in the Maltese economy. General government revenues and expenditures represent around 40 percent and 43 percent of GDP, respectively (Chart 4 and Tables A14 and A15). More than 40 percent of Malta’s working population are employed in the public sector.

CHART 4MALTA: FISCAL INDICATORS 1/

(In percent of GDP)

Source: Data provided by the Maltese authorities, and Fund staff estimates.

1/ Figures for 1990 and 1991 have been adjusted to make them comparable with the numbers for subsequent years. 1994 data are based on budget estimates.

The operations of the central government and the social security system are administered on a consolidated basis through the Consolidated Revenue Fund (the budgetary accounts). On a day-to-day basis, the Government’s main receipts and payments are transacted through the Treasury Clearance Fund. At year end, the operations of this Fund are consolidated with the activities of the Price Stabilization Fund generated by the Government’s bulk-buying scheme, the Sinking Funds established to pay off the Government’s long-term debts, a Contingencies Fund, several Lottery Funds, and a large number of relatively minor Trust Funds. The surpluses generated by the Price Stabilization Fund and the profits from the Lottery Funds are transferred to the Consolidated Fund, but the income generated by the investments of the Sinking Fund is not. Public debts not rolled over are repaid directly out of the Sinking Fund as they fall due.

The operations of the public enterprises are not consolidated in the budgetary accounts. Every public entity or enterprise is set up under specific legislation. These enterprises enjoy varying degrees of autonomy, but the Government retains the right to set budgets or to require payments out of profits.

Parastatal companies, which are established under company law, are companies in which the Government, directly or through its holding company Malta Government Investment Co. Ltd., owns 50 percent or more of the share capital. These parastatal companies, which are usually only subject to government policy through Board appointments, cover a wide range of mostly commercial activities. The Government’s income from the public enterprises and parastatal companies appears as nontax revenue in the budgetary accounts. Future participation of the private sector in public entities is not ruled out by the authorities.

2. Overview of fiscal developments

In recent years the Government has made substantial progress in reforming the structure of its public finances and reigning in earlier unsustainable budget deficits. At the same time, the scale of the Government’s involvement in the economy has not changed significantly since the mid-1980s. While accepting that the private sector will participate more in Malta’s economic development in the future, the Government continues to believe it should provide a “sense of direction” to the economy. In particular, the Government believes it has an important role in developing the country’s infrastructure and ensuring that no sector of the population is marginalized.

Partly due to an infrastructure boom, but also higher public sector pay, the budget deficit rose to a peak of over 5 percent of GDP in 1990 and 1991, a time of cyclical strength for the economy. Consolidation in the subsequent two years as infrastructure spending was cut back severely reduced the deficit from the earlier unsustainable levels, and the Government came close to achieving its target of limiting the deficit to 3 percent of GDP. However, progress in reducing the deficit has recently been reversed as infrastructure spending has once again risen sharply.

The reform of public finances has involved a comprehensive overhaul of the taxation system, which will come to a head when the new VAT is introduced on January 1, 1995. The structure of taxation will thereby be transformed from one relying heavily on import duties to one with a broad-based consumption tax and a level of excise duties that is more in line with international norms (Table 2). Earlier reforms included a large reduction in the top marginal income tax rate from 65 percent to 35 percent, an increase in the rate of employers’ social security contributions, higher tax exemptions for interest income, and the introduction of a Capital Gains Tax.1/ The ratio of general government revenues to GDP has grown somewhat in recent years, but at around 38 percent is low in comparison with that in EU and other EU-applicant countries (Table 3).2/

Table 2.Malta: Structure of Taxation(As percent of total revenues)
19871988198919901991199219931994
Budget
Direct taxes41.736.038.839.236.439.142.840.5
Income taxes22.219.321.420.920.022.024.123.0
Social security contributions18.415.916.317.315.616.518.217.3
Death and donation duties1.10.91.11.00.70.60.40.2
Indirect taxes29.227.532.032.332.833.731.932.8
Excise duties2.92.42.82.62.92.82.27.3
Import duties21.320.122.822.021.822.521.513.4
Licenses, taxes, fines, etc.5.05.06.37.88.18.48.212.2
Nontax receipts29.136.529.328.430.827.125.426.6
Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report; and data provided by the Maltese authorities.
Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report; and data provided by the Maltese authorities.
Table 3.Malta: Comparative Size of General Government, 1993(As percent of nominal GDP)
OutlaysRevenue
EU Countries
Belgium58.451.2
Denmark62.357.7
France54.949.0
Germany50.046.7
Greece52.739.8
Ireland44.241.7
Italy56.246.7
Netherlands55.852.9
Portugal52.845.0
Spain46.939.8
United Kingdom43.535.8
EU applicants
Austria51.748.8
Finland61.553.7
Sweden71.358.3
Malta40.837.9

On the expenditure side, reforms have concentrated on decentralizing decision-making and improving the accountability of public officials for the services they provide. Part of this has been the creation of the new public enterprises and the separation of the public enterprises from the government accounts. Some parts of the Government’s expenditures, however, have yet to be tackled. In particular, subsidies to the shipbuilding industry still absorb around 11/2 of GDP, social security benefits and pensions have risen significantly and are only now being subjected to rigorous analysis, and almost no progress has been made toward the Government’s target of reducing the proportion of the working population employed in the public sector.3/

3. The budget outturns in 1992 and 1993

Performance in 1992 was significantly better than expected with an outturn deficit of 3.0 percent of GDP compared to the budgeted 4.3 percent.1/ Higher-than-expected growth led to income tax receipts and social security contributions 6 percent and 11 percent, respectively, above budget. This more than offset a marginal shortfall in indirect taxes and disappointing nontax revenues due to delays to the privatization program, which cut receipts from the sale of shares by more than Lm -5 million.2/ Foreign grants also came in 12 percent lower than budgeted. However, this was partly offset by higher profits from the Central Bank of Malta.

Current expenditure was broadly as budgeted, but capital expenditure was less than expected mainly due to shortfalls in the capital budgets for the health and education sectors (Tables A16 and A17). The savings would have been larger had not the subsidy to the shipbuilding industry been 18 percent above its budgeted level.3/

The deficit remained at 3 percent of GDP in 1993, only slightly above the budgeted amount. As in 1992, higher-than-expected growth led to above-budget income tax receipts and social security contributions, but this time by only 3 percent and 4 percent, respectively. As a result of an increase in the social security contribution rate for employers and the abolition of the lowest rate for the self-employed, social security contributions in 1993 accounted for over 18 percent of government revenues.4/

Indirect taxes performed poorly in 1993, collecting 9 percent less than budgeted, with revenue from the duty on motor vehicles particularly disappointing (Table A18).5/ Revenue from the room occupancy tax was lower than expected because most bookings had been made before the tax came into effect. Nontax revenues came in almost exactly on budget. As in the previous year, profits from the Central Bank of Malta were higher than budgeted, and there was a higher-than-expected payment from Enemalta’s profits. Receipts from the Price Stabilization Fund were also higher than budgeted. However, completely offsetting these factors, foreign grants were lower than expected, as in the previous year, this time falling short by 35 percent.

Current expenditure in 1993 came in somewhat above the budgeted amount in part due to higher-than-expected spending on the police. This reflected a broader government initiative to train and equip the police force better, and to reform and upgrade the legal, judicial, and correctional systems and the Armed Forces. The subsidy given to the newly created Water Services Corporation was also higher than budgeted and the higher rates of pensioners’ bonuses pushed spending on social security benefits above budget. Delays to projected capital expenditures more than compensated for the overrun on current expenditures. Once again, spending on education and health were lower than budgeted, principally due to delays in tendering and acquiring permits, and there were shortfalls in expenditure on house building.

4. The 1994 budget

After two years in which the deficit had been budgeted to fall, the 1994 budget marked a turnaround in fiscal consolidation with a planned rise in the deficit to 3.3 percent of GDP. The rise in the deficit to a large extent reflected spending on a number of major social infrastructure projects, which underpinned planned growth in overall expenditures and net lending of nearly 14 percent to a level equivalent to 43.1 percent of GDP, very similar to its level in 1990 and 1991. The increase in spending would more than offset a projected 13 percent growth in revenues to a level equivalent to 39.8 percent of GDP. Reliance on foreign borrowing to finance the deficit was also expected to increase sharply after a small net repayment of foreign loans in 1993.

Income tax measures in the budget included a new income tax rebate of 17 percent on the first Lm 1,500 earned from overtime or part-time working. It was hoped that this would encourage declaration of such income. The budget also introduced a withholding tax for interest earned on bank deposits and government stocks. Taxpayers could opt to pay this tax at source at a preferential rate of 15 percent instead of incurring the normal applicable income tax rate if declared at the end of the year. This measure was expected to encourage disclosure of existing savings, deposit of savings held as cash, and repatriation of funds invested abroad. After factoring in the effects of these changes, income tax receipts were budgeted to rise by 8 percent, in line with the expected growth in nominal GDP. The Government had earlier come to an agreement with the trade unions that it would introduce additional tax credits to compensate for any unexpected increases in the cost of living after January 1, 1994.

Revenues from the duty on documents and the levies on restaurants and hotel occupancy were budgeted to expand strongly such that revenue from all indirect taxes was to rise by nearly 17 percent. As a precursor to the implementation of VAT, customs duties on a number of products including motor vehicles, petroleum, cement and alcohol were planned to be replaced by excise duties and a motor vehicle registration tax. The import duties on certain electrical goods were also to be reduced. Together these measures were expected to increase excise duties by Lm 21.5 million with a similar reduction in import duties. Nontax revenues were budgeted to rise by 19 percent due to higher profits from the Central Bank, a boost to privatization proceeds from the sale of one of the two remaining state-owned commercial banks, and a 50 percent increase in foreign grants. This last factor reflected the higher capital expenditure budgeted, as the majority of the grants Malta has been promised are linked to capital projects.

Current expenditure was budgeted to rise 10.6 percent in 1994, reflecting mainly higher levels of social security benefits and higher debt servicing costs (Table A17). The latter were budgeted to rise by 21.2 percent from their 1993 level largely because of the higher cost of servicing local loans which had been boosted in 1993 by the issue of Lm 28.1 million of new debt to fund the purchase by the Government of certain properties previously owned by the Church.1/ Sharply higher spending on public administration was also planned, mainly on computerization, but also for the establishment of the VAT office, an office to manage the properties previously owned by the Church, and local councils.2/

Capital expenditure was budgeted to rise by 19 percent, or some 34 percent excluding net lending. This reflected the start of work on a new hospital and the modernization of another, together budgeted to cost Lm 6 million in 1994, and the building and equipping of new schools and the extension of the University of Malta’s premises, together budgeted to cost Lm 5.7 million. Some of these projects had been delayed from previous years. Net lending was budgeted to increase only slightly, partly because the subsidy to the shipbuilding yards was expected to rise by only 4 percent.

5. 1994 estimated outturn

Provisional estimates indicate some modest revenue shortfalls and expenditure overruns that are expected to push the deficit to close to 4 percent of GDP in 1994. On the revenue side, the main shortfall is expected in indirect taxes due to weakness in import duties and revenue from the duty on documents.1/ On the expenditure side, current expenditure is expected to come in slightly higher than budgeted largely as a result of higher public sector salaries, in part as the result of the final phase of a public pay reform initiated in 1991, while the capital program is expected to proceed broadly as planned. Some underspending due to delays to projects, notably in health and housing, will be broadly offset by the subsidy to the shipbuilding yards being Lm 2.2 million above budget at Lm 16.3 million (1.6 percent of GDP).

6. Public enterprises, parastatals and privatization

The public enterprises and parastatal companies play an important role in Malta’s economy. Up to 1992, the public enterprises consisted of Enemalta, Telemalta, the Housing Authority, Malta Drydocks and Malta Development Corporation. In the government accounts up to 1992, the capital expenditure of Telemalta, Enemalta, and the Housing Authority was included in capital expenditure, and an equal transfer from these enterprises to the Government was imputed as nontax revenue. Starting with the 1992 budget, this practice was discontinued. The Government also created five new public entities in 1992: the Water Services Corporation, the Maritime Authority, the Planning Authority, the Public Transport Authority, and the Employment and Training Corporation. The services these entities provide were hitherto carried out by government departments. The annual budgets of these public entities, which, in principle, are expected to be run on a profit-making basis, are separately approved by Parliament.

Over recent years some of the larger public enterprises have appeared to be profitable while others have required significant support from the Government. The two biggest public enterprises, Enemalta and Telemalta made substantial profits in both 1992 and 1993, and, overall, government income from the public corporations amounted to around 1 percent of GDP in each of these years. The early repayment of loans by Enemalta and Air Malta also helped to bolster the Government’s finances in 1993. However, the price of water in Malta remains artificially low and the newly created Water Services Corporation received subsidies equivalent to almost 1 percent of GDP in each year. The Public Transport Authority also received subsidies equivalent to about % percent of GDP in both 1992 and 1993. In addition, the liabilities of the Housing Authority exceed its assets by over Lm 1 million and subventions from the Government have been required to keep the Authority afloat. The Government has said it expects most of the expenditure of the newly created authorities to be financed out of their own resources or through bank borrowing. The Government’s aim, according to the 1993 budget speech, is that its relationship with these companies should be well defined and that any subsidies should be specified according to the service they offer.

The parastatal companies are semi-autonomous and cover a wide range of, mostly commercial, activities. They include the two largest commercial banks, Air Malta Co. Ltd., Malta International Airport Co. Ltd., Malta Shipbuilding Co. Ltd., Sea Malta Co. Ltd., Malta Export Trade Corporation Ltd., and Malta Government Investment Co. Ltd. which in turn owns stakes in other commercial companies.

Most of the companies owned by Malta Government Investments Ltd. are managed by Malta Investment Management Company Ltd. (MIMCOL), which, since 1988, has been charged with rationalizing the more minor investments, selling them as going concerns or groups of assets where possible, and liquidating them where not. MIMCOL made rapid progress initially and has only 26 companies left under its control. However, these are the more difficult or sensitive holdings for which MIMCOL looks to the Government for guidance as to how to proceed. It has been decided that MIMCOL will be abolished in 1995 and the remaining holdings will pass to the Malta Development Corporation, which also has responsibility for the Government’s direct investments. Total receipts from all of MIMCOL’s sales to date are estimated at around Lm 1 million. There remains scope for further privatization for which the Government does not at present have a comprehensive strategy.

One parastatal company, Malta Shipbuilding Company Ltd, has found it impossible to make profits in what is a very competitive international market. The Government’s relationship with the shipyards has been directed by a 10-year agreement reached in 1989. The agreement, includes a subsidy on value added (declining gradually from 28 percent in 1989 to 16 percent in 1993, after which it is to be eliminated); an annual development grant; payment of the running costs of a training center; relief from past debt service; provision for outside experts to advise on manpower requirements, shipyard organization, and financial management; relief from annual charges in connection with one dock; and provisions for an early retirement program. The company’s major assets at present are six ships built for the former Soviet Union that are caught up in a contract dispute. Were this dispute resolved, and the ships sold, there could be a significant cashflow that would allow Malta Shipbuilding Company Ltd. to pay off a part of its debts owed to the Government. It has recently been announced that Malta Shipbuilding Company Ltd. is to be merged with Malta Drydocks Company Ltd. Plans are in hand to rationalize the workforce and to create two new enterprises, one to manufacture cranes for Malta Freeport Ltd, the other to construct containers that will absorb around a quarter of the workforce currently employed by Malta Shipbuilding Company Ltd.

7. Financing and public debt

At end-1993 Malta’s public debt stood at Lm 304.8 million (32.7 percent of GDP), of which Lm 50.5 million was external (Table A20). Although low by international standards at present (Table 4), there has been a steady upward trend to the debt ratio in recent years owing to large budget deficits and, in 1992, to the issue of Lm 28.1 million of government stock to purchase land and buildings previously owned by the Church. At the end of 1989, public debt had been only Lm 119.3 million (17.8 percent of GDP).

Table 4.Malta: General Government Gross Debt of EU Member Countries and Selected Applicants, 1993 1/(As percent of nominal GDP)
EU members
Belgium145.6
Denmark66.1
France52.5
Germany48.5
Greece106.1
Ireland90.5
Italy113.9
Netherlands79.0
Portugal67.5
Spain59.1
United Kingdom46.5
EU applicants
Austria57.0
Finland51.7
Sweden83.0
Malta32.7
Source: OECD, Economic Outlook, No.55, June 1994, Annex Table 32, p. A35.

EU definitions differ from those used in this table (see European Commission European Economy, Annual Economic Report, No.56).

Source: OECD, Economic Outlook, No.55, June 1994, Annex Table 32, p. A35.

EU definitions differ from those used in this table (see European Commission European Economy, Annual Economic Report, No.56).

The local debt is made up of Local Government Stock, most of which is held by the commercial banks, and Local Development Registered Stock (LDRS) which is predominantly sold to the public. In earlier years, in order to make the stocks more attractive to the public, the Government had issued LDRS carrying tax exemptions and other incentives, as well as Bearer Debentures. Since trading began on the Maltese Stock Exchange, the bonds issued by the Government have not featured any tax advantages (but have instead offered higher coupon rates). The proportion of bonds taken up by the nonbank private sector has risen sharply to over 50 percent (Table 5). The average maturity of issues in recent years has risen to around 8 years (the longest maturity is currently 10 years) and the average maturity of the entire domestic debt stock is between 4 and 5 years.

Table 5.Malta: Government Stock Issues (1989–93)(In millions of Maltese liri)
19891990199119921993
Stocks issued12.735.233.936.028.9 1/
Taken up by:
Banking system (in percent)11.1

(87.2)
20.3

(57.6)
24.6

(72.5)
16.0

(44.5)
14.6

(50.5)
Nonbank private sector (in percent)1.6

(12.8)
5.3

(15.0)
9.3

(27.5)
20.0

(55.5)
10.7

(37.0)
Government Sinking Fund (in percent)9.6

(27.4)
3.6

(12.5)
Memorandum items:
Average coupon rate (in percent)5.95.85.37.36.8
Average maturity (years)6.06.47.17.98.3
Proportion of bearer instruments (in percent)3.416.2
Proportion of instruments with tax advantages (in percent)5.514.260.2
Source: Central Bank of Malta Annual Report 1993.

Excluding Lm 28.1 million issued directly to ecclesiastical entities.

Source: Central Bank of Malta Annual Report 1993.

Excluding Lm 28.1 million issued directly to ecclesiastical entities.

To finance the 1992 and 1993 budget deficits, the Government issued stocks totaling Lm 36.0 million and Lm 28.9 million, respectively.1/ The purchase in 1993 by the Government of the Church properties was financed by an additional Lm 28.1 million of Local Government Stocks, which were issued directly to the ecclesiastical entities concerned. The authorities budgeted to issue Lm 28.7 million of stock in 1994.

Although foreign debt disbursements were budgeted to exceed repayments in both 1992 and 1993, net foreign lending in fact fell slightly in both years. However, the value of foreign loans continued to grow in these years due to exchange rate movements (Table A22). In 1994, the value of foreign loans outstanding is expected to rise again by Lm 5.5 million to Lm 56.0 million.2/ Even then, foreign loans will represent only around 5 percent of GDP. The majority of foreign loans are from the European Union or the Government of Italy, both of which have protocols promising grants and loans (some on preferential terms) totaling Lm 150 million by the year 2000, and which are linked to specified capital expenditure projects. The average maturity of the existing foreign debt exceeds 12 years.

In the past, the Government’s day-to-day transactions have been financed by using a ways and means overdraft facility at the Central Bank. Ways and means advances were limited to 15 percent of budgeted current revenues in the year in which the advance was made and had to be paid back in that same year. The Government could also raise up to Lm 30 million by the issue of 91-day Treasury bills. Under the amended Central Bank Act, the ways and means facility is to be abolished.

8. VAT

A value-added tax is due to be introduced on January 1, 1995 and has been the subject of intense debate in Malta. The Government has argued that VAT will be revenue neutral and have minimal distributional effects.1/

As currently proposed, there are to be two rates of VAT, a standard rate of 15 percent and a lower rate of 10 percent for the-tourist and restaurant services that are currently subject to a levy at the rate of 10 percent that the VAT will replace. Exemptions from the VAT regime are to be created for the letting and transfer of immovable property; insurance, credit, banking and related services; postal and water services; sporting and cultural activities; government lotteries; and certain minor imports. Goods and services to be zero-rated include goods for re-export and services connected with exports; services to companies registered but not operating in Malta; goods in bond, supplies to duty free shops and freeport activities; port services; international transport and related goods and services; food (except that purveyed at catering establishments); pharmaceutical goods and health and welfare goods and services; education; transport; investment services; and printed matter. The authorities are currently engaged in a drive to register traders in the face of a non-compliance campaign organized by the trade unions and retail organization.

Although the broad shape of the proposed VAT is in line with recommendations made by an IMF technical assistance mission in September 1990, the list of goods and services to be zero-rated is a long one that includes some that in other countries are taxed or exempt.2/ Examples include food, transport, investment services, and printed matter. Experience suggests that a large number of zero-rated goods not only makes enforcement more difficult, but also produces entrenched interest groups that later resist the extension of VAT to their products at higher rates. Although as a proportion of GDP, the revenue from the VAT budgeted in 1995 is not far below international norms, if the VAT is to bring its full benefit, the list of zero-rated goods and services will have to be rationalized and brought into line with international practice.

ANNEX: Differences Between Staff and Authorities’ Presentations of Fiscal Data

There are a number of differences between the authorities’ presentation of the fiscal data and that used by the staff, which are reconciled in Table 6.1/ The only difference that affects the size of the deficit is that the authorities include as part of their current expenditure the contributions they make to the Sinking Fund set up for the repayment of long-term public debt. As noted in section 1 of Chapter III, the interest earned on these funds is not returned to the Consolidated Fund and repayments of debt are made directly out of the Sinking Fund as they become due. The staff ignores this expenditure and treats disbursement and repayments of public debt as part of financing.

Table 6.Malta: Differences Between Presentations of Revenues and Expenditures, 1990–94(In millions of Maltese liri)
19901991199219931994 1/
Revenues
Staff’s presentation273.9307.3325.1353.2400.4
Repayment of loans5.96.16.310.84.5
Government ordinary social security contributions23.724.026.432.634.6
Authorities’ presentation303.5337.4357.8396.6439.5
Expenditures
Staff’s presentation314.2348.2350.9381.1434.0
Of which:
Net lending1.15.88.80.31.5
Total expenditure313.1342.4342.1380.8432.5
Disbursement of loans7.011.915.111.16.0
Government ordinary social security contributions23.724.026.432.634.6
Sinking Fund contributions3.74.14.03.85.4
Authorities’ presentation347.5382.4387.6428.3478.5
Deficit
Staff’s presentation40.340.925.827.933.6
Sinking Fund contributions3.74.14.03.85.4
Authorities’ presentation44.045.029.831.739.0
Source: Data supplied by the Maltese authorities.

Budget estimates.

Source: Data supplied by the Maltese authorities.

Budget estimates.

The staff also removes from the authorities’s revenue and expenditure figures the “ordinary” contributions the Government makes to the social security scheme at the rate of 8.33 percent of salaries. These are considered by the staff to be intra-government. However, the staff’s presentation now includes in both expenditures and revenues the Government’s contribution to the social security system as employer as this is considered to show more accurately the cost of the Government’s ongoing activities.

The authorities also include loans made by the Government to the public enterprises and parastatal companies as part of capital expenditure, and the repayments of those loans as part of nontax revenues. By contrast, the staff nets these items together on the expenditure side as net lending.

IV. Money and Credit

1. Institutional developments

The Maltese financial system comprises the Central Bank of Malta (CBM), four commercial banks, three long-term lending institutions, three offshore banks, the stock market, and the Malta International Business Authority (MIBA), which supervises offshore companies.1/ The Central Bank carries out the normal functions of the monetary authorities such as administering the exchange controls, implementing monetary and exchange rate policy, issuing currency, managing the country’s official foreign reserves, and acting as the Government’s bank. The commercial banks are allowed to attract demand, savings, and time deposits with maturities up to 5 years; loan maturities may not, in principle, exceed 5 years and lending rates are subject to ceilings. The Government retains a majority shareholding in two of the four commercial banks. The long-term lending institutions are also government controlled and make loans primarily to the commercial sector and for house purchase. The Malta Stock Exchange opened in January 1992 and initially concentrated on establishing a market for government bonds.

In the past two years, the Maltese Government has introduced significant institutional changes with a view to fostering a more market-oriented financial system and accelerating Malta’s development as an international financial center. These changes have included an overhaul of the banking legislation, the privatization of one commercial bank, the expansion of the stock market, and the partial deregulation of interest rates.

As part of the overhaul of the banking legislation, the Central Bank Act was amended to empower the Central Bank of Malta (CBM) to pursue monetary policy with greater autonomy (although not full independence). The amendment, which received parliamentary approval in October 1994 and is expected to come into effect next year, preserved the Central Bank’s main objectives: the control and supply of money to promote the development of the economy, and the maintenance of external reserves so as to safeguard the international value of the currency.2/ Ultimate responsibility for setting the goals of monetary policy will continue to reside with the Minister of Finance; however, the CBM will have considerable independence in implementing monetary policy and a wider range of monetary instruments. In particular, the CBM will be entitled to determine interest rates, which, previously, under the Banking Act of 1970, was a prerogative of the Minister of Finance. It will also be authorized to issue its own securities in conducting open market operations.

With regard to government financing, the new Central Bank Act eliminates the ways and means account, which the Government has been operating as an overdraft facility with the CBM, repayable at each year’s end. In future, the Government will have to resort to Treasury bills or credit from private institutions, and face financial costs priced accordingly with market values. In a related measure, the Treasury bill rate, which had been rigidly administered by the Treasury between 1989 and 1993, has, since February 1994, been determined by auctions where the CBM has bid competitively for primary market issues.

Further important pieces of banking legislation introduced in September 1994 relate to the functions of the Malta Financial Services Centre and are intended to enhance the status of Malta as an international financial and trading center. The new laws include the amendment to the Malta International Business Authority Act, an amended Banking Act, a second amendment to the Income Tax Act, the Investment Services Act, the Professional Secrecy Act, the Prevention of Money Laundering Act, the Financial Institutions Act, the Insider Dealing Act, the Commercial Partnerships (Special Provisions) Act, the Companies Act and the Recognition of Trusts Act. Together, these mandates abolish the distinction between offshore and onshore financial activities and confer on the Malta International Business Authority (MIBA), now called the Maltese Financial Services Centre (MFSC), the duty of complete supervision in the fields of banking, insurance, investment services and similar areas in the field of financial services.

The new regulations on financial services supersede a number of special arrangements that had been put in place earlier to attract offshore financial business. Under these earlier arrangements, companies operated by nonresidents and trading in foreign currency outside Malta had been able to register offshore in the MIBA and enjoy a tax rate of only 5 percent (0 percent for nontrading companies). The new legislation is expected to provide a more certain environment to attract foreign companies to register in Malta and also to tempt former offshore companies to register onshore.1/ The main incentive is a range of double taxation agreements (Malta is not a tax haven). Where no such agreements apply, a unilateral reduction in the rate of income tax from 35 percent to 25 percent will be available.

Especially influential among the new laws mentioned above is the Banking Act, which replaces the Banking Act of 1970. It brings Malta’s banking legislation into line with EU and BIS practice, in particular the EU’s Second Banking Directive. Specifically, the new act broadens the activities that credit institutions may undertake and introduces new regulations regarding issues such as capital adequacy, large exposures, and exchange of information between supervisory authorities at home and abroad. The new regulation of banking activities comes at a time when the Maltese banking system is being opened up to local and foreign competition. A major development in this regard was the privatization, in March of this year, of one of the three commercial banks where the Government had had a majority shareholding. The privatization of the other two commercial banks is in the Government’s program.

The stock market has continued its development, increasing the supply of assets available since its start up in January 1992. Although the main trading is still in government bonds, the ordinary shares of three of the four commercial banks are currently listed. Moreover, during September 1994, the shares of the first nonfinancial institution, Middle Sea Insurance Co. LTD, were listed, and, in October 1994, the first private bond issue in Malta (Gassan Finance Company Limited) started to be traded.

A further significant development has been the partial deregulation of interest rates. The legal notice 54 of April 1993 reduced the number of borrowing categories from eight to four and stipulated the maximum lending rate for each category. In December 1993, maximum rates were tied to the Central Bank’s minimum discount rate: 3 percent above it for all rates, except for loans and advances for the purchase of the first residential unit for one’s own use, up to the first Lm 15,000, where the maximum margin above the minimum discount rate was set at 1.5 percent. In January 1994, further changes to the lending regulations led to the removal of favorable facilities to the primary sector. As a result, the maximum 3 percent over the bank’s discount rate became applicable to every loan except for housing, where the margin remains 1.5 percent.1/ At the same time, the ceilings on deposit interest rates were removed, although the CBM set a minimum of 3 percent on savings and time deposits intended to protect savers. Deposit-taking institutions were also allowed to offer term deposits of any maturity up to a maximum of five years.

2. Policy developments

Until recently, monetary policy had been viewed more as an instrument to promote development than as a tool of demand or exchange rate management. In effect, it aimed to provide the necessary funds to the public and the private sector at a relatively low cost via comprehensive regulation of interest rates and selective credit controls. Strict capital controls permitted such a policy despite adherence to a fixed exchange rate since 1972. Lately, with the changes in the financial system, the CBM has been preparing a more active role for monetary policy in demand management and has been setting up the required market-oriented instruments.

In the past, the Maltese financial system had been characterized by a situation of excess bank reserves, which originated from the balance of payments surpluses experienced during the 1970s and early 1980s (Table A23). The domestic situation changed greatly after 1989. Balance of payments deficits in a period of rapid growth, the introduction of required reserves in 1990, and some relaxation of limits on resident’s foreign currency holdings, all led to increasing strains on the banks’ domestic liquidity situation.1/ Under these circumstances in 1992, the CBM resorted to buying Treasury bills and government bonds, placing limits on the banks’ foreign assets, and lowering the interest rates on the banks’ free reserves from 4.5–5.45 percent to 3–4 percent. At that time, the Central Bank also encouraged public corporations to borrow from abroad.2/ The relative scarcity of liquidity in the market was reflected in marginally higher yields on Treasury bills and a rise in yields on primary market issues of government bonds. Nevertheless, the financing cost for the Government continued to be relatively low by international standards: the 91-day Treasury bill rate and the average yield of government stocks (average maturity 8 years) reached peaks in 1992 of 4.6 percent and 6.7 percent, respectively.

The liquidity situation changed again in 1993, with a significant increase in net foreign assets of the banking system as a result of capital inflows, dominated by foreign borrowing and short-term foreign currency deposits of offshore companies. The accompanying expansion of the money supply, in a period of a slowdown in economic growth, was again reflected in excess liquidity in the banking system, which tended to pressure government bond yields and coupon rates downward. At that time, it was judged that the position in the economic cycle did not call for a tightening of monetary conditions, which would have required measures to eliminate the excess liquidity in the system.

However, the Central Bank did start to prepare the field for a more active monetary policy: in April 1993, the CBM established its discount rate as a basis of all interest rates in the banking system and in January 1994 the ceiling on deposit rates was removed and further changes were made to the lending regulations. Moreover, in October 1993 the Central Bank’s internal Monetary Policy Committee (renamed the Monetary Policy Council in early 1994) was created, to assess monetary conditions on a monthly basis.1/ Furthermore, to improve the consistency between monetary policy and the fiscal position, since early 1994 the Central Bank has served on a Joint Committee with the Ministry of Finance to regulate the formulation and implementation of public debt management policy.

In making its assessment, the Monetary Policy Council focuses on a set of intermediate targets, including the money supply, the level of the Central Bank’s net foreign reserves, the levels of domestic credit and bank liquidity, the inflation rate, and any additional indicators of real developments in the economy.2/ Judged by the increased growth in the money aggregates, the downward pressure observed in Treasury bill rates and government bond yields, and low average real lending rates, monetary conditions remained on the loose side in the first half of 1994 (Table A25). However, with a slowdown in credit growth to the private sector in the first half of the year and the interpretation that the relatively high level of inflation was in large part due to temporary cost push factors—notably the devaluation and some seasonal price adjustments—a tightening of monetary conditions was again deemed unnecessary.

Nevertheless, during the second half of 1994, the CBM started to absorb gradually the excess liquidity in the system through more market-oriented means. In July 1994, time deposit auctions were introduced by the Central Bank. These deposits are freely transferable and emulate the role of central bank securities that were not available before the passage of the amendment to the Central Bank Act. These Central Bank’s time deposits are being used to mop up excess banking liquidity; a more direct policy, such as an increase in the reserve requirement, would have run counter to the goal of financial development. To date, the Central Bank has auctioned deposits with maturity of one week, two weeks, one month, and two months and other maturities will be offered in due course. Regardless, by the end of August 1994 this policy had had little effect on monetary conditions and money growth was 14.3 percent on a year-on-year basis, and the yield to maturity of 91-day Treasury bills had slipped to 4.1 percent from 4.2 percent in June of this year and an average of 4.6 percent in 1993.

3. Evolution of money and credit aggregates

In the last three years, broad money growth had accelerated from 9.3 percent during 1992, to 10.3 percent during 1993, and to 14.3 percent in the year to August 1994. In these years, broad money growth has persistently outstripped that of nominal GDP leading to a pronounced fall in velocity, which had been relatively stable since the mid-1980s (Chart 5). Both domestic and foreign sources have contributed to the increase in money growth (Tables A26 and A27). Domestic credit, particularly to the public sector, has experienced strong growth, while capital inflows have been boosted by several factors, including two big foreign loans taken out by Enemalta in 1992 and Freeport Corporation in 1994, and the introduction of a preferential tax rate on interest income in January 1994 that encouraged residents to repatriate capital from abroad.

CHART 5MALTA: VELOCITY OF MONEY 1/

Source: Central Bank of Malta, Quarterly Review.

1/ Ratio of nominal GDP to end-period money stock.

The growth in broad money since 1992 has been concentrated in an expansion of quasi-money, i.e., saving and time deposits: quasi-money grew at an average annual rate of 14 percent in 1992 and 1993, and by 16 percent in the 12-month period ending August 1994, taking its share in broad money to almost 70 percent in August 1994 (Table A28). Although both saving and time deposits increased continuously during this period, since 1993, savers have tended to opt for the higher return of time deposits rather than the liquidity of savings deposits, perhaps reflecting expectations of decreasing interest rates over the period. Personal deposits continued to be the main source of money growth, growing at 14 percent on average in the last three years. Corporate and business deposits increased by 27 percent during 1992, but eased in 1993 and 1994 to about a 6 percent growth pace. Foreign currency deposits (which now amount to about 8 percent of broad money) grew at about a 9 percent pace during the last two years, or considerably slower than in the preceding period despite the fact that the 10 percent levy on purchases of foreign currency was abolished in February 1993. This slower growth probably reflected the easing of interest rates on most foreign currencies and the instability of foreign exchange markets during the recent period.

Currency in circulation fell in 1992, owing to the withdrawal of the 4th series Lm 20 note, and has subsequently only grown modestly (at around 4 percent a year). As a consequence, the currency share of broad money had declined to 24 percent in August 1994 in line with a long-term trend, which reflects the public’s increased awareness of the opportunity costs of holding cash, the increasing availability of alternative assets, and growing confidence in the banking system. Nonetheless, by international standards, the currency component remains relatively high, almost 40 percent of GDP in 1993, reflecting the underdevelopment of the financial system and the prevailing regulations on interest rates.

Following a return of the balance of payment to overall surplus in 1992, recent money growth has been underpinned by a strong expansion of domestic credit and of net external assets. The expansion in domestic credit since 1992 has been paced by rapid growth in public sector credit due to sizable growth in borrowing by parastatal companies and an increase in bank financing by the central government. Central government credit, which expanded by 13 percent in 1993, grew by 22 percent in the year to August 1994 (Table 7).

Table 7.Malta: Contributions to Broad Money Growth 1/(In percent)
199219931994 2/
Percentage

Change
Contribution

to Money

Growth
Percentage

Change
Contribution

to Money

Growth
Percentage

Change
Contribution

to Money

Growth
Broad money9.39.310.310.314.314.3
Domestic credit9.15.612.97.912.77.9
Public sector4.41.016.53.416.93.7
Government1.80.212.91.322.12.4
Parastatal sector6.90.819.72.211.81.3
Private sector11.74.611.14.510.44.1
Net foreign assets 1/6.73.76.63.611.16.0
Monetary authorities6.22.511.74.512.14.8
Financial system7.91.3-5.6-0.98.31.2
Other items (net)0.2-7.8-1.32.80.4
Source: Data provided by the Maltese authorities.

The breakdown of domestic credit differs from that presented in the Financial Survey (Table A26) in that parastatal companies are included in the public sector.

12-month change to August.

Source: Data provided by the Maltese authorities.

The breakdown of domestic credit differs from that presented in the Financial Survey (Table A26) in that parastatal companies are included in the public sector.

12-month change to August.

Over the period 1992–94, the expansion of credit to the private sector has been at a more modest—but still relatively healthy—pace. Private sector credit expanded by 11 percent in 1992 and 1993, but eased slightly to just over 10 percent in the year to August 1994. In 1992–93, lending to the banking sector grew at a 35 percent annual pace and lending to the wholesale and retail trade sectors increased at a 15 percent annual pace, while lending to the manufacturing sector (including ship repair and shipbuilding) and for personal loans, was also relatively brisk. During 1994, loans to the banking and wholesale and retail trade sectors continued to absorb much of the new credit to the private sector. However, credit to the building and construction sector also increased significantly (by 23 percent in the year to August) after a halt in 1993.

Excluding the effect of the lira devaluation in November 1992, total net foreign assets of the banking system increased by 6.7 percent in 1992, accounting for about two fifths of broad money growth. Most of this increase represented international borrowing by a parastatal company, Enemalta. During 1993, net external inflows, basically in the form of foreign loans and foreign currency deposits of offshore companies, pushed up total net external assets of the banking system by a further 6.6 percent. The growth of total net external assets accelerated to 11.1 percent in the year to August 1994. A major factor behind this was the removal from January 1, 1994 of the declaration of capital assets from the income tax return and the introduction of a 15 percent withholding tax on interest earnings. This had the effect of reducing the rate of income tax previously paid by residents on such earnings, and thereby encouraged residents and expatriates to repatriate capital from abroad for investment in deposits with domestic banks. In addition, net foreign assets were swollen by the first tranche of a large foreign loan taken out by the Freeport Corporation.

V. Balance of Payments

1. Overview

Up to the late 1980s, the current account had been generally in surplus, as a positive services balance more than offset sizable deficits in the trade account. Any pressures on Malta’s external balance, such as those experienced in the early 1980s, were typically not met by adjustment in the exchange rate, which was primarily relied upon to provide a stable nominal anchor for the economy, but rather via an intensification of import restrictions and exchange rate and export subsidies. Since the late 1980s, deficits in the current account have become more prevalent (Table A32). This trend has reflected the transitory impact of the gradual reduction in the level of protection and, more fundamentally, the impact of the substantial acceleration in private and public investment. Higher investment has contributed to the elimination of the current account surpluses both directly via the savings-investment identity (in the face of a more or less stable overall savings rate) and by raising import demand, given its large import content. At the same time, while price stability has remained an important policy objective, the authorities have been more willing to direct exchange rate policy to maintaining an adequate level of competitiveness. The clearest example of this was a 10 percent devaluation of the Maltese lira in November 1992. Nevertheless, the accompanying improvement in competitiveness was unable to prevent a return to current account deficit in 1993, following the recording of a small surplus in 1992.

Malta has traditionally been a capital importer and this, in conjunction with the current account surpluses up to the late 1980s, has contributed to a comfortable level of foreign exchange reserves. In the late 1980s and early 1990s, significant capital outflows emerged, mainly associated (at least up until 1993) with a relaxation of restrictions on the expansion in banks’ net foreign assets. In the last few years, these outflows have been more than offset by other types of long- and short-term capital inflows. Thus, while the capital account has remained in surplus, its structure has changed substantially: the share of foreign direct investment has declined considerably, while the importance of much more volatile short-term capital inflows and long-term foreign public borrowing has correspondingly increased.

2. Exchange rate management and competitiveness

Since 1972, the lira has been pegged to a basket of currencies. While the basket weights have been periodically adjusted so as to generally correspond to the relative shares in Malta’s external trade, there have also been changes in the weights of a more discretionary nature. Until 1987, price stability constituted the primary objective of exchange rate policy, and the authorities avoided recourse to devaluation even when the external balance came under pressure. Since then, the authorities have adopted a more balanced strategy. While price stability remains an important policy goal, exchange rate policy is also set with an eye to maintaining Malta’s competitiveness at an adequate level. This policy shift is best reflected in the decision to devalue the lira in November 1992 in the wake of the EMS turmoil.

Up to 1989, the currency basket consisted of 10–11 currencies, principally of European countries and the U.S. dollar. In 1989, the list of currencies was reduced to three: the ECU, viewed as representing Malta’s trade with the EU countries (which constitute its main trading partners); the pound sterling, whose inclusion separately from the ECU was justified on the grounds of the importance of the U.K. in Malta’s external transactions, especially with regard to the tourism sector; and the U.S. dollar, viewed as representing Malta’s trade with the rest of the world (see tabulation below). Inclusion of the ECU rather than the individual EU currencies was of little practical significance at the time the change was made in view of the stability of the bilateral rates between the ERM currencies that had prevailed since the previous general realignment of 1987.

Table 8.Malta: The Currency Basket of the Maltese Lira, 1983–1993(End of period)
1983198519871989199119921993
Deutsche mark23.625.417.0
Pound sterling21.127.025.216.317.212.212.5
Italian lira17.111.9
Other EMS7.711.46.7
ECU58.659.966.364.8
U.S. dollar35.416.619.525.122.921.522.7
SDR18.2
Other12.22.52.7
Total100.0100.0100.0100.0100.0100.0100.0
Source: Central Bank of Malta, Quarterly Review.
Source: Central Bank of Malta, Quarterly Review.

The trends in the basket weights suggest significant changes in the formulation and objectives of Malta’s exchange rate policy over time. Up to 1987, it would appear that maintaining competitiveness carried a small weight in exchange rate policy as discretionary adjustments were made to the basket weights that had very little to do with Malta’s direction of trade.

In particular, during the period of the dollar’s pronounced appreciation in the early 1980s, the dollar’s weight was raised considerably to around 35 percent, resulting in the lira’s marked appreciation vis-à-vis European currencies. The appreciation was an important factor behind the fall in the price level during 1983–1985. On the other hand, when the dollar started depreciating in 1985, its weight was promptly reduced by almost 20 percentage points.

Since 1987, however, discretionary changes in the basket weights have been avoided and the weights have only been adjusted periodically to accommodate changes in the relative shares of the respective countries in Malta’s trade.1/ This increased emphasis on competitiveness was probably prompted by the opening up of the economy and the associated significant rise in the share of foreign trade in GDP, which has rendered the economy much more dependent on developments in its external balance. At the same time, the steady dismantling of protective barriers progressively reduced the scope of import restrictions, which had been extensively relied upon in the past to provide relief to the current account during periods of stress.

Following a sharp appreciation in the early 1980s, measures of the real effective exchange rate index suggest a steady improvement in Malta’s competitiveness during the 1985–1992 period (Table A33). In the third quarter of 1992, the real effective exchange rate stood 25 percent below its level of the beginning of 1985. It should be pointed out that the index probably overstates the gain in competitiveness, in view of a general wage freeze which remained in effect until 1987 and the inadequate treatment of services in the consumer price index.2/ These considerations notwithstanding, the steady growth of merchandise exports after 1987, averaging 19 percent per year during 1988–1992, and the significant gains in market share in the area of tourism, would suggest that Malta’s competitive position has remained strong.3/

Against this background, the EMS turmoil of September 1992 generated considerable concern. While the real effective exchange rate index, which is weighted by shares in merchandise trade, would suggest only a moderate appreciation for the lira, the main victims of the turmoil were Italy (which left the ERM) and Spain and Portugal (which devalued), all three of which are important competitors for Malta’s tourism industry. This would suggest that the true losses in competitiveness were larger than indicated by the real effective exchange rate index.1/ In addition, and perhaps even more important than these adverse developments in the lira’s bilateral spot exchange rates, the uncertainty inherent in the new environment was perceived as a threat to tourism’s prospects, particularly in view of the importance of forward contracts for the sector. In turn, a potential downturn in tourism was viewed as likely to generate major ripple effects for the rest of the economy. Under these conditions, the Maltese authorities decided at the end of November 1992 to devalue the lira by 10 percent with respect to the basket, which left the real effective exchange rate index 7 percent below its pre-crisis level. Since then, rising inflation, itself largely a result of the devaluation, has partly eroded this gain in competitiveness, with the lira appreciating by almost 3 percent in real effective terms between December 1992 and August 1994.

Up to now, the fixed exchange rate strategy for the Maltese lira has not come into serious question. In principle, a case for a more flexible policy regime could be made in the event of large country-specific shocks largely uncorrelated with the business cycle in Malta’s main trading partners. The high degree of specialization of the Maltese economy would suggest that adverse developments in its main export sectors would quickly become economy-wide shocks. However, while this feature may provide prima facie indications that a more flexible exchange rate policy may be warranted in response to nonbusiness-cycle-related shocks of this type, closer examination of the industries in question would suggest that extensive recourse to the exchange rate as an adjustment mechanism may be of limited usefulness. In particular, among Malta’s principal export industries, developments in the tourism sector would appear to be predominantly linked to cyclical developments in the European countries, to the currencies of which the lira is primarily pegged. And, quite apart from the fact that it is also highly sensitive to the global business cycle, the high import content and small domestic value added of manufacturing exports—especially the dominant electronics industry—suggest that the exchange rate would also not be a very potent instrument to offset shocks to this sector.2/

A number of monetary policy considerations would also argue for a fixed exchange rate regime. In the first place, the experience of other small (though much larger than Malta), open European economies would suggest that alternative nominal anchors such as monetary aggregates have tended to become difficult to control and even interpret since the mid-1980s, especially in the context of domestic financial and international capital flow liberalization. Secondly, in the wake of capital flow liberalization, the anti-inflation credibility of the Maltese monetary authorities could be seriously tested by the financial markets. Under these conditions, a number of small, open economies have found it easier to peg to the currencies of stability-oriented countries, thereby “borrowing” their reputation for low inflation. It is of course widely recognized that a more flexible functioning of the Maltese labor and product markets would contribute to an easing of the inevitable costs on the real economy associated with a fixed exchange rate. In that sense, the success of the ongoing policies of structural reform acquire particular importance.1/

On the other hand, the question of an appropriate currency basket for the lira is currently receiving considerable attention from the Maltese authorities, although no decisions in this area have as yet been reached. In particular, the authorities are considering the advantages of significantly raising the weight of the ECU in the currency basket, or even of pegging the lira exclusively to the ECU.

It can be argued that reducing the weight of the U.S. dollar (which is a poor proxy to represent Malta’s small share of non-European trade), or dropping it completely from the currency basket, would have important advantages. In view of the U.S. dollar’s record of high volatility vis-à-vis the European currencies, its current weight of over 20 percent could potentially result in substantial fluctuations of the effective exchange rate, thereby creating problems for both policy objectives of ensuring price stability and maintaining competitiveness. Nevertheless, while pegging the lira more closely to European currencies would appear warranted, and would be consistent with the prospect of Malta’s EU (and EMS) participation, the specific choice of an ECU peg may not be entirely appropriate. After the widening of the ERM fluctuation bands in August 1993, there is increased scope for substantial fluctuations of EU bilateral parities, and hence of the ECU parity vis-à-vis individual EU currencies. Under these conditions, an ECU peg for the lira could potentially require parity changes in response to developments in the exchange rates of countries that have very little to do with Malta’s external trade, while at the same time it may not be consistent with the objective of providing a low-inflation anchor. The latter could better be achieved via pegging the lira to the currencies of the most stability-oriented EU countries.

3. The current account

The current account, which had been typically in a small surplus prior to the beginning of the opening up of the economy in 1987, turned predominantly into deficit after 1988 (Chart 6, upper panel). While export growth over the latter period accelerated significantly, imports also grew at a fast pace, reflecting to some extent the gradual reduction of import restrictions, but more fundamentally the rapid growth in private investment and public infrastructure spending. Thus, the current account was continuously in deficit during 1989–1991, averaging just over 1 percent of GDP.

CHART 6MALTA: EXTERNAL DEVELOPMENTS

Source: Data provided by the Maltese authorities.

This trend was interrupted in 1992, as a narrowing of the trade deficit more than offset reductions in the services surplus and net foreign transfers. Accordingly, the current account registered a surplus equivalent to 1 percent of GDP. In 1993, however, a deficit in the current account of 2.1 percent of GDP re-emerged, as an improvement in the invisibles balance failed to offset a substantial widening of the trade deficit, despite the lira devaluation of November 1992. While the widening of the trade deficit was partly attributable to exceptional factors, mainly on the import side, it also reflected the different cyclical position of Malta relative to its main trading partners.

a. Trade account

Merchandise export growth accelerated significantly following the opening up of the Maltese economy in 1987 (Chart 6, middle panel and Table A34). Thus, while export growth in value terms amounted to 4.8 percent per year on average during 1983–87, this average pace shot up to 15.6 percent during 1988–93. It should be emphasized, however, that this improvement in export performance was far from uniform across sectors (Table A35). The bulk of export growth occurred in the machinery and transport equipment sector, which grew by 32.7 percent on average during 1988–93, and whose share in total exports rose from 23.1 percent in 1986 to 54.2 percent in 1993. This sector is dominated by electronics, which is in turn represented by a single firm specializing in the export of semiconductors. The performance of the rest of manufacturing was much less impressive, managing an average annual export growth of only 6.2 percent in value terms during 1988–93. Within this group, the traditionally important clothing and footwear sector experienced negative export growth of 2.3 percent during 1988–92 (no figures for 1993 are available), and saw its share in total exports drop from 34.8 percent in 1986 to 11.6 percent in 1992. This trend, reflecting the competitiveness problems faced by the industry across Europe, can be expected to continue, as indicated by the recent closure of a textiles firm that had been important in terms of employment.

Over time, the importance of the EU as an export market for Malta has risen steadily (Table A38). Thus, while the EU absorbed 66.5 percent of Malta’s exports in 1985, this share had risen to 75.3 percent by 1992. The rising trend in the share of the EU in total exports more than reflected the increasing importance of Italy, whose share in Malta’s exports rose from 9.5 percent in 1985 to 40.8 percent in 1992, in line with the emergence of electronics as Malta’s major export activity.1/ Correspondingly, the importance of other EU export markets has decreased considerably. Among these, Germany’s share in Malta’s exports fell from 30.6 percent in 1985 to 14.2 percent in 1992, while the United Kingdom’s share fell from 16.0 percent to 6.5 percent over the same period. These trends reflect to a large extent the decline of the textiles industry, for whose exports these two countries provided the main markets.

The process of steady trade liberalization since 1987 was also accompanied by a surge in merchandise import growth, from 4.2 percent on average in value terms during 1983–87 to 13.2 percent during 1988–93 (Table A36). While the lifting of import restrictions certainly was an important factor behind the strong import growth, especially during the first years after liberalization as consumers were able to satisfy pent-up demand for imported goods, a more fundamental factor has been the acceleration of private and public investment, particularly in view of the high import content of both components of spending. At the same time, the growth of exports of goods and services added to import demand, given the high import content of the two fastest growing sectors, electronics and tourism.

A sense of the relative contribution of the above factors to import growth is provided by a breakdown of imports by final use (Table A37). In particular, the steady declining trend in the share of consumer goods in total imports, from 22.5 percent in 1986 to 19.4 percent in 1993, at a time when disposable income was growing strongly, would suggest that the direct impact of the gradual lowering of import restrictions was probably relatively small. On the other hand, the direct impact of investment and export growth appears to have been much greater, as indicated by an increase in the share of semi-finished industrial supplies and capital goods in total imports between 1986 and 1993 from 47.7 percent and 14.7 percent to 51.8 percent and 18.7 percent, respectively. In this context, it might be noted that, prior to liberalization, most of the import restrictions in place did not apply to production inputs or intermediate goods.

Over time, the share of the EU in Malta’s imports exhibits a slow rising trend, increasing from 72.9 percent in 1985 to 76.7 percent in 1992 (Table A38). Once again, however, this overall trend masks important variations with regard to individual EU countries. In particular, albeit to a lesser extent than in the case of exports, the rise in the above share of the EU reflects the increase in Italy’s share in Malta’s total imports, from 23.1 percent in 1985 to 37.7 percent in 1992 due mainly to the growth of the electronics sector, which imports its semi-finished industrial supplies from Italy. On the other hand, the importance of some other major EU import sources has steadily diminished. Specifically, the United Kingdom’s share in Malta’s imports fell from 18.6 percent in 1985 to 12.9 percent in 1992, while Germany’s share fell from 17.8 percent to 10.7 percent over the same period.

Since 1987, the growth in exports and imports has on average been mutually offsetting, and the trade deficit has remained around 23 percent of GNP. The trade deficit narrowed in 1992 to 19.1 percent of GNP, compared to 23.2 percent in 1991, as import growth decelerated considerably with the completion of a number of important public infrastructure projects while exports continued to grow strongly, especially in the area of electronics. In 1993, the trade deficit widened again to 22.9 percent of GNP, despite the November 1992 devaluation of the lira. Import growth returned to its normal underlying trend as public investment picked up again, and was further boosted by incidental factors, mainly the purchase of an aircraft. On the other hand, exports virtually stagnated, mainly reflecting the impact of the European recession. Of particular significance was the setback suffered by the electronics sector, which grew by a mere 2 percent in value terms and saw its share in total sector fall by almost 2 percentage points to 54.2 percent, due to a substantial fall in world electronics prices. In turn, the weakening of the electronics market reflected the unfavorable cyclical position of Malta’s main trading partners, given the large cyclical sensitivity of the demand for electronics.

b. Services and transfers

The invisibles balance in Malta has consistently registered large surpluses, contributing to the attainment of small surpluses, or at least manageable deficits, in the current account in the face of sizable trade deficits. The invisibles balance has been underpinned by the fast-growing tourism sector. However, developments in a number of other items, notably freight and insurance, private transfers, and, more recently, travel outflows, have dampened the impact of the growth in gross tourism earnings. In fact, the invisibles balance as a share of GNP, after reaching a peak of 27.7 percent in 1988, has since then more or less steadily declined, falling to a ten-year low of 20.1 percent in 1992 before rebounding somewhat to reach 20.9 percent in 1993.

The single most important item in the services account is the tourism sector.1/ During 1988–93, gross tourism earnings grew by 11.8 percent per year on average, as tourist arrivals increased from 750,000 in 1988 to 1,060,000 in 1993. However, the performance of the tourism sector has exhibited substantial fluctuations. In 1992, growth in gross earnings was limited to 3 percent due to lower spending per tourist reflecting the economic downturn in Europe. Tourism earnings rebounded in 1993, registering an impressive 27.8 percent growth, helped considerably by the November 1992 devaluation. The 1993 trends are likely to continue during 1994, as tourist arrivals during the January-July period registered a 17 percent increase over the same period of 1993, and are expected to reach the 1.2 million mark for the year as a whole. The issue of capacity constraints constitutes the main area of concern over the sector’s medium- term prospects, and the relevant efforts center on lowering the length of stay and attaining a more uniform seasonal distribution (requiring an increase in the share of winter tourism). The industry aims to address the problem of high volatility in tourism earnings by a greater diversification of its customer base. Already, a substantial reduction in the United Kingdom’s share has been accomplished.

A number of items in the invisibles account have tended to dampen the impact of rising tourism earnings (Table A39). Specifically, freight and insurance payments, which are directly related to the volume of merchandise imports, have risen rapidly in recent years, registering an annual growth of 8.9 percent and 9.8 percent during 1992 and 1993, respectively. In addition, net inward private transfers have been steadily declining after reaching a peak of 6.5 percent of GNP in 1988: by 1993, they had fallen to 1.6 percent of GNP. This trend is related to the turnaround in net migration, with the emergence of a net balance of returning migrants reflecting the strength of the economy and employment. Finally, within the travel item itself, outflows, which had until recently remained relatively stable or even fallen as a share of GNP, grew by 73.3 percent in 1993, reaching 32.8 percent of gross tourism earnings against 24.3 percent in 1992, mainly reflecting the partial liberalization of overseas travel allowances.

4. The capital account

Since 1985, Malta’s position as a persistent net capital importer has changed somewhat (Table A40). In particular, during the period 1985–90 capital account deficits were recorded in each year except 1988, with net annual capital outflows averaging 1.3 percent of GDP. The increased incidence of outflows on the capital account can be primarily attributed to a growing accumulation of net foreign assets by banks. However, strong growth in both long- and short-term net capital inflows contributed to the re-emergence of a surplus on the capital account during 1991–93, averaging 3.5 percent of GDP per year. During this period, the increased importance of short-term inflows and a much larger share of official borrowing in long-term inflows has led to a corresponding decline in the share of private direct investment (Chart 6, lower panel).

Net capital outflows from the monetary sector have increased substantially since 1988, averaging 6.4 percent of GDP during 1988–92, against 0.8 percent during 1982–87. This expansion of net foreign assets held by the banking system, especially the commercial banks, mainly reflects the increase in foreign currency deposits held by residents, especially following the permission granted to exporters from 1990 onward to hold such accounts with domestic banks in order to facilitate their payments for imports.1/ This trend was further supported by the gradual increase since 1989 of the proportion of their lira liabilities that commercial banks were permitted to hold in foreign currency assets. Concern over the potential impact of this type of outflow on foreign exchange reserves led the monetary authorities to freeze during 1993–94 the maximum allowed foreign asset holdings by commercial banks to its 1992 level. As a result, these outflows declined to 0.9 percent of GDP in 1993. However, given the planned capital flow liberalization, the building up of the banks’ foreign exchange asset position can be expected to re-emerge as an important source of capital outflows over the medium term.

Short-term capital flows primarily reflect changes in foreign currency deposits held by nonresidents (both foreigners and Maltese migrants) with the domestic banking system. In contrast to earlier years, net inflows have been recorded since 1988, broadly in line with the development of Malta’s offshore financial center. These inflows, which exhibit substantial volatility, reached a high point in 1992, equivalent to 5.5 percent of GDP, coinciding with the opening of the Bank of Valletta International branch. The inflows declined to 1.9 percent of GDP in 1993. While more recent figures are not yet available, these short-term inflows are projected to expand again in 1994 following the introduction of a withholding tax on capital income which, at 15 percent, is much lower than the general income tax. Beyond 1994, short-term capital flows, being probably the most interest rate-sensitive item of the capital account, would be expected to exhibit even higher volatility in the context of the planned capital flow liberalization.

Long-term capital flows have remained positive since 1988, and have typically been the largest item to counteract the growing outflows resulting from changes in the banks’ foreign asset position. At the same time, the composition of these inflows has changed radically during the past two years. While the portfolio investment component has remained very low in the presence of existing restrictions and the underdevelopment of domestic money and capital markets, the importance of direct investment, which had been the largest component of long-term inflows up to 1991, significantly diminished during 1992–93. Instead, official capital inflows dominated the long-term capital account in these years, accounting for practically the entire long-term capital inflows in 1992 and for 79.3 percent of the total 1993 inflows. These inflows were made up of increased foreign borrowing by public enterprises but also central government borrowing under European Union and Italian Financial Protocols.

5. Official foreign reserves and external debt

Up to the mid-1980s, recurring current account surpluses combined with net capital inflows led to large increases in official foreign reserves, to the equivalent of over 20 months of merchandise imports. With the weakening of the current account and the emergence of capital outflows, this trend began to change. After 1988 official reserves started falling in absolute value, and by the end of 1991 they were 16.6 percent below their 1987 level (expressed in domestic currency), or equivalent to just under 8 months of merchandise imports.1/ After 1991, the improvement in the overall balance of payments has contributed to a renewed increase in official reserves, and the import coverage ratio has more or less stabilized. By end-June 1994, official foreign exchange reserves were equivalent to 36 weeks of merchandise imports. The largest part of the reserves (92 percent as of end-June 1994) is made up of convertible currencies, with the remainder held in the form of SDR holdings, a reserve tranche position with the IMF, and gold.

The authorities attach a high weight on maintaining a strong foreign exchange reserve position over the medium term as a cushion for potential pressure on the balance of payments and to safeguard the external value of the lira. In fact, the Central Bank is obliged by law to maintain at all times its reserves of convertible currencies and gold at a level of no less than 60 percent of the sum of currency issued and deposit liabilities.1/ At the same time, over recent years the Government has made a policy decision to finance its major program of infrastructure spending partly through the use of foreign reserves, a practice which potentially could come into conflict with the above objectives. From a shorter-term perspective, the Central Bank monitors the level of official reserves so as to be in a position to satisfy the liquidity requirements of the commercial banks. The importance of the level of official reserves as a policy target will greatly increase when capital flow liberalization gets under way and the Central Bank has indicated that, after full liberalization, official foreign exchange reserves (as a share of base money) will constitute the primary intermediate policy target in implementing a fixed exchange rate policy for the lira.

While Malta’s external debt has remained low compared to other developing countries, it has been rising in recent years as a share of GDP, in line with increased recourse to foreign public sector borrowing. At end- 1993 it stood at 5.5 percent of GDP, against 4.1 percent at end-1989. In relation to exports of goods and nonfactor services, debt service payments remain around the same level as in 1985 (roughly 1 percent). All foreign debt commitments are strictly earmarked to finance public capital investment projects, which are projected to generate sufficient return to facilitate debt servicing. In addition to aiming for the most favorable terms of borrowing possible, in terms of interest rates as well as conditions of repayment, an important objective is the lengthening of the maturity structure of external debt.

VI. Exchange and Trade System

1. Exchange arrangements

a. Exchange rate system

The Maltese lira is pegged to a basket of currencies, consisting since 1989 of the ECU, the U.S. dollar and the pound sterling. The weights of the three currencies in the basket are periodically adjusted to reflect changes in Malta’s direction of trade, and stand at present at 65 percent, 23 percent and 12 percent, respectively.1/ Until November 1992, when the lira was devalued by 10 percent, the currency’s nominal value against the basket had remained stable, even though significant changes of a discretionary nature in the basket weights during the first half of the 1980s had resulted in substantial fluctuations in the nominal effective exchange rate.

The guaranteed exchange rate for the pound sterling offered to British and Irish tour operators detracts from the uniformity of the exchange rate regime.2/ When the system was set up in 1983, in the context of a sharply depreciating pound sterling, the element of subsidy (relative to the spot rate) was virtually zero, and its goal was to insulate the U.K. tourism market from expectations of continued weakening of the pound. Since July 1985, however, as the pound stabilized, a subsidy element was introduced into the system, in the sense that the forward rate has been set at a more depreciated level relative to the spot rate prevailing at the time of the agreement. The subsidy is paid out of central bank profits. The evolution of the guaranteed exchange rate scheme is presented in Table 9.

Table 9.Malta: The Exchange Rate Guarantee Scheme(1984–1995)
Guaranteed Rate

(Pound/Lm)
Average Spot Rate

(Pound/Lm)
Subsidy

(percent)
19841.521.637.2
Sept. 1985-March 19861.611.641.9
April 1986-Oct. 19861.451.7017.3
Nov. 1986-June 19871.351.8134.1
July 1987-Oct. 19871.451.7621.4
Nov. 1987-June 19881.351.7126.7
July 1988-Oct. 19881.501.7013.3
Nov. 1988-May 19891.351.6925.2
June 1989-Oct. 19891.501.7718.0
Nov. 1989-May 19901.351.8335.6
June 1990-Oct. 19901.551.7311.6
Nov. 1990-May 19911.401.7323.6
June 1991-Oct. 19911.571.7712.7
Nov. 1991-May 19921.451.7621.4
June 1992-Oct. 19921.581.7913.3
Nov. 1992-May 19931.471.7921.8
June 1993-Oct. 19931.631.736.1
Nov. 1993-May 19941.561.7210.3
June 1994-Oct. 19941.651.745.5
Nov. 1994-May 19951.58
19861987198819891990199119921993
Total cost of subsidy
In Lm million2.66.85.86.64.94.34.82.6
In percent of GDP0.51.21.01.00.70.50.60.3

Separate guaranteed exchange rates are set each year for the summer and winter tourism seasons. The summer rate is to be eliminated after the 1995 season. On the other hand, the winter rate is considered important in contributing to the desired seasonal pattern for Malta’s tourism. Accordingly, the subsidy element of the winter rate has been significantly higher and the authorities have postponed the elimination of the scheme, originally planned for 1995, until 1996–97. Even so, the subsidy element has been progressively reduced over time: the proportionate difference between the guaranteed and the spot exchange rate applicable to the winter season has declined from a peak of 35.6 percent in 1989–90 to 10.3 percent in 1993–94.1/ The total cost of the subsidy has also fallen from 1.2 percent of GDP in 1987 to 0.3 percent of GDP in 1993.

b. Exchange controls

Exchange controls are administered by the Central Bank of Malta, acting as agent for the Minister of Finance under the Exchange Control Act of 1972 and subsidiary legislation of that Act. Approval authority for most foreign exchange transactions has been delegated to authorized commercial banks, and in the case of transactions for travel purposes only, to a number of travel bureaus.

Payments for authorized imports may be made freely, provided that currency regulations are complied with and supporting documents, including the related import license, where applicable, are submitted to the intermediary bank. A ceiling of Lm 10,000, below which the submission of customs forms is not required for advanced payments for imports, was introduced in the beginning of 1993, and this ceiling was raised to Lm 20,000 in January 1994. The authorities intend to continue the gradual phasing out of this ceiling during 1995–96 before its complete abolition in 1997.

Payments to nonresidents may be made by crediting nonresident accounts with the local banking system—the so-called External Accounts—either in Maltese liri or in foreign currency. With regard to exports, the relevant proceeds must be received within six months of shipment and must be surrendered to the local banking system within a reasonable period thereafter. Starting in January 1990, exporters have been allowed to retain foreign exchange earnings in foreign currency accounts with local banks up to a period of ten weeks before converting them into Maltese liri. The rationale has been to provide export-oriented firms (in the absence of forward exchange markets) with a form of exchange cover in meeting any possible import payments connected with their export business. This is considered to be important in view of the large import content of Malta’s exports. The maximum period during which exporters are allowed to hold export proceeds in foreign currency accounts was raised to three months at the beginning of 1993, and again to four months in January 1994. In 1995, the authorities intend to abolish the requirement on exporters to convert (within a stipulated period if time) export proceeds into Maltese liri.

c. Payments for invisibles

Virtually all types of payments for invisibles within specified limits have been delegated to authorized commercial banks; for payments in excess of these limits, central bank approval is required. Most of the limitations in place are of an indicative nature and are meant to prevent illicit capital outflows.

In the case of leisure and business travel, no restrictions exist regarding payments for transportation and accommodation that are effected abroad through credit card or Eurocheque. However, there are limitations on the amount of foreign currency (cash and travelers checks) that residents may take overseas. For the case of leisure travel, an annual ceiling of Lm 2,500 per person was introduced in January 1993, replacing a rather complicated system based on the number and length of trips undertaken. With regard to business travel, at the beginning of 1993 the daily allowance was doubled to Lm 200 per day and the existing ceiling of Lm 2,000 per trip was abolished. Amounts in excess of these limits may be authorized by the Central Bank upon submission of documentary proof of need. The further liberalization of travel allowances will be linked to the gradual liberalization of capital flows, which is scheduled for completion in 1997.

In the area of transfers, remittances for cash gifts abroad are permitted up to an annual maximum of Lm 250, and this ceiling will be raised to Lm 1,000 next year. With regard to family allowances, which had generally been limited to hardship cases in the past, an annual ceiling of Lm 2,000 was introduced in January 1994, and approval authority was delegated to local commercial banks.

While the transfer abroad of profits, dividends, royalties, and interest by nonresidents had been invariably approved by the Central Bank, the required compliance with certain formalities (especially, in the case of companies, the production of audited accounts) engendered certain restrictive elements. As of January 1994, the requirement of an auditor’s certificate for the transfer of profits and dividends was eliminated. Finally, Maltese residents have up to now been prohibited from transacting insurance contracts with nonresident insurance companies. This prohibition is scheduled to be lifted at the end of 1995.

d. Capital transfers

In contrast to current transactions, significant restrictions remain on virtually all types of capital flows. Over the recent years, the autharities have embarked on a gradual process of relaxing a number of controls in this area, with the aim of achieving almost full liberalization of capital movements, both inflows and outflows, by end-1997. With regard to the, sequencing of the planned liberalization, the authorities’ program envisages lifting most existing restrictions on the less interest rate-sensitive items of the capital account at an early phase, while concentrating the bulkof the liberalization of the more interest rate-sensitive items, notably portfolio investment, toward the end of the period.

Regarding capital inflows, applications for direct investment by nonresidents in Malta require central bank approval with due regard given to the nature and purpose of the investment, as well as the potential benefits accruing to the local economy.1/ In practice, the export content of the investment in question constitutes the most important criterion: while foreign investment in export-oriented activities is generally encouraged, approval is typically not given for activities that are primarily oriented toward the local market. While the authority for processing applications is planned to be transferred to another official entity that would be in a better position to assess the impact of foreign direct investment (such as the Department of Industry), the authorities will continue to maintain some reservations on direct foreign investment in Malta, mainly for reasons of national interest.

The purchase of real estate in Malta by nonresidents is governed by the Immovable Property Act of 1974. The relevant applications are normally approved in cases of nonresidents wishing to purchase immovable property for their own use (residential or business-related) under the condition that the cost of the property acquired is not less than Lm 15,000. While a relaxation of this criterion can be expected in the coming years, some restrictions in this area are likely to be maintained, especially given the small size of the country.

Nonresident portfolio investment in Malta is subject to residents acquiring exchange control approval to issue or transfer securities to nonresidents. However, transactions by nonresidents in listed shares and securities quoted in the Malta Stock Exchange do not require such approval. Foreign shareholding in banks is limited to 20 percent of total shareholding according to the Banking Act. This restriction will be abolished under the revised version of this Act, expected to come into force at the end of 1994. However, a maximum holding limit of 5 percent on individual shareholders (residents and nonresidents alike) will apply, unless specific authorization from the Minister of Finance is granted.

All capital outflows by Maltese residents require central bank approval. Applications for outward direct investment are considered on their merits, with due regard given to the nature of the investment and the potential gains for the Maltese economy. The authorities plan to achieve full liberalization in this area by the end of 1995, with the various requirements for authorization to be replaced, in principle, by simple notification. Given its relative interest rate insensitivity, the early liberalization of outward direct investment is not expected to lead to exchange market pressure.

Residents are not normally allowed to buy real estate overseas except when this is deemed to benefit the Maltese economy.1/ Outward real estate investment is planned to be completely liberalized by the end of 1997, but while its relative interest rate insensitivity would also appear to argue for an early relaxation of existing controls, no timetable has been set.

Outward portfolio investment by Maltese residents requires approval by the Central Bank. Considerable caution is exercised in this regard, especially as domestic interest rates have not yet been fully liberalized, in view of the interest rate sensitivity of this type of investment, particularly at short maturities. Nevertheless, the authorities have already started to slowly relax existing restrictions in this area. In particular, the maximum amount of portfolio investment per adult resident was raised from Lm 1,000 to Lm 2,500 in January 1994. Resident nonfinancial companies are currently not allowed to hold foreign assets, but from 1995 they will be allowed to invest in foreign securities of a long-term nature listed in stock exchanges of OECD member countries up to a ceiling of 5 percent of their total portfolio. This ceiling will be raised to 10 percent in 1996. Resident banks and other financial institutions have been allowed to invest a certain proportion of their lira liabilities in foreign securities but, as this type of investment gave rise to sizable capital outflows, the authorities decided to freeze the relevant amount in absolute terms after 1992 to its level at the end of that year.1/ Starting in 1995, the authorities plan to start raising the ceiling on banks’ foreign exchange portfolios again, provided that the resulting portfolio increase is invested in medium- to long-term securities. Complete liberalization of outward portfolio investment will be deferred to the end of 1997.

e. Bilateral trade and payments agreements

The only remaining payments arrangement is with Libya, which is regarded as important by the Maltese authorities in facilitating prompt settlement of outstanding trade debts between Maltese and Libyan businessmen.2/ Up to now, the balances outstanding had been settled once a year by a cash payment in U.S. dollars to the respective central bank. The agreement was amended in November 1994, with the periodicity of settlement substantially shortened: as of January 1995, outstanding balances will be settled on a quarterly basis.

2. The trade system

a. Import controls

Up to the late 1980s, the Maltese economy had been heavily protected through a system of stiff quantitative import controls, with every imported item being subject either to product-specific import licensing requirements, or the state import monopoly under the bulk buying scheme. Since the late 1980s, and especially with the implementation of the Local Manufactures Promotion Act of 1989, the authorities have been moving gradually to a system primarily based on tariffs and import levies. The first phase of the process was completed by end-1991, leaving about 40 percent of the products originally covered under product-specific licensing control, with the remaining licensing requirements applying to goods that are also produced locally, and to other items (such as chemicals) for health, security, and environmental reasons. The number of products under licensing requirements was further reduced in 1993, with an amendment to the Local Manufactures Promotion Act. Among the imported goods that are in direct competition with locally produced goods, only handmade silver and lace, along with certain types of gold jewelery, require a license, and the bulk of licensing requirements are currently imposed for health, security, and environmental reasons. At the same time, the administrative procedures for obtaining an import license were considerably simplified, with exclusive responsibility in this area assumed by the Department of Trade. The number of products imported under the Government’s bulk buying scheme has been similarly reduced, and at present only grains (barley, maze, and wheat) and boneless beef remain under state trading.

In spite of the reduction in quantitative import restrictions described above, the overall level of protection in Malta remains substantial. In order to offset the impact on domestic industry of the reduction in import licensing, the 1989 Act introduced high import levies on 229 named commodities. These levies were originally conceived of as a temporary measure to provide domestic industry sufficient time to adjust to the new more competitive environment, and were imposed on top of an already high level of tariff and excise protection.1/

Concurrent with the introduction of a VAT at the beginning of 1995, customs duties against imports from EU countries will be eliminated, while those against non-EU imports will be reduced so as to be consistent with the EU tariff structure.2/ In order to mitigate the impact on local industry of the tariff reduction, import levies on most products that had originally been scheduled for elimination will remain in effect, while additional levies will be introduced in the case of products that have up to now enjoyed tariff protection only. While an Advisory Board will be set up to indicate and recommend a gradual reduction in the level of import levies, no timetable has as yet been announced.

b. Partner country restrictions on Maltese exports

With regard to the EU, which constitutes Malta’s largest export market, Maltese manufacturing exports are exempt from the EU’s external tariff under the terms of the Malta-EU Association Agreement of 1970. However, clothing and beer remain subject to EU quotas, although only the one on beer is at present binding. Animal and agricultural exports originating from Malta are subject to the EU’s external tariff.

With regard to other markets, Malta’s exports benefit from the Generalized System of Benefit treatment granted by Australia, Canada, Japan, New Zealand, the United States, and the European Free Trade Association (EFTA). The most important of these—that with the United States—grants duty free entry to a large number of nonagricultural and textile exports.

Progress in the area of trade liberalization in developing and, to a lesser extent, developed countries since the last consultation includes the completion of the Uruguay Round, the completion of the EU Single Market and its extension throughout the European Economic Area, and the opening up of the economies of Central and Eastern Europe. Malta, as a-member of GATT, signed the Agreement concluding the Uruguay Round in Marrakesh in April this year, but the ratification process in Parliament has not yet been completed. Although there have been no studies conducted in this area, the impact on Malta’s outgoing trade of recent international trade liberalization is not believed to have been significant.

APPENDIX I: Indicators of Competitiveness

In this appendix, available estimates of effective exchange rates and their use as indicators of competitiveness for Malta are analyzed. The focus is on two potentially important shortcomings of the indices presented in the IMF, International Financial Statistics (IFS): the incomplete coverage of external trade data used to compile the weights placed on individual exchange rates, and the inadequacy of CPIs to measure relative competitiveness.

1. Correcting for trade in tourism

IMF estimates of effective exchange rate indices focus on the trade balance effect of exchange rate changes. In principle, the weights applied to individual currencies in constructing the effective exchange rates reflect both the direct trading pattern of each country and also the competition for sales of similar goods between two countries in third markets.1/ Unfortunately, the indicator published in the IFS is based only on trade in visible goods (manufactures and primary goods). For a country like Malta, where services, mostly tourism, account for almost one half of total exports, this is potentially a serious weakness.

In order to correct this deficiency, the weights in the effective exchange rate indices for Malta were recalculated to incorporate effects of trade in tourism using the IFS methodology (Table I.1).2/ The first column in Table I.1 (labeled “Primary Goods and Manufactures”) represents the weights applied in the IFS calculation, while the second column labeled (“Tourism”) reports the weights derived from only considering trade in tourism. Columns three and four show alternative weights for estimating aggregate indices of the effective exchange rate. The third column aggregates the weights of the two component indices by their relative share in total trade (14 percent on average in 1990-92). Implicit in this aggregation is an assumption of uniform elasticity of substitution between different types of goods and services. Alternatively, the fourth column incorporates the notion that tourism is more price sensitive than manufactured goods. It thus aggregates the weights by adjusting the respective trade shares by estimates of price elasticity (1.5 for trade in manufactures and 3.3 for trade in tourism).3/

Table I.1.Malta: Trade Weights of Estimated Effective Exchange Rates
Aggregate Index Weighted by
Primary Goods

and

Manufactures
TourismTrade SharesTrade Shares

and Price

Elasticity
Austria0.770.110.20
Belgium6.210.595.414.71
Cyprus2.390.340.64
Denmark1.610.921.511.42
France6.319.386.747.13
Germany23.328.0921.1619.27
Greece2.990.420.79
Hong Kong1.831.571.35
Israel0.970.140.26
Italy16.9111.1316.0915.37
Japan6.205.334.55
Netherlands4.471.434.043.66
Portugal2.380.340.63
Spain1.6712.663.234.59
Sweden2.061.771.51
Switzerland2.090.911.921.77
Tunisia2.680.380.71
Turkey1.410.200.37
United States5.7113.686.847.83
United Kingdom21.6127.6122.4623.21
Total100.00100.00100.00100.00

The effective exchange rate estimates reported in the IFS and those resulting from considering trade in tourism are drawn in Chart I.1. The chart shows that at the time of the November 1992 devaluation, the tourism sector was more affected than the manufacturing sector by the realignments that followed the EMS crisis. Nevertheless, the level of overall competitiveness had been relatively favorable compared with earlier years. Since the devaluation, the tourism sector has been losing competitiveness much faster than the manufacturing sector. However, the real effective exchange rate, measured by any of the indicators, continues to be more depreciated than at the time of the devaluation.

CHART I.1MALTA: EFFECTIVE EXCHANGE RATES ADJUSTED FOR TOURISM

(1990 = 100) 1/

Citation: 1995, 52; 10.5089/9781451826548.002.A001

Source: International Monetary Fund, International Financial Statistics (IFS); and staff estimates.

1/ A decline in the index indicates a depreciation of the Maltese lira. Real rates based on relative consumer prices.

2. Cost inflation and CPI

The other potentially serious problem with the existing estimates of the real effective exchange rate for Malta is the use of CPI as an indicator of cost inflation. A survey conducted in 1991 revealed that the CPI was not representative of true consumption patterns as it considerably underestimated the share of services. As a consequence (and for other reasons too), it is generally believed that, in the past, the CPI tended to underestimate the true pace of inflation. A new basket resulting from the survey has been used by the Office of Statistics to produce an improved CPI since 1992.1/ In addition to measurement problems, it is not clear that the CPI is a good proxy for production costs and hence a valid indicator of competitiveness.

Accordingly, the real exchange rate was re-calculated using estimates of relative unit labor costs for Malta and her key competitors.2/ The results are presented in Chart I.2. They suggest that in some years the CPI was a poor representative of relative cost inflation, but, overall, the effect on the real effective exchange rate since 1980 is relatively minor. Both the real exchange rates based on relative CPIs and relative unit labor costs show a steady improvement in competitiveness since 1982, consistent with the favorable export performance in recent years.

CHART I.2MALTA: ALTERNATIVE EFFECTIVE EXCHANGE RATES

(1990 = 100) 1/

Citation: 1995, 52; 10.5089/9781451826548.002.A001

Source: International Monetary Fund, International Financial Statistics (IFS); and staff estimates.

1/ A decline in the index indicates a depreciation of the Maltese lira. All indices based on IFS weights, not adjusted for tourism.

Table I.2.Malta: Inflation Rates(In percent)
CPILabor costs

per employee
Unit Labor

Costs
198111.516.68.6
19825.916.98.5
1983-0.9-2.3-2.3
1984-0.4-3.2-3.7
1985-0.21.10.8
19862.0-0.20.2
19870.43.85.6
19881.03.2-1.6
19890.86.0-0.6
19903.09.74.9
19912.68.34.9
19921.67.43.5
19934.19.35.5

3. Other issues

There are two additional—but potentially offsetting—limitations of the real effective exchange rates reported in IFS for Malta that are not corrected for here. First, the data used in the IFS calculation are based on trade patterns in 1980–82. Since then, Malta’s trade structure has changed considerably. Principally, the share of goods traded with the United Kingdom has shrunk (from about 18 percent in 1982 to about 11 percent in 1993), while the share of trade in goods with Italy has grown (up to about 30 percent in 1993 from 19 percent in 1982). Second, the import component of Malta’s exports is very high, and usually has the same origin as the final destination. This is particularly the case for trade in machinery, where exports are mainly to Italy, which is also the origin of most of the machinery sector’s imported components. Assuming that the substitution between imported inputs is very limited, given that in this case a multinational firm is involved, the trade-based weights used to compute the estimates of effective exchange rate in the IFS overestimate the importance of partners like Italy.1/

APPENDIX II: The Social Security System: Structure and Issues

1. The structure of social security spending and finance

The Maltese Government considers it important that it “create a caring society which recognizes that it is duty bound to help those in need”.1/ To meet this objective, Malta provides a comprehensive system of pensions, social benefits and health services for its citizens. In-total, these are budgeted to cost Lm 178.4 million in 1994 or some 17.7 percent of GDP (Table II.1).

Table II.1.Malta: Current Spending on Health, Pensions and Social Security Benefits, 1987–94(In millions of Maltese liri)
19871988198919901991199219931994

Budget
Social security
Retirement pensions 1/26.128.129.433.836.941.245.952.7
Other pensions 2/9.18.89.19.610.912.313.415.0
Subtotal pensions35.236.938.543.447.853.559.367.7
(as of percentage of GDP)(6.4)(6.1)(5.7)(5.9)(5.9)(6.1)(6.4)(6.7)
Other social security
Benefits and expenses28.844.548.052.854.058.561.566.3
Subtotal pensions and social security64.081.486.596.2101.8112.0120.8134.0
(as percentage of GDP)(11.6)(13.4)(12.9)(13.1)(12.6)(12.8)(12.9)(13.3)
Health services and administration24.725.428.130.530.538.143.644.4
Total88.7106.8114.6126.7132.3150.1164.4178.4
(as percentage of GDP)(16.1)(17.6)(17.1)(17.2)(16.4)(17.2)(17.6)(17.7)
Sources: Ministry of Finance, Budget Estimates (various issues); and Treasury Malta Financial Report (various issues).

Including pensioners’ bonuses.

Paid by the Ministry of Finance to retired civil servants and police pensioners.

Sources: Ministry of Finance, Budget Estimates (various issues); and Treasury Malta Financial Report (various issues).

Including pensioners’ bonuses.

Paid by the Ministry of Finance to retired civil servants and police pensioners.

Spending on social security amounts to about 13 percent of GDP. Of this, about half is spent on public pensions and half on an array of other benefits. The mainstay of the public pension system is an earnings-related retirement pension. This is supplemented by various additional pension benefits for special groups (including widows’, invalidity and disablement pensions) and a non-contributory old age pension, national minimum pension and handicapped and blindness pensions that together provide a safety net for the retired.2/ As private pension provision plays a relatively small role in providing for old age security in Malta, claim rates are high and the coverage of the pension system wide: in 1994, around 65,000 Maltese citizens (18 percent of the population) were receiving old age, invalidity or widows pensions, or public sector retirement pensions. The retirement age is generally 60 for both men and women although some people can retire early. Under the main state scheme, pensions are set at two thirds of a person’s average wage in the best three consecutive years of the prior 10 years. Pensions were budgeted to absorb 6.7 percent of GDP in 1994.

A similar amount is budgeted to be spent on other social security benefits and expenses in 1994. The bulk is to be spent on family income support through such benefits as children’s allowances, family bonus, parental allowances, orphans’ allowances, handicapped child allowances, maternity benefit, and marriage grants. Direct spending on unemployment assistance and related sickness and injury benefits accounts for only about 2 percent of social security spending, in part reflecting Malta’s relatively low unemployment rate. However, more general social assistance makes up a further 7 percent of the social spending budget.

Health care is provided almost free to Maltese citizens and visitors. There are also special care programs for the elderly, families, and those with special needs. Where particular treatments are not available in Malta, patients are sometimes sent abroad for private treatment, at the Government’s expense. Current expenditure on these services is budgeted to cost Lm 45 million in 1994 (4.5 percent of GDP). In addition, Malta is upgrading its health infrastructure. Capital expenditure on health and social affairs is budgeted at Lm 8.5 million in 1994 and is expected to rise in the next few years.

Total expenditure on health and social benefits has grown rapidly over recent years. Since the Social Security Act was passed in 1987, increases in total health, pensions and social security expenditures have averaged 14 percent per year, well ahead of the rate of GDP growth. In 1994 current expenditure on health, pensions and social security benefits is budgeted at levels representing 47.5 percent of government revenues and 42.3 percent of government expenditures.

The increases in recent years have been due to a number of factors. First, there has been a trend to make certain of the benefits more generous, introduce new benefits and remove anomalies. For example, the 1991 Social Security Act introduced several new benefits including a Widower’s Pension and a Supplementary Orphan’s Allowance, while eligibility for certain benefits was widened and the levels of others raised. In the 1994 budget, increases in children’s allowances and students’ allowances were announced, and the annual bonus paid to all pensioners and recipients of social assistance was more than doubled. Second, most pensions and social benefits are indexed to wages rather than to prices. Even those not directly indexed to wages have generally been uprated by the same proportion as those that are so that, as stated in the 1993 Budget Speech, recipients would be “certain of maintaining the high level of social benefits [they had] got accustomed to during the last six years”.1/ Pensioners have therefore not just maintained their purchasing power, but have shared in the strong growth of the economy as a whole. The indexing to wages was strengthened in the 1994 Budget in which it was announced that a provision would be introduced whereby, by law, all Social Security pensions, be they under the Contributory or the Non-Contributory Scheme, and all Social Assistance, would henceforth be augmented by not less than two-thirds of the cost of living increase in the national minimum wage, thus limiting the authorities’ scope to allow the real value of some benefits to adjust over time.2/ Third, only the noncontributory old age pension and social assistance are means-tested; the contributory retirement pension is not.

Financing of the social security system is through a combination of earmarked employer and employee contributions and general government finance. Under the Social Security Act, employers and employees are required to make social security contributions at rates of 10 percent and 8.33 percent of payroll or salary respectively. Contributions are subject to a floor salary of Lm 36.63 per week and a ceiling salary of Lm 112.52 per week. There are also special rates for employees under 18, for trainees and for some low income workers. Contributions from the self employed are also assessed differently. Total contributions by employers (including the Government as employer) and employees were budgeted at Lm 69.3 million in 1994. These would cover only 74 percent of spending on those pensions and benefits defined as contributory under the Social Security Act 1987, 58 percent of the total expenditure on pensions and benefits and 39 percent of total spending on health, pensions and social security benefits.3/ The shortfalls are covered by general government resources. Despite some relief from an increase in employers’ contribution rates (from 8.33 percent to 10 percent) in 1993, the burden of social security system on the general public finances started to grow again in 1994.

By international standards, Malta’s social security system, and its public pension system in particular is relatively generous. World Bank analysis of 92 countries, for example, suggests that for Malta’s per capita income of around $7,300 per year, average expenditures on pensions would typically be expected to be around 4 percent of GDP compared with the more than 61/2 percent of GDP actually spent (Chart II.1).1/ At the same time, Malta’s total contribution rate of 18.33 percent is not high for a country with Malta’s age profile (Chart II.2).

Chart II.1Malta: Public Pension Spending

Note: Because of space limitations, not all data points are identified. R2 = 0.55. PS/GDP = 0.66708 + 0.000519 x YCAP90. The sample comprises ninety-two countries for various years between 1986 and 1992.

Sources: World Bank (1994).

Malta - Ministry of Finance, Budget Estimates (1994).

Chart II.2Malta: Social Security Contribution Rate

Note: Because of space limitations, not all data points are identified. R2 - 0.46. PTAX - 1.7035 + 57.34 x OADEP, where PTAX is the payroll tax for pensions.

Sources: World Bank (1994).

Malta - Central Office of Statistics, Demographic Review (1994), Ministry of Finance, Budget Estimates (1994).

2. Future trends and issues

Pensions in Malta are financed on a pay-as-you-go basis with no funds set aside for future pension liabilities. Moreover, given the expected aging of the population structure, substantial pressures on the public pension system and related social services are set to build up over the longer term. How these pressures should be met raises complex questions of inter-generational equity. However, if real benefit levels were to continue to rise at recent rates (roughly 21/2 percent a year faster than the growth of real GDP since 1987), substantial increases in contribution or tax rates would be required in the near future to maintain the fiscal deficit within prudent limits.

Malta’s population structure is already relatively mature and, in line with many other countries, it will age significantly over the next 20 years (Charts II.3 and II.4). Currently, 15 percent of the population is aged over 60 and the ratio of over 60s to 20–59 year olds is 27.7 percent. By 2005, 17.4 percent of the population is forecast to be over 60, and the dependency ratio is predicted have risen to 31.5 percent. The trend is expected to continue over the following decade. Moreover, a higher proportion of the over 60s will be women than at present. Women tend on average to live longer than men and therefore to draw pensions and other benefits for more years after retirement: a woman aged 60 retiring in Malta in 1992 could expect to live a further 21 years, a man a further 18 years.

Chart II.3Malta: Demographic Profile

Note: Because of space limitations, not all data points are identified. R2 = 0.64. POP60 4.92 4.0.00087 x YCAP90, where POP60 is the percentage of population over 60 and YCAP90 is the income per capita adjusted for purchasing power parity in U.S. dollars for 1990.

Sources: World Bank (1994).

Malta - Central Office of Statistics, Demographic Review (1994), Ministry of Finance, Budget Estimates (1994).

Chart II.4Malta: Population Aging

Note: Japan is included with the OECD countries, not with Asia.

Sources: World Bank (1994).

Malta - Central Office of Statistics, Demographic Review (1994).

As a result of population aging, greater and greater demands are likely to be placed on the health and social security systems in the relatively near future. Chart II.5, taken from the World Bank study (op. cit.), indicates that there has been a close link in many countries between public pension spending and the proportion of the population over 60. Although the fit is less good, the same conclusion can be drawn if health spending is included in the data. The World Bank’s study therefore suggests that, unless action is taken, spending on the elderly is likely to absorb a significantly higher proportion of GDP over coming years. The burden of this spending would fall largely on the current working population. At the same time the current working generation cannot look forward, as in some other countries, to the lower costs of supporting a smaller number of children.2/

Chart II.5Malta: Potential Impact of Aging Population

Note: Because of space limitations, not all data points are identified. Data points show health plus pension spending data only. For health spending, R2 - 016. H/GDP - 0.069915 + 0.298553 x POP60: for health and pension spending. R2 - 0.92. H + P/GDP - 0.25449 + 0.369237 x POP60 + 0.022744 x POP602, where H is public heath spending and P is public pension spending. Sample covers sixty-six countries for various years between 1983 and 1992.

Sources: World Bank (1994).

Malta - Ministry of Finance, Budget Estimates (1994).

Some perspective of the size of potential financing pressures can be gauged from calculations of the implicit accrued debt owed by the Government to present and future pension beneficiaries. According to staff calculations, this debt is of the order of 140 percent of GDP, even assuming that real average benefits did not increase in the future. This is comparable with levels calculated for a number of OECD countries (Chart II.6).1/

Chart II.6Malta: Estimated Public Pension Debt Comparisons

Notes: 1990 data for countries other than Malta. The assumed discount rate is 4 percent.

Sources: World Bank, using Van der Noord and Herd (1993).

Malta - Ministry of Finance, Budget Estimate (1994) and staff estimates.

To meet future pension and related social security costs in a pay-as-you go system will thus likely require sizable increases in contribution rates. For example, a study by Fenech (1992) (cited in Delia and Delia, 1994) estimates that the employee contribution rate would have to rise from 8.33 percent to 12 percent by 2030 just to cover the expected costs of funding pensions. Other related social security costs would, at the same time, rise steeply thereby necessitating further hikes in tax or contribution rates if offsetting savings could not be found elsewhere in the public accounts. Simulations reported by Anderson (1992), for instance, suggest that by 2020 demographic trends could add about 9 percent of GDP to social spending mainly in the areas of health, pensions and care of the elderly.2/

The Maltese authorities are aware of the growing pressures on the health and social security systems and a debate has emerged on how it can be dealt with. In his 1993 Budget Speech the Minister of Finance highlighted the issue by saying that, without action, demographic factors alone would lead to a near quadrupling of the “welfare gap” by the year 2030.3/ A number of options for reform of the system are being studied. These, include the linking of pension benefits to contributions, a “flexible” retirement age, and the establishment of private pension schemes to supplement the government scheme.

APPENDIX III: Fiscal Policy in Malta: Medium-Term Aspects

This note describes a small model of the Maltese economy that highlights some important macroeconomic issues in coming years. In particular, financial market deregulation and the liberalization of capital flows are likely to lead over time to a rise in interest rates to levels more consistent with those prevailing in international markets. Experience from other countries suggests that the eventual relationship between interest rates in Malta and those in other countries will depend on developments in fiscal policy: high fiscal deficits and rising public debt ratios are associated with relatively high interest rates. Since interest rates are an important determinant of private sector investment, a loose fiscal policy can thus undermine an economy’s potential growth rate. In addition, evidence from industrial countries suggests that there is an inverse relationship between an economy’s potential growth rate and the size of the government sector. Together, these considerations suggest that achieving and sustaining a sound fiscal position—and working to reduce the role of government—will be important for Malta’s medium-term prospects.

The note is organized as follows. Section 1 discusses some general issues related to fiscal policy, interest rates and economic growth. Section 2 describes a small model of the Maltese economy. Section 3 describes simulations carried out on the model to illustrate some potential medium-term issues.

1. Fiscal policy, interest rates and potential growth

Malta is embarked on a policy of gradual financial market deregulation and the progressive elimination of external capital controls. Under the current timetable, free and open financial markets will be established by the end of 1997. One consequence is that interest rates, which are currently well below those prevailing in the international markets, are almost certain to rise. Two important questions are how much might rates rise and what factors will affect interest rates in the future.

It is difficult to answer the first question with any precision because the level of interest rates in the future will depend on a number of unpredictable developments that will affect interest rates throughout the world. However, it is possible to make some general observations about how interest rates are likely to evolve relative to those elsewhere. In particular, the importance of European currencies in the basket to which the Maltese lira is currently being pegged and official thinking about a possible shift to an exclusive ECU peg in the near future suggests that over the period of capital flow liberalization, interest rates in Malta will gradually move toward the interest rates prevailing in European countries. As the bulk of the lifting of capital controls is scheduled to take place toward the end of the liberalization period (especially for interest rate-sensitive items such as portfolio investment) convergence is unlikely to be completed before 1997.

European interest rates, and in particular long-term rates, are largely driven by German rates, although significant interest rate differentials vis-à-vis Germany exist for most European countries. These interest rate “premia” reflect the dominance of the deutsche mark within the European Monetary System (EMS) and less than perfect exchange rate credibility—even in the case of countries that have had consistently low inflation records (even compared to Germany) and have demonstrated a willingness to defend their D-mark parities by swift action on the interest rate front, even under unfavorable cyclical conditions.1/ The tabulation below presents current bond yields and differentials vis-à-vis Germany for a number of European countries.

European Government Bond Yields and Inflation, October 1994(In percent)
Bond yieldsInflationDifferential

with Germany 1/
Belgium8.452.10.88
Denmark8.902.01.33
France8.191.60.62
Germany7.572.8
Ireland (12-month)7.272.81.58
Italy12.073.84.50
Netherlands7.512.8-0.06
Portugal (12-month)10.664.84.97
Spain11.134.43.56
United Kingdom8.912.41.34
Source: IMF, International Financial Statistics, Financial Times; and staff calculations.

For equivalent maturities.

Source: IMF, International Financial Statistics, Financial Times; and staff calculations.

For equivalent maturities.

The experience of EMS countries would thus suggest that Malta, which currently enjoys long-term interest rates almost a full percentage point lower than Germany’s, is likely to face a substantial rise in real interest rates as a consequence of capital flow liberalization. It is of course impossible to determine in advance the level of the premium that financial markets will impose on Maltese lira denominated securities after capital controls have been lifted. On the one hand, Malta has a track record of low inflation and exchange rate stability. On the other hand, the devaluation of November 1992 could raise doubts in market participants’ minds about the commitment to a fixed exchange rate even several years on. It might be noted that if Malta were to enjoy a spread of only about 1 percentage point with Germany (as in low inflation ERM member countries such as Belgium, Denmark, France and Ireland), real rates would have to rise by about 2 percentage points.

Regarding the second question as to what factors might affect interest rates in the future, it is helpful to split the potential premium over German rates into several components. The first would be a “structural” (though possibly time-varying) component related to the credibility of exchange rate policy. The second would be related to perceived exchange rate misalignments. It embodies the assumption that a persistent overvaluation of the currency, captured by the degree of cumulative appreciation of the real effective exchange, is viewed as likely to be corrected via exchange rate adjustment within the time to maturity of the security under consideration. This component indirectly depends on the fiscal stance to the extent that expansionary fiscal policy, by keeping the economy temporarily above potential, contributes to an appreciation of the real exchange rate.

The third component of the risk premium depends on fiscal policy in a more direct fashion. It is by now fairly well established on both theoretical and empirical grounds, at least for fixed exchange rate and target zone systems, that fiscal policy variables affect the spread between domestic and world interest rates.1/ In particular, high debts and deficits may increase the market assessment of sovereign credit risk, 2/ or they may be viewed as providing an incentive to the authorities to engage in debt monetization. In the presence of the strict controls on capital movements in place, there is very little to be learned in this regard from Malta’s own experience. However, the results of Halikias (1994) suggest that in other countries a 1 percentage point increase in the fiscal deficit to GDP ratio can add 50 basis points to interest rates, while a 1 percentage point rise in the public debt ratio would add a further 3 basis points.3/

High fiscal deficits and rising public debt ratios are thus likely to be associated with higher interest rate premia which in turn would tend to crowd out private investment and hold back economic growth. At the same time, there is also compelling evidence from analysis of industrial countries that there is a direct link between the size of government and underlying growth potential of the economy.1/ Apart from the indirect crowding out of private sector activity, higher government spending is associated with a less efficient allocation of resources while higher taxation levels lead to disincentive effects for work and savings. The effects can be large with results suggesting that a 1 percentage point increase in either expenditure or revenue ratios to GDP would lower potential growth by about 1/4 percentage point a year.

2. A model of the Maltese economy

In order to illustrate some of the potential numerical implications of the effects of fiscal policy on medium-term prospects, a small model of the Maltese economy was constructed. The model determines potential supply and actual aggregate demand separately, with any gap between supply and demand leading to pressure on price inflation and hence competitiveness and interest rates. In turn, the latter variable affects private investment, the accumulation of capital, and potential growth, while competitiveness determines net external demand and the current account of the balance of payments. Fiscal policy enters the model both through its (short-run) direct effect on aggregate demand and also (as described in the previous section) through its feedback on the level of interest rates. In addition, higher public spending or taxation is assumed to reduce total factor productivity growth directly.

The model was calibrated using econometric techniques. However, it should be stressed at the outset that data limitations and the pervasiveness of regulations and restrictions in the past (such as strict price controls, a wage freeze, heavy interest rate subsidies and stiff import barriers) make it difficult to uncover the magnitude of behavioral relationships in the economy with any precision. More generally, a structural break might be suspected after 1987 when the present policy of opening up the economy began. In view of this, the available sample can be expected to bias downward the estimated magnitude of the relevant transmission mechanisms and hence underestimate the differences in the simulated impact of alternative fiscal strategies.2/

A similar bias can be expected to result from the choice of a one-good model for estimation purposes. This choice was dictated purely by practical considerations, notably the limited usefulness of relative price data under circumstances of a general wage freeze and the unreliability of sectoral price indices during most of the period under consideration. While a single-good model can in principle be interpreted as an aggregated version of a multiple-goods model, such a choice can be expected to underestimate the differential impact of alternative fiscal strategies on the variables under consideration. Typically, relative price changes (particularly between nontradable and export goods) significantly strengthen the transmission mechanisms relevant to the issues under discussion.1/

With regard to the supply side of the model, a constant returns to scale Cobb-Douglas production function was assumed, according to which a homogeneous output, proxied by real GDP (Yp), is produced using two inputs, labor (L) and capital (K):

where b and (1-b) stand for the shares of labor and capital in total income. The above equation can also be written in terms of the rate of change of the underlying variables, as follows:

where a=dA(t)/dt stands for the rate of multi-factor productivity growth.

Direct estimation of the above production function is precluded by the unavailability of capital stock data. Instead, in order to gauge the underlying trend growth rate of multi-factor productivity, it was assumed that the capital-output ratio had been constant and the average labor share in total income had equaled 65 percent during the period 1980–1993.2/ This gave an average multi-factor productivity growth rate of 2.2 percent a year.

For the purpose of the simulations reported below, the capital-labor ratio is determined endogenously via capital accumulation (investment) and the assumed growth in the labor supply. In this regard, private and public investment are considered as perfect substitutes. While this is a highly questionable assumption, it carried little practical consequence for the simulation exercise, which focused on alternative paths for public current expenditure rather than investment. In the simulations, multi-factor productivity growth, is also not treated as completely exogenous, but related negatively to the level of public expenditure for the reasons outlined in section 1. Specifically, a 1 percentage point increase in the ratio of public spending to GDP is assumed to reduce multi-factor productivity growth by 1/4 percentage point a year.

The demand side of the model is made up of a system of four equations determining the main components of aggregate demand in real terms. With regard to private consumption, the ratio of consumption to income (C/Y) is assumed to adjust toward its desired level according to the estimated partial adjustment equation (t-statistics in parenthesis):

The rate of growth of exports (gX) is postulated to depend on the rate of growth of world trade relevant to Malta (gWT), with its coefficient constrained at 1, along with the current and lagged rate of change of the real effective exchange rate (gREER), 1/ according to the estimated equation:

The rate of growth of imports (gM) is postulated to depend on real GDP growth (gy) and the rate of change in import prices relative to the GDP deflator (gTD), according to the estimated equation:

The modelling of private investment is an area where significant econometric problems were encountered. These problems partly reflect the difficulties traditionally encountered with investment equations, but also problems with the available sample referred to above, especially in view of the strong likelihood of a structural break in the true relation around the sample’s midpoint. As a starting point, a simple relationship between the rate of growth of private investment (gI) and the rate of real GDP growth (gy), along with the change in the current and lagged real (lending) interest rate (r), was considered. This specification did not yield sensible empirical results, both over the entire period and over different sub-periods, probably reflecting the fact that, in an environment of heavy investment subsidies, the real interest rate can be expected to be a poor proxy of the cost of capital accumulation. Accordingly, the following functional form, which had only tentative empirical support, was imposed:

where the term GAP is defined as the percentage deviation of actual from potential output, ((Y/Yp)-1), and is included to capture effects on profitability arising in situations of goods market disequilibrium. In particular, in a situation where GDP exceeds potential output, wage growth would accelerate, which would tend to erode business profitability in view of the largely price-taking nature of the Maltese economy. In turn, the impact of business profitability on investment, which has received empirical support in the case of other countries, can be expected to be particularly strong in the case of Malta where the limited development of financial and capital markets renders business retained earnings a primary source of private investment. This mechanism could obviously not be captured by the available sample, half of which comprises a period of a wage freeze and most of the remaining half a period of a centralized incomes policy.

The model is closed by linking inflation to the gap between actual GDP (determined from the demand side) and potential GDP (determined from the production function when the labor supply is at its “full employment” level) and linking interest rates to developments in the fiscal accounts and the real exchange rate as described in section 1 above.1/ The precise inflation variable is chosen for convenience to be the rate of change in the real effective exchange rate (gREER) on the assumption that, in the absence of domestic cyclical pressures, inflation in Malta would be at the “world rate” and the real exchange rate would not change. If output were to rise above potential, Malta’s inflation rate would rise relative to its trading partners (the real exchange rate would appreciate) according to the following rule: 2/

3. Medium-term scenarios

This section uses the above model to examine the impact of alternative fiscal paths on a number of important economic variables in a medium-term context, specifically over the period 1996–2002.

The baseline scenario assumes that the rise in the fiscal deficit in 1994–95 is a temporary phenomenon and that the authorities make good their objective of limiting the deficit to 3 percent of GDP on their definition in the medium term.3/ Some deficit reduction is thus assumed through restraint on public expenditure growth in the years 1996–97. This fiscal path is assumed to be consistent with Malta enjoying only a small (1 percentage point) interest rate premium over German rates after 1997 when capital controls are fully removed, which requires some gradual rise in real interest rates in the intervening years. On other assumptions, partners’ import demand growth increases to around 6 percent in the medium term, “world inflation” would be around 21/2 percent a year, labor supply growth is 1 percent a year, and straight line depreciation at the rate of 5 percent is assumed for the capital stock.

Under the baseline scenario, the rate of growth of the capital stock would be sufficient to maintain potential output growth at around its current trend of 41/2 percent a year (see tabulation below). Inflation would remain more or less in line with the assumed developments in Malta’s main trading partners and the current account would remain in deficit at just under 1 percent of GDP. The path for the fiscal deficit would stabilize the public debt/GDP ratio at around 351/2 percent of GDP.

Baseline Scenario
1996199719981999200020012002
(Annual percentage change)
GDP4.14.34.54.54.54.54.5
Capital stock5.45.05.05.05.05.15.1
Potential GDP4.64.44.44.44.54.54.5
GDP deflator2.82.52.52.52.52.52.5
(Percent of GDP)
Current account-2.7-1.5-0.9-0.8-0.7-0.8-0.8
Budget deficit 1/-3.7-3.0-3.0-3.0-3.0-3.0-3.0
Gross public debt36.135.935.735.635.535.535.4

A second scenario (“high public expenditure”) assumes that there would be no consolidation of the public finances after 1995 and the budget deficit would remain at 41/2 percent of GDP on the authorities’ definition. The scenario assumes higher public expenditure growth (split between public consumption and transfers) in 1996–97 than in the baseline.2/ This leads to some temporary overheating of the economy in these years, a rise in inflation and a loss in competitiveness (see tabulation below). At the same time, multi-factor productivity growth is reduced by 0.3 percentage points a year and real interest rates are higher both due to the fiscal premium and the real exchange rate premium: together these effects significantly reduce longer-term growth prospects. The initial overheating of the economy and loss of competitiveness is also associated with a persisently wider current account deficit than in the baseline. Public debt would be on a rising path and would be 10 percentage points of GDP higher by the end of the scenario.

High Public Expenditure Scenario
1996199719981999200020012002
(Annual percentage change)
GDP4.44.14.43.84.24.24.2
Capital stock5.45.04.84.74.84.84.8
Potential GDP4.34.14.14.14.14.24.2
GDP deflator3.23.02.62.52.52.52.5
(Percent of GDP)
Current account-3.8-3.4-2.4-2.0-1.9-1.9-1.9
Budget deficit 1/-4.5-4.5-4.5-4.5-4.5-4.5.-4.5
Gross public debt37.338.840.441.843.144.345.4

By contrast, a further reduction in the fiscal deficit to 11/2 percent of GDP in the medium term might be associated with lower real interest rates and faster underlying economic growth (see tabulation below).2/ It might be noted, that the fiscal path would permit a fall in the ratio of public debt to GDP, which may well be appropriate from the perspective of demo-graphic trends, and would help to further lower debt service costs and thereby free some public resources for other activities.3/ The lower fiscal deficit scenario would also be associated with a return of the current account to balance in the medium term.

Low Expenditure Scenario
1996199719981999200020012002
(Annual percentage change)
GDP4.04.55.04.84.84.84.8
Capital stock5.45.15.05.25.25.25.2
Potential GDP4.74.74.74.74.84.84.8
GDP deflator2.62.32.42.52.52.52.5
(Percent of GDP)
Current account-2.0-0.20.20.10.10.1
Budget deficit 1/-3.0-2.0-1.5-1.5-1.5-1.5-1.5
Gross public debt36.636.234.633.231.930.729.6
STATISTICAL APPENDIX
Table A1.Malta: Sectoral Distribution of GDP at Factor Cost, 1987–93(Current prices)
1987198819891990199119921993
(In millions of Maltese liri)
Agriculture and fisheries21.421.122.422.623.423.526.4
Industry199.6219.9240.0252.0272.8278.9290.1
Manufacturing, shipbuilding and repairs136.4146.6163.7175.6188.1191.8200.2
Construction and quarrying 1/21.121.422.322.926.525.325.0
Public enterprises 2/42.151.954.053.558.261.864.9
Services274.4301.7334.5375.0413.4467.3515.3
Transport and communications30.234.534.637.141.852.256.1
Wholesale and retail trade70.876.984.993.7101.4109.9114.0
Insurance, banking, and real estate23.930.235.442.449.757.264.3
Private services41.746.252.158.165.173.582.1
Property38.939.544.851.051.357.564.4
Public administration68.974.482.792.7104.1117.0134.4
GDP at factor cost495.4542.7596.9649.6709.6769.7831.8
(In percent of GDP at factor cost)
Agriculture and fishing4.33.93.83.53.33.13.2
Industry40.340.540.238.838.436.234.9
Manufacturing, shipbuilding and repairs27.527.027.427.026.524.924.1
Construction and quarrying 1/4.33.93.73.53.73.33.0
Public enterprises 2/8.59.69.08.28.28.07.8
Services55.455.656.057.758.360.761.9
Transport and communications6.16.45.85.75.96.86.7
Wholesale and retail trade14.314.214.214.414.314.313.7
Insurance, banking, and real estate4.85.65.96.57.07.47.7
Private services8.48.58.78.99.29.59.9
Property7.97.37.57.97.27.57.7
Public administration13.913.713.914.314.715.216.2
Sources: Central Office of Statistics National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

As of 1986 value added activity of Malta Shipbuilding has been included in manufacturing, shipbuilding, and repairs.

Including Enemalta, Telemalta, Malta Development Corporation, postal services, water production, and public lotto.

Sources: Central Office of Statistics National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

As of 1986 value added activity of Malta Shipbuilding has been included in manufacturing, shipbuilding, and repairs.

Including Enemalta, Telemalta, Malta Development Corporation, postal services, water production, and public lotto.

Table A2.Malta: GDP by Expenditure Component, 1987–93
1987198819891990199119921993 1/
(In millions of current Maltese liri)
Total consumption449.4492.8545.1590.0641.6694.9755.3
Private consumption351.2387.6425.5460.8494.5530.6566.2
Public consumption98.2105.2119.6129.2147.1164.3189.1
Gross fixed capital formation153.5166.4188.4232.6239.1240.9271.3
Construction49.150.255.364.764.567.4
Machinery104.4116.2133.1167.9174.6173.5
Domestic final demand602.9659.2733.5822.6880.7935.81026.7
Increase in stocks-2.48.29.912.715.6-1.82.7
Total domestic demand600.5667.4743.4835.3896.3934.01029.4
Exports of goods and nonfactor services429.6480.0543.5626.4701.9804.1874.9
Aggregate demand1030.11147.41286.91461.71598.21738.11904.3
Imports of goods and nonfactor services480.9540.9616.8726.9791.2866.0970.8
Foreign balance-51.3-60.9-73.3-100.5-89.3-61.9-95.9
Gross domestic product549.1606.4670.2734.8806.9872.0933.1
Net factor income from abroad30.728.335.855.049.742.843.3
Gross national product579.8634.7706.0789.8856.6914.8976.8
(In millions of 1973 Maltese liri)
Total consumption230.2249.4274.3285.8301.4318.0326.2
Private consumption178.8194.9212.9220.9229.4239.6243.0
Public consumption51.454.561.464.972.078.483.2
Gross fixed capital formation65.569.570.282.882.882.687.1
Construction29.730.331.535.234.636.0
Machinery35.839.238.747.648.246.6
Domestic final demand295.7318.9344.5368.6384.2400.6413.3
Increase in stocks-2.48.29.912.715.6-1.82.7
Total domestic demand293.3327.1354.4381.3399.8398.8416.0
Exports of goods and nonfactor services193.7205.6227.6257.8277.2304.0309.8
Aggregate demand487.0532.7582.0639.1677.0702.8725.8
Imports of goods and nonfactor services178.0197.7219.6254.0267.7275.8283.4
Foreign balance15.77.98.03.89.528.226.4
Gross domestic product309.0335.0362.4385.1409.3427.1442.4
Net factor income from abroad14.513.216.424.821.718.518.3
Gross national product323.5348.2378.8409.9431.0445.6460.7
Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, Economic Survey.

Estimates.

Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, Economic Survey.

Estimates.

Table A3.Malta: Share of Demand Components in GDP, 1987–93(In percent)
1987198819891990199119921993 1/
Total consumption81.881.381.380.379.579.780.9
Private consumption64.063.963.562.761.360.860.7
Public consumption17.917.317.817.618.218.820.3
Gross fixed capital formation28.027.428.131.729.627.629.1
Construction8.98.38.38.88.07.7
Machinery19.019.219.922.821.619.9
Domestic final demand109.8108.7109.4111.9109.1107.3110.0
Increase in stocks-0.41.41.51.71.9-0.20.3
Total domestic demand109.4110.1110.9113.7111.1107.1110.3
Exports of goods and nonfactor services78.279.281.185.287.092.293.8
Aggregate demand187.6189.2192.0198.9198.1199.3204.1
Imports of goods and nonfactor services87.689.292.098.998.199.3104.0
Gross domestic product100.0100.0100.0100.0100.0100.0100.0
Sources: Central Office of Statistics National Account of the Maltese Islands; Ministry of Finance, Economic Survey.

Estimates.

Sources: Central Office of Statistics National Account of the Maltese Islands; Ministry of Finance, Economic Survey.

Estimates.

Table A4.Malta: Disposable Income of Households, 1987–93
1987198819891990199119921992 1/1993 1/
(In millions of Maltese liri)
Wages and salaries238.5251.9270.8298.7332.2359.8266.7288.2
Employers’ contributions to social security16.217.617.520.321.7_24.016.122.4
Nonwage income 2/139.4155.5173.3199.4213.4223.0169.6176.8
Net tranfers from Public Authorities62.565.970.479.582.991.464.870.9
Net tranfers from abroad12.617.120.217.217.012.29.610.0
Less: income taxes on households55.564.667.181.083.094.463.077.2
Disposable income413.7443.4485.1534.1584.2616.0463.8491.1
Less: private consumption351.2387.6425.5460.8494.5530.6390.9417.1
Households savings 3/62.555.859.673.389.785.472.974.0
Savings rate (in percent of disposable income)15.112.612.313.715.413.915.715.1
(Annual percentage change)
Wages and salaries10.55.67.510.311.28.38.28.1
Employers’ contributions to social security3.28.6-0.616.06.910.615.039.1
Nonwage income 2/0.611.511.415.17.04.57.94.2
Net transfers from Public Authorities2.85.46.812.94.310.311.19.4
Net transfers from abroad9.535.618.1-14.9-1.2-28.2-25.64.2
Income taxes on households-9.216.43.920.72.513.718.922.5
Disposable income8.57.29.410.19.45.46.45.9
Private consumption2.310.49.88.37.37.35.46.7
Households savings 3/64.9-10.86.823.022.4-4.812.31.5
(In percent of disposable income of households)
Wages and salaries57.656.855.855.956.958.457.558.7
Employers’ contributions to social security3.94.03.63.83.73.93.54.6
Nonwage income 2/33.735.135.737.336.536.236.636.0
Net tranfers from Public Authorities15.114.914.514.914.214.814.014.4
Net transfers from abroad3.03.94.23.22.92.02.12.0
Less: income taxes on households13.414.613.815.214.215.313.615.7
Memorandum item:Annual percentage change
Real disposable income 4/6.65.98.95.55.82.65.30.9
Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, Economic Survey.

Preliminary data for January to September.

Includes income of self-employed persons, rents, dividends and interest.

Excludes depreciation.

Percent change in nominal disposable income deflated by the private final consumption deflator.

Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, Economic Survey.

Preliminary data for January to September.

Includes income of self-employed persons, rents, dividends and interest.

Excludes depreciation.

Percent change in nominal disposable income deflated by the private final consumption deflator.

Table A5.Malta: Gross Fixed Investment, 1987–93
1987198819891990199119921993 1/
(In millions of Maltese liri)
Total gross fixed investment153.5166.4188.4232.6239.1240.9271.3
By sector:
Private enterprises and households 2/120.4133.1139.5155.7160.9177.6220.0
Agriculture and fisheries1.41.72.21.72.22.2
Construction and quarrying6.19.17.46.67.46.8
Manufacturing, shipbuilding, and repairs28.834.943.733.744.438.1
Transport and communications 3/44.245.844.672.959.869.8
Wholesale and retail trade1.72.53.64.74.24.7
Hotels14.98.69.78.56.712.5
Private services3.98.47.69.312.416.8
Other services19.422.220.718.323.926.7
Public enterprises 4/14.712.720.842.741.532.221.1
General Government 5/18.420.628.134.236.831.130.3
By type of asset:
Dwellings and other construction works49.150.255.364.764.567.361.6
Total machinery and equipment104.4116.2133.1168.0174.7173.6209.7
Transport equipment41.538.134.366.249.758.3
Non-electrical machinery30.334.442.345.544.844.2
Electrical machinery and appliances19.224.933.326.334.235.1
Other machinery and equipment13.418.923.230.046.036.0
(In percent of total)
By sector:
Private enterprises and households 2/78.480.074.066.967.373.781.1
Agriculture and fisheries0.91.01.20.70.90.9
Construction and quarrying4.05.53.92.83.12.8
Manufacturing, shipbuilding, and repairs18.821.023.214.518.615.8
Transport and communications 3/28.827.523.731.325.029.0
Wholesale and retail trade1.11.51.92.01.82.0
Hotels9.75.25.13.72.85.2
Private services2.55.04.04.05.27.0
Other services12.613.311.07.910.011.1
Public enterprises 4/9.67.611.018.417.413.47.8
General Government 5/12.012.414.914.715.412.911.2
By type of asset:
Dwelling and other construction works32.030.229.427.827.027.922.7
Total machinery and equipment68.069.870.672.273.172.177.3
Transport equipment27.022.918.228.520.824.2
Nonelectrical machinery19.720.722.519.618.718.3
Electrical machinery12.515.017.711.314.314.6
Other machinery and equipment8.711.412.312.919.214.9
(Annual percentage change)
Memorandum item:
Total gross fixed investment25.58.413.223.52.80.812.6
Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, and staff estimates.

Estimates.

Includes private firms, parastatals, Malta Shipbuilding, Malta Drydocks Corporation, and Air Malta.

As of 1986 value added activity of Malta Shipbuilding has been included in manufacturing, shipbuilding, and repairs.

Includes Enemalta, Telemalta, Malta Development Corporation, postal services, water production, and public lotto.

Includes capital expenditure provided for in the budget of the government.

Sources: Central Office of Statistics, National Accounts of the Maltese Islands; Ministry of Finance, and staff estimates.

Estimates.

Includes private firms, parastatals, Malta Shipbuilding, Malta Drydocks Corporation, and Air Malta.

As of 1986 value added activity of Malta Shipbuilding has been included in manufacturing, shipbuilding, and repairs.

Includes Enemalta, Telemalta, Malta Development Corporation, postal services, water production, and public lotto.

Includes capital expenditure provided for in the budget of the government.

Table A6.Malta: Saving and Investment, 1987–93
1987198819891990199119921992 1/1993 1/
(In millions of Maltese Liri)
Gross domestic savings 2/99.7113.6125.1144.8165.3177.1138.5134.8
Factor income and transfers from abroad, net60.583.072.282.887.072.754.653.8
Net factor income30.728.335.855.049.742.833.435.0
Net unrequited transfers29.854.736.427.837.329.921.218.8
Gross national savings 3/160.2197.2197.1227.6252.2248.7193.0188.6
Public sector 4/22.555.655.067.064.048.8
Private sector137.7141.6142.1160.6188.2199.9
Households 4/83.283.371.780.898.3104.0
Corporations 5/54.558.270.479.889.995.9
Foreign savings 6/-9.1-22.61.217.72.5-9.6-10.024.9
Gross savings (national plus foreign)151.1174.6198.3245.3254.7239.1182.5213.5
Gross domestic investment 7/151.1174.6198.3245.3254.7239.1182.5213.5
(In percent of GNP)
Gross domestic savings 2/17.217.917.718.319.319.418.218.7
Factor income and transfers from abroad, net10.413.110.210.510.27.96.47.5
Net factor income5.34.55.17.05.84.74.44.9
Net unrequited transfers5.18.65.23.54.43.31.92.6
Gross national savings 3/27.631.127.928.829.427.225.426.2
Public sector 4/3.98.87.88.57.55.3
Private sector23.822.320.120.322.021.9
Households 4/14.413.110.210.211.511.4
Corporations 5/9.49.210.010.110.510.5
Foreign savings 6/-1.6-3.60.22.20.3-1.02.03.5
Gross savings (national plus foreign)26.127.528.131.129.726.127.429.6
Gross domestic investment 7/26.127.528.131.129.726.127.429.6
Memorandum item:
Gross national product579.8634.7706.0789.8856.6914.8674.4721.1
Sources: Central Office of Statistics, National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

Preliminary data for January-September.

GDP less total consumption.

National disposable income (GDP plus net factor income and transfers from abroad) less consumption.

Includes depreciation and unrequited transfers.

Includes depreciation.

Current account balance of the balance of payments with opposite sign.

Gross fixed capital formation plus increase in stocks.

Sources: Central Office of Statistics, National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

Preliminary data for January-September.

GDP less total consumption.

National disposable income (GDP plus net factor income and transfers from abroad) less consumption.

Includes depreciation and unrequited transfers.

Includes depreciation.

Current account balance of the balance of payments with opposite sign.

Gross fixed capital formation plus increase in stocks.

Table A7.Malta: Shipbuilding and Drydocks, 1987–93
1987198819891990199119921993
Shipbuilding
Value of assets (in millions of Maltese liri)33.032.331.631.030.630.1
Profits (in millions of Maltese liri)-4.2-7.1-9.0-9.9-10.6-10.3-9.7
Employment (In percent of total)2,320

1.9
2,104

1.7
2,076

1.6
1,989

1.6
1,916

1.5
1,900

1.4
1,900

1.4
Wage bill (in millions of Maltese liri)5.06.76.36.97.98.0
Drydocks
Sales (in millions of Maltese liri)18.823.125.028.024.222.121.1
Value of assets (in millions of Maltese liri)12.111.911.611.814.2
Profits (in millions of Maltese liri)-8.1-6.00.40.0-0.5-2.6-4.3
Employment (In percent of total)4,349

3.6
4,247

3.4
3,975

3.2
3,816

3.0
3,698

2.8
3,700

2.8
3334

2.5
Wage bill (in millions of Maltese liri)13.814.215.315.816.2
Source: Data provided by the Maltese authorities; Ministry of Finance, Economic Survey; and Fund staff estimates.
Source: Data provided by the Maltese authorities; Ministry of Finance, Economic Survey; and Fund staff estimates.
Table A8.Malta: Tourism Indicators, 1987–93
1987198819891990199119921993
Tourist arrivals
In thousands745.9783.8828.3871.8895.01002.01063.0
Annual percentage change29.95.15.75.22.712.06.1
Tourist arrivals by nationality (Shares in total)
United Kingdom59.960.859.551.651.252.449.0
Italy5.86.56.47.37.27.68.0
Germany 1/9.49.911.114.915.315.316.6
Other24.922.823.026.126.424.726.4
Foreign exchange earnings
In millions of Maltese liri120.1138.2143.8157.4175.3180.5233.2
Annual percentage change43.115.14.19.511.43.029.2
In millions of U.S. dollars385.3416.1426.9523.3573.7482.4590.2
Annual percentage change69.58.02.622.69.6-15.922.3
Per tourist (in Maltese liri)161.0176.3173.6180.6195.9180.1219.4
In percent of exports of goods and nonfactor income28.028.826.525.125.022.426.7
Full-time employment (end of period) 2/
In thousands7.37.88.28.08.28.28.6
In percent of total employment6.06.26.56.36.36.26.5
Sources: Ministry of Finance, Economic Survey, and The Maltese Economy in Figures, and Central Bank of Malta, Quarterly Review.

From 1991, figures for Germany include former East Germany.

From 1987, full-time employment includes private and public sector tourist-related services.

Sources: Ministry of Finance, Economic Survey, and The Maltese Economy in Figures, and Central Bank of Malta, Quarterly Review.

From 1991, figures for Germany include former East Germany.

From 1987, full-time employment includes private and public sector tourist-related services.

Table A9.Malta: Population, Labor Force, and Employment, 1987–94
19871988198919901991199219931994

June
(In thousands of persons, end of period)
Total population 1/345.6349.0352.4355.9359.5363.0366.4
Labor force 2/127.6130.1131.0132.3135.3137.2138.4138.6
Of which:
Women31.832.532.933.635.235.736.3
Gainfully occupied121.9125.0126.1127.2130.3131.6132.3133.0
Of which:
Women30.831.532.232.934.334.635.4
Registered unemployed5.65.24.85.14.95.56.25.6
Of which:
Women1.01.00.80.80.91.10.9
Self employed15.315.415.716.117.216.816.316.0
Of which:
Women2.32.32.42.42.72.62.5
(In percent)
Labor force (in percent of population)36.937.337.237.237.637.837.8
Women in labor force (in percent of labor force)24.124.224.624.925.425.225.6
Unemployment (in percent of labor force)4.44.03.73.93.64.04.54.0
(Annual percentage change)
Total population0.71.01.01.01.01.00.9
Labor force3.22.00.71.02.31.40.90.1
Gainfully occupied5.92.50.90.92.41.00.50.5
Sources: Ministry of Finance Economic Survey, and The Maltese Economy in Figures; and Central Office of Statistics, Economic Trends.

Period averages.

Includes members of the armed forces.

Sources: Ministry of Finance Economic Survey, and The Maltese Economy in Figures; and Central Office of Statistics, Economic Trends.

Period averages.

Includes members of the armed forces.

Table A10.Malta: Employment by Sector, 1987–93
1987198819891990199119921993
(In thousands of persons, end of period)
Private sector66.968.370.171.874.775.476.8
Direct production36.136.336.937.638.437.937.7
Agriculture and fisheries3.13.13.13.23.23.23.1
Construction and quarrying4.84.95.15.35.55.45.3
Manufacturing28.228.328.729.129.729.329.3
Market services31.532.733.734.836.938.039.6
Transport and communications5.15.25.35.45.75.85.8
Wholesale and retail trade12.012.212.612.913.613.814.1
Hotels and catering7.37.88.28.08.28.28.6
Other services7.17.57.68.59.410.211.1
Public sector46.247.147.247.148.651.250.8
General Government 1/25.926.727.728.129.732.132.3
Public enterprises 2/9.39.28.78.69.09.39.1
Companies with Government/MDC majority shareholding10.911.210.810.49.99.89.4
Temporary employment 3/8.89.68.88.37.04.94.6
Gainfully occupied121.9125.0126.1127.2130.3131.6132.3
Registered unemployed5.65.24.85.14.95.56.2
Labor force127.6130.1131.0132.3135.3137.2138.4
(In percent of labor force)
Private sector52.552.553.554.355.255.055.5
Direct production28.327.928.228.428.427.627.2
Agriculture and fisheries2.52.42.42.42.42.32.2
Construction and quarrying3.83.83.94.04.13.93.8
Manufacturing22.121.721.922.022.021.421.2
Market services24.725.125.726.327.327.728.6
Transport and communications4.04.04.04.14.24.24.2
Wholesale and retail trade9.49.49.69.810.110.110.2
Hotels and catering5.76.06.36.06.16.06.2
Other services5.65.85.86.46.97.48.0
Public sector36.236.236.135.635.937.336.7
General Government 1/20.320.521.221.222.023.423.3
Public enterprises 2/7.37.16.66.56.76.86.6
Companies with Government/MDC majority shareholding8.68.68.37.97.37.16.8
Temporary employment 3/6.97.46.76.35.23.63.3
Gainfully occupied95.596.196.396.196.395.995.6
Registered unemployed4.44.03.73.93.64.04.5
Memorandum items:
Private sector 4/54.954.655.656.457.357.358.0
Public sector 4/5/45.145.444.443.642.742.641.9
Sources: Ministry of Finance, Economic Survey and The Maltese Economy in Figures.

Includes public sector employment in Revenue Security Corps., Airport company, and armed forces.

Includes Telemalta, Enemalta, Maltese Development Corporation (MDC), Broadcasting Authority, Central Bank of Malta, Malta Drydocks, University, Malta Free Port Corporation, Housing Authority, Public Transport Authority, and Malta International Business Authority.

Includes persons whose contract leads to permanent employment.

Employment in percent of gainfully occupied.

Including temporary employment.

Sources: Ministry of Finance, Economic Survey and The Maltese Economy in Figures.

Includes public sector employment in Revenue Security Corps., Airport company, and armed forces.

Includes Telemalta, Enemalta, Maltese Development Corporation (MDC), Broadcasting Authority, Central Bank of Malta, Malta Drydocks, University, Malta Free Port Corporation, Housing Authority, Public Transport Authority, and Malta International Business Authority.

Includes persons whose contract leads to permanent employment.

Employment in percent of gainfully occupied.

Including temporary employment.

Table A11.Malta: Factor Incomes in Gross National Product, 1987–93
1987198819891990199119921992 1/1993 1/
(In millions of Maltese liri)
Income from employment254.7269.5288.3319.0353.9383.8282.8310.6
Income from farming, fishing and private services 2/32.734.237.741.045.249.037.342.1
Gross trading profits 2/142.9164.6189.7205.7225.0242.9179.2187.4
Gross trading surpluses of government enterprises 2/26.234.836.432.934.433.724.526.0
Income from property 2/38.939.544.851.051.357.543.446.1
GDP at factor cost495.4542.6596.9649.6709.8766.9567.2612.2
Net factor income from abroad30.728.335.855.049.742.834.535.0
GNP at factor cost526.1570.9632.7704.6759.5809.7601.7647.2
Indirect taxes net of subsidies53.763.873.385.297.1105.173.873.8
GDP at market prices549.1606.4670.2734.8806.9872.0641.0686.0
GNP at market prices579.8634.7706.0789.8856.6914.8675.5721.0
(Annual percentage change)
Income from employment10.05.87.010.610.98.48.19.8
Income from farming, fishing and private services 2/11.64.610.28.810.28.45.012.9
Gross trading profits 2/-0.315.215.28.49.48.09.74.6
Gross trading surpluses of government enterprises 2/24.232.84.6-9.64.6-2.0-1.66.1
Income from property 2/6.61.513.413.80.612.110.36.2
GDP at factor cost7.39.510.08.89.38.18.18.0
Net factor income from abroad9.3-7.826.553.6-9.6-13.9-8.01.4
GNP at factor cost7.48.510.811.47.86.67.07.6
Taxes net of subsidies7.218.814.916.214.08.28.40.0
GDP at market prices7.310.410.59.69.88.18.27.1
GNP at market prices7.49.511.211.98.56.87.26.8
(In percent of GNP at factor cost)
Income from employment48.447.245.645.346.647.446.948.0
Income from farming, fishing, and private services 3/6.26.06.05.86.06.16.26.5
Gross trading profits 3/27.228.830.029.229.630.029.829.0
Gross trading surpluses of government enterprises 3/5.06.15.84.74.54.24.14.0
Income from property 3/7.46.97.17.26.87.17.27.1
GDP at factor cost94.295.094.392.293.594.794.394.6
Net factor income from abroad5.85.05.77.86.55.35.75.4
Sources: Central Office of Statistics, National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

January-September and percent change over same period in previous year.

Before allowing for depreciation.

Sources: Central Office of Statistics, National Accounts of the Maltese Islands; and Ministry of Finance, Economic Survey.

January-September and percent change over same period in previous year.

Before allowing for depreciation.

Table A12.Malta: Prices, Wages, and Productivity, 1987–93(Annual percentage change)
1987198819891990199119921993
Retail prices (1983=100) 1/
Food0.70.1-0.64.22.04.9
Beverages and tobacco0.77.92.514.11.23.3
Clothing and footwear0.70.90.33.68.7
Housing1.40.71.60.31.9
Fuel and power5.70.1
Furniture and household equipment0.40.30.10.12.31.34.9
Transport and communications4.52.70.85.14.32.05.3
Personal care and health3.54.20.10.20.11.55.1
Education and entertainment0.21.91.45.20.12.47.6
Other goods and services0.41.02.13.20.10.93.4
All items0.50.90.93.02.51.64.1
Vital items0.70.9-0.23.41.2
Other items0.21.12.72.44.7
Wages and productivity
National minimum wage10.05.44.42.8
Nominal wages and salaries0.55.67.510.311.28.38.1
Average weekly earnings per employee 2/4.33.06.69.38.67.27.5
Real average weekly earnings per employee 3/3.11.75.86.56.55.01.9
Output per employee 4/2.15.16.64.54.13.85.4
Sources: Ministry of Finance, Economic Survey; Ministry of Finance Budgets; Central Bank of Malta, Annual Report; data provided by the Maltese authorities; and staff estimates.

Due to the introduction of a new Retail Price Index in January 1992, the inflation rate in 1992 is not directly comparable with inflation rates in previous years.

Annual percentage change of wage bill divided by the number of gainfully occupied.

Annual percentage change of average wage per employee deflated by private consumption deflator.

Annual percentage change of real GDP at factor cost divided by the number of gainfully occupied.

Sources: Ministry of Finance, Economic Survey; Ministry of Finance Budgets; Central Bank of Malta, Annual Report; data provided by the Maltese authorities; and staff estimates.

Due to the introduction of a new Retail Price Index in January 1992, the inflation rate in 1992 is not directly comparable with inflation rates in previous years.

Annual percentage change of wage bill divided by the number of gainfully occupied.

Annual percentage change of average wage per employee deflated by private consumption deflator.

Annual percentage change of real GDP at factor cost divided by the number of gainfully occupied.

Table A13.Malta: Comparative Consumer Price Developments, 1983–93(Annual percentage change)
MaltaUnited

Kingdom
GermanyItalyPortugalCyprusGreeceSpain
Average rate of inflation
0.34.61.69.019.04.019.59.3
2.25.63.05.610.44.716.25.8
1983-0.94.63.314.725.15.020.212.2
19840.15.02.410.829.36.018.411.3
1985-0.26.12.29.219.35.019.38.8
19862.03.4-0.15.811.71.223.08.8
19870.44.10.24.79.42.816.45.2
19880.94.91.35.19.63.413.54.8
19890.97.82.86.312.63.813.76.8
19903.09.52.76.413.44.520.46.7
19912.65.93.56.311.45.019.55.9
19921.63.74.05.28.96.515.95.9
19934.11.64.14.56.54.914.44.6
Sources: Ministry of Finance, Economic Survey, and International Monetary Fund, International Financial Statistics.1/ Due to the introduction of a new Retail Price Index in January 1992, the inflation rates in 1992 and 1993 are not directly comparable with inflation rates in previous years.
Sources: Ministry of Finance, Economic Survey, and International Monetary Fund, International Financial Statistics.1/ Due to the introduction of a new Retail Price Index in January 1992, the inflation rates in 1992 and 1993 are not directly comparable with inflation rates in previous years.
Table A14.Malta: Government Budget Accounts, 1987–94 1/
198719881989199019911992 2/19931994

Budget
1994 3/

Estimate
(In millions of Maltese liri)
Total revenue193.7243.0238.9273.9307.3325.1353.2400.4396.7
(as percent of GDP)(35.3)(40.1)(35.6)(37.3)(38.1)(37.3)(37.9)(39.8)(39.4)
Tax revenue137.3154.4169.0196.1212.5236.9263.5293.7284.3
Direct taxes80.887.592.6107.5111.8127.2151.0162.2162.2
Indirect taxes56.566.976.488.6100.7109.7112.5131.5122.1
Nontax revenue56.488.669.977.894.888.289.7106.7112.4
Total expenditure and net lending233.6245.3270.8314.2348.2350.9381.1434.0436.2
(as percent of GDP)(42.5)(40.5)(40.4)(42.8)(43.2)(40.2)(40.8)(43.1)(43.3)
Current expenditure188.3201.2221.7245.9273.7299.2332.2367.3370.9
Capital expenditure42.038.354.367.268.742.948.665.263.8
Net lending3.35.8-5.21.15.88.80.31.51.5
Loans5.66.65.77.011.915.111.16.06.0
Repayments2.30.810.95.96.16.310.84.54.5
Deficit-39.9-2.3-31.9-40.3-40.9-25.8-27.9-33.6-39.5
(as percent of GDP)(-7.3)(-0.4)(-4.8)(-5.5)(-5.1)(-3.0)(-3.0)(-3.3)(-3.9)
Domestic financing42.94.833.528.634.229.828.325.730.9
Foreign loans, net-3.0-2.5-1.611.76.7-4.0-0.57.98.6
Disbursements0.10.01.013.89.10.92.911.211.9
Repayments3.12.52.62.12.44.93.43.33.3
(Changes in percent)
Total revenue2.025.5-1.714.712.25.88.613.412.3
Tax revenue3.012.59.516.08.411.511.211.57.9
Nontax revenue-0.457.1-21.111.321.9-7.01.719.025.3
Total expenditure and net lending12.35.010.416.010.80.88.613.914.5
Current expenditure7.86.910.210.911.39.311.010.611.6
Capital expenditure38.2-8.841.823.82.2-37.613.334.231.3
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report various issues; and data provided by the Maltese authorities.

Consolidated with Social Security Account.

Since 1992, the budget has been framed differently from earlier budgets in two respects. First, capital expenditure of Enemalta, Telemalta and the Housing Authority is no longer imputed to the Consolidated Fund; neither is the contribution of these companies—which contained both borrowed resources and retained earnings—to their capital expenditure program. Second, in 1992 the Government created five new semi-autonomous entities (the Water Services Corporation, the Maritime Authority, the Planning Authority, the Public Transport Authority and the Employment and Training Corporation). Gross income and expenditure—current and capital—of these entities are therefore no longer accounted for in the Consolidated Fund. The above figures have been adjusted to present a consistent time series.

Staff estimates.

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report various issues; and data provided by the Maltese authorities.

Consolidated with Social Security Account.

Since 1992, the budget has been framed differently from earlier budgets in two respects. First, capital expenditure of Enemalta, Telemalta and the Housing Authority is no longer imputed to the Consolidated Fund; neither is the contribution of these companies—which contained both borrowed resources and retained earnings—to their capital expenditure program. Second, in 1992 the Government created five new semi-autonomous entities (the Water Services Corporation, the Maritime Authority, the Planning Authority, the Public Transport Authority and the Employment and Training Corporation). Gross income and expenditure—current and capital—of these entities are therefore no longer accounted for in the Consolidated Fund. The above figures have been adjusted to present a consistent time series.

Staff estimates.

Table A15.Malta: Selected Fiscal Indicators, 1987–94(In percent)
198719881989199019911992 1/19931994

Budget 2/
1994

Estimate 2/3/
Fiscal aggregates in relation to GDP
Government budget accounts:
Revenues35.340.135.637.338.137.337.939.839.4
Expenditure and net lending42.540.540.442.843.240.240.843.143.3
Overall balance-7.3-0.4-4.8-5.5-5.1-3.0-3.0-3.3-3.9
Revenues
Tax revenue as a proportion of GDP25.025.525.226.726.327.228.229.228.2
Direct taxes as a proportion of tax revenue58.856.754.854.852.653.757.355.257.1
Indirect taxes as a proportion of tax revenue41.243.345.245.247.446.342.744.842.9
Nontax revenues as a proportion of GDP10.314.610.410.611.710.19.610.611.2
Expenditures
Current expenditure as a proportion of GDP34.333.233.133.533.934.335.636.536.8
Capital expenditure as a proportion of GDP7.66.38.19.18.54.95.26.56.3
Financing of the Government as percent of GDP
Domestic financing7.60.85.03.94.23.43.02.63.1
External financing-0.5-0.4-0.21.60.8-0.5-0.10.80.9
Debt aggregates in relation to GDP
Public debt16.218.617.823.726.228.232.733.634.6
Domestic debt10.513.613.818.620.722.627.328.028.5
External debt5.75.04.05.15.55.65.45.66.1
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

See footnote 2 to table 14.

Ratios to GDP are based on an officially projected nominal GDP growth of 7.9 percent.

Staff estimates.

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

See footnote 2 to table 14.

Ratios to GDP are based on an officially projected nominal GDP growth of 7.9 percent.

Staff estimates.

Table A16.Malta: Capital Expenditure and Lending in the Budget Accounts, 1987–94
198719881989199019911992 1/19931994

Budget
1994

Estimate 2/
(In millions of Maltese liri)
Infrastructure39.936.047.261.064.041.140.841.043.3
Ship repair and shipbuilding 3/11.814.218.714.413.514.116.3
Telecommunications0.10.1
Development of industries 4/7.015.512.211.59.68.68.67.78.8
Agriculture and fisheries0.40.60.91.01.01.00.90.80.7
Airport development 5/0.11.42.27.26.10.41.00.81.6
Water3.85.76.17.06.2
Roads3.54.03.73.74.16.55.86.04.9
Sewers1.00.80.71.11.31.72.12.51.9
Port development5.46.67.713.014.76.06.05.55.5
Tourism0.61.31.52.01.92.22.63.43.4
Electricity0.10.40.20.30.30.30.20.2
Extraordinary capital expenditure18.1
Social7.78.912.813.216.616.918.930.226.5
Sports, gardens, and public buildings0.4
Health0.90.70.90.91.21.03.18.15.3
Housing 6/0.71.72.43.04.54.02.53.52.6
Education0.80.71.01.82.01.33.45.75.2
Culture, environment, sports2.82.82–41.42.42.82.12.5
Extraordinary capital expenditure4.8
Other0.15.08.38.1
Care of the elderly0.30.50.70.90.70.30.71.1
Public buildings, plant and equipment2.75.24.46.67.51.81.81.7
Total capital expenditure and lending47.644.960.074.280.658.059.771.269.8
(as percent of GDP)(8.7)(7.4)(9.0)(10.1)(10.0)(6.7)(6.4)(7.1)(6.9)
Memorandum items:
Personal emoluments 7/7.96.45.98.28.17.26.26.4
Materials and equipment34.131.948.459.060.635.742.458.8
Lending5.66.65.77.011.915.111.16.06.0
(Changes in percent)
Infrastructure51.7-9.831.129.24.9-35.8-0.70.56.1
Social14.915.643.83.125.81.811.859.840.2
Personal emoluments6.8-19.0-7.839.0-1.2-11.1-13.93.2
Materials and equipment45.2-6.551.721.92.7-41.118.838.7
Total capital expenditure and lending43.8-5.733.623.78.6-28.02.919.316.9
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese Authorities.

See footnote 2 to Table 14.

Staff estimates.

Largely transfers to the drydocks and the shipyard to cover operating losses; the capital component of these transfers is small. Before 1989, assistance to Malta Shipbuilding had been accounted for under the item “Development of Industries”.

Mainly direct investment and the factory building program originating from the Malta Development Act of 1988.

In 1990 and 1991 the Government carried out the building of the new air terminal. At the end of 1991, the wholly Government-owned Malta International Airport Ltd was established. The remaining capital expenditure for 1992 is not included in the 1992 budget.

Includes rent subsidies and cash grants.

Wages and salaries, allowances, overtime, and bonuses to government employees (not included in current expenditures).

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese Authorities.

See footnote 2 to Table 14.

Staff estimates.

Largely transfers to the drydocks and the shipyard to cover operating losses; the capital component of these transfers is small. Before 1989, assistance to Malta Shipbuilding had been accounted for under the item “Development of Industries”.

Mainly direct investment and the factory building program originating from the Malta Development Act of 1988.

In 1990 and 1991 the Government carried out the building of the new air terminal. At the end of 1991, the wholly Government-owned Malta International Airport Ltd was established. The remaining capital expenditure for 1992 is not included in the 1992 budget.

Includes rent subsidies and cash grants.

Wages and salaries, allowances, overtime, and bonuses to government employees (not included in current expenditures).

Table A17.Malta: Current Expenditure in the Budget Accounts, 1987–94
19871988198919901991199219931994

Budget
1994 1/

Estimate
(In millions of Maltese liri)
Total current expenditure188.3201.2221.7245.9273.7299.2332.2367.3370.9
(as percent of GDP)(34.3)(33.2)(33.1)(33.5)(33.9)(34.3)(35.6)(36.5)(36.8)
Education17.022.126.129.933.541.247.950.750.7
Health services and administration24.725.428.130.530.538.143.543.545.8
Pensions 2/9.18.89.19.610.912.313.415.014.7
Police and armed forces13.013.113.413.013.815.918.319.120.4
Finance, Treasury, Inland Revenue, Customs and Audit12.510.910.516.3 3/19.1 4/10.813.315.415.6
Public works10.711.111.311.412.815.016.817.617.7
Water4.48.49.19.910.97.49.09.09.0
Agriculture3.73.73.84.04.35.05.65.95.8
Postal services, Transport2.32.62.82.93.54.35.15.45.5
Public debt interest payments2.53.25.56.69.110.713.216.016.0
Labor, culture, and welfare14.75.19.89.210.19.64.05.15.2
Other administrative, economic, and social services18.815.516.217.425.831.236.347.247.6
Social security benefits 5/54.971.376.085.289.497.7105.8117.4116.9
Memorandum items:
Personal emoluments 6/69.172.376.077.991.9112.7124.5134.0
Transfer payments 7/83.0105.6113.2125.3130.8148.1162.7175.9
Other charges 8/36.223.332.542.751.038.445.057.4
(Changes in percent; selected items)
Education30.018.114.612.023.016.35.85.8
Health services and administration11.82.810.68.524.914.25.3
Social security benefits3.829.96.612.14.99.38.311.010.5
Personal emoluments10.94.65.12.518.022.610.57.6
Total current expenditure7.86.910.210.911.39.311.010.611.6
Sources: Ministry of Finance Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese Authorities.

Staff estimates.

Pensions and allowances not covered by the National Insurance Act of 1956.

Includes Lm 4.7 million for cost of living adjustments to Government employees.

Includes Lm 2 million in cost of living adjustments and a further Lm 5.9 million to implement the first stage of the Public Service Reform.

Excludes National Health Scheme which is under health outlays; includes retirement pensions, children’s allowances, bonuses, and other benefits. Also includes noncontributory benefits payable under the social Security Act of 1987 (in 1994 Budget: Lm 23.7 million).

Wages and salaries, allowances, overtime, and bonuses paid to government employees.

Pensions, health services, and social security benefits (including bonuses) and subsidies.

General operational and maintenance expenditures of government organizations. These items include the cost of utilities, materials and supplies, transport, repair and upkeep, office services, government social security contributions as employer, service pensions, and debt servicing.

Sources: Ministry of Finance Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese Authorities.

Staff estimates.

Pensions and allowances not covered by the National Insurance Act of 1956.

Includes Lm 4.7 million for cost of living adjustments to Government employees.

Includes Lm 2 million in cost of living adjustments and a further Lm 5.9 million to implement the first stage of the Public Service Reform.

Excludes National Health Scheme which is under health outlays; includes retirement pensions, children’s allowances, bonuses, and other benefits. Also includes noncontributory benefits payable under the social Security Act of 1987 (in 1994 Budget: Lm 23.7 million).

Wages and salaries, allowances, overtime, and bonuses paid to government employees.

Pensions, health services, and social security benefits (including bonuses) and subsidies.

General operational and maintenance expenditures of government organizations. These items include the cost of utilities, materials and supplies, transport, repair and upkeep, office services, government social security contributions as employer, service pensions, and debt servicing.

Table A18.Malta: Current Revenue in the Budget Accounts, 1987–94
198719881989199019911992 1/19931994

Budget
1994 2/

Estimate
(In millions of Maltese liri)
Total revenues193.7243.0238.9273.9307.33.25.1353.2400.4396.7
(as percent of GDP)(35.3)(40.1)(35.6)(37.3)(38.1)(37.3)(37.9)(39.8)(39.4)
Of which:
Tax receipts137.3154.4169.0196.1212.5236.9263.5293.7284.3
Direct taxes80.887.592.6107.5111.8127.2151.0162.2162.2
Income taxes43.046.851.157.361.671.485.191.991.9
Individuals26.423.725.130.232.134.142.845.045.0
Corporations16.623.126.027.129.537.342.346.946.9
Social security contributions 3/35.738.638.947.548.053.764.469.369.3
Death and donation duties2.12.12.62.72.22.11.51.01.0
Indirect taxes56.566.976.488.6100.7109.7112.5131.5122.1
Excise taxes5.75.86.87.09.09.07.729.29.3
Import duties15.717.317.820.720.423.227.217.326.2
Ad valorem import duties25.531.636.739.646.550.148.636.341.5
Licenses, taxes, levies, etc.9.612.215.121.324.827.429.048.745.2
Nontax receipts56.488.669.977.894.888.289.7106.7112.4
Foreign grants14.38.27.716.416.48.412.612.1
Fees and reimbursements6.57.07.58.39.06.87.711.311.1
Rents, dividends, and interest13.614.214.022.323.323.326.321.827.5
Central Bank profits16.612.29.315.217.621.424.230.030.0
Lotteries4.14.44.74.14.94.65.65.45.7
Civil aviation, posts, water7.19.49.912.411.49.99.29.511.3
Miscellaneous8.527.116.37.812.25.88.316.114.7
(Changes in percent)
Direct taxes0.68.35.816.14.013.818.77.47.4
Income taxes-1.48.89.212.17.515.919.28.08.0
Individuals-6.4-10.25.920.36.36.225.55.15.1
Corporations7.839.212.64.28.926.413.410.910.9
Social security contributions2.08.10.822.11.111.919.97.67.6
Death and donation duties23.523.83.8-18.5-4.5-28.6-33.3-33.3
Indirect taxes6.618.414.216.013.78.92.616.98.5
Excise taxes-5.01.817.22.928.6-14.4279.220.8
Import duties2.610.22.916.3-1.413.717.2-36.43.8
Ad valorem import duties12.823.916.17.917.47.7-3.0-25.3-14.6
Licenses, taxes, levies, etc.5.527.123.841.116.410.55.867.955.9
Tax receipts3.012.59.516.08.411.511.211.57.9
Nontax receipts-0.457.1-21.111.321.9-7.01.719.025.3
Total revenues2.025.5-1.714.712.25.88.613.412.3
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

See footnote 2 to Table 14.

Staff estimates.

Excludes the state contribution but includes the amount paid by Government as employer.

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

See footnote 2 to Table 14.

Staff estimates.

Excludes the state contribution but includes the amount paid by Government as employer.

Table A19.Malta: Social Security, 1987–94
19871988198919901991199219931994 1/
(In millions of Maltese liri)
Receipts53.957.958.371.272.080.5-97.0103.9
(as percent of GDP)(9.8)(9.5)(8.7)(9.7)(8.9)(9.2)(10.4)(10.3)
Contributions by employees, private employers, and self-employed persons30.032.832.740.640.645.854.557.2
Contributions by Government as employer5.75.86.26.97.48.39.912.1
Ordinary contributions by Government18.219.319.423.724.026.432.634.6
Payments79.698.0105.5117.1121.4137.8151.0163.4
(as percent of GDP)(14.5)(16.2)(15.7)(15.9)(15.0)(15.8)(16.2)(16.2)
Benefits and expenses54.972.677.486.690.999.7107.4119.0
Retirement pensions21.923.724.929.332.336.539.844.7
Pensioners’ bonus4.24.44.54.54.64.76.18.0
Children’s allowance13.714.014.114.414.414.514.515.6
Other benefits15.115.516.619.120.022.623.725.4
Noncontributory schemes 2/13.717.317.818.119.721.823.7
Health services and administration 3/24.725.428.130.530.538.143.644.4
Of which:
Hospitalization and community care17.719.722.023.926.834.238.437.4
Overall balance-25.8-40.1-47.2-45.9-49.4-57.3-54.0-59.5
(as percent of GDP)(-4.7)(-6.6)(-7.0)(-6.2)(-6.1)(-6.6)(-5.8)(-5.9)
Sources: Ministry of Finance, Budget Estimates, various issues. Treasury, Malta Financial Report, various issues: and data provided by the Maltese authorities.

Budget estimates.

Noncontributory benefits payable under the Social Security Act of 1987.

From 1990, health services and administration includes also expenditure of the care of the elderly.

Sources: Ministry of Finance, Budget Estimates, various issues. Treasury, Malta Financial Report, various issues: and data provided by the Maltese authorities.

Budget estimates.

Noncontributory benefits payable under the Social Security Act of 1987.

From 1990, health services and administration includes also expenditure of the care of the elderly.

Table A20.Malta: Public Debt, 1987–94
19871988198919901991199219931994 1/
(In millions of Maltese liri)
Domestic57.582.592.4136.5166.9197.4254.3282.0
Local stocks and debentures27.467.472.5106.8137.2167.7224.6252.3
Treasury bills 2/30.015.019.829.629.629.629.629.6
Other0.10.10.10.10.10.10.10.1
External 3/31.330.526.937.544.748.450.556.0
China3.93.93.43.73.61.21.2
Federal Republic of Germany5.75.15.14.84.54.84.44.2
United Kingdom0.40.30.20.1
United States1.51.61.51.31.31.61.61.4
Saudi Arabia9.69.97.17.68.08.67.76.1
France0.40.30.30.30.20.20.10.1
Italy4.54.64.011.012.815.118.422.8
Canada0.20.20.30.20.20.20.20.2
European Union2.32.12.97.012.915.716.215.8
Council of Europe0.20.15.0
Abu Dhabi and Kuwait Funds for Arab Economic Development2.62.42.11.51.21.00.70.4
Total public debt88.8113.0119.3174.0211.6245.8304.8338.0
(as percent of GDP)(16.2)(18.6)(17.8)(23.7)(26.2)(28.2)(32.7)(33.6)
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

Budget estimates.

Short-term borrowing.

The 1994 external debt figures have been converted to Maltese liri at the exchange rates of mid-July 1994.

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

Budget estimates.

Short-term borrowing.

The 1994 external debt figures have been converted to Maltese liri at the exchange rates of mid-July 1994.

Table A21.Malta: Public Debt Servicing and Sinking Fund Provisions, 1987–94
19871988198919901991199219931994 1/
(In millions of Maltese liri)
Contribution to sinking funds3.33.03.23.74.14.03.85.4
In respect to local debt0.70.70.60.91.41.51.72.5
In respect to external debt2.62.32.62.82.72.52.12.9
Loan repayments3.12.52.62.12.45.03.63.3
Of which from:
Consolidated Revenue
Fund 2/0.20.20.10.10.1
Sinking Fund 3/2.92.32.52.02.35.03.63.3
Interest payments2.53.25.56.69.310.713.216.0
In respect of local debt1.72.64.96.08.09.111.314.0
In respect of external debt0.80.60.60.61.31.61.92.0
Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

Budget estimates.

U.K. Exchequer loan repayment.

Loan repayments with respect to external debt. Until 1987, domestic debt had remained constant with reissues equal to repayments.

Sources: Ministry of Finance, Budget Estimates, various issues; Treasury, Malta Financial Report, various issues; and data provided by the Maltese authorities.

Budget estimates.

U.K. Exchequer loan repayment.

Loan repayments with respect to external debt. Until 1987, domestic debt had remained constant with reissues equal to repayments.

Table A22.Malta: Medium- and Long-Term External Public Debt and Service Payments, 1985–94
1985198619871988198919901991199219931994 1/
(In millions of Maltese liri: end of period)
By lender:
People’s Republic of China7.04.13.93.93.43.73.61.21.2
Federal Republic of Germany5.55.85.75.15.14.84.54.84.44.2
United Kingdom0.80.60.40.30.20.1
United States2.11.81.51.61.51.31.31.61.61.4
Saudi Arabia11.910.49.69.97.17.68.08.67.76.1
France0.50.40.40.30.30.30.20.20.10.1
Italy7.15.74.54.64.011.012.815.118.422.8
Canada0.30.30.20.20.30.20.20.20.20.2
European Union2.62.52.32.12.97.012.915.716.215.8
Council of Europe0.40.30.20.15.0
Funds for Arab Economic Development4.33.52.62.42.11.51.21.00.70.4
Total42.535.431.330.526.937.544.748.450.556.0
Debt service payments4.23.83.33.23.22.73.76.55.35.2
Amortization3.52.92.62.52.62.12.44.93.43.3
Interest0.70.90.70.70.60.61.31.61.91.9
(Ratios in percent)
Memorandum items:
Outstanding debt/GDP8.96.95.75.04.15.15.55.55.45.6
Debt service/exports of goods and nonfactor services1.21.00.80.70.60.40.50.60.60.6
Interest payments/outstanding public debt1.62.52.22.32.21.62.93.33.83.4
Source: Data provided by the Maltese authorities.

Estimates.

Source: Data provided by the Maltese authorities.

Estimates.

Table A23.Malta: Balance Sheet—Commercial Banks Liquidity, 1987–94
1987198819891990199119921993June

1994
(In millions of Maltese liri; end of period)
Commercial bank liquidity 1/
Total liquid assets 2/225.6221.2277.4274.9287.7367.1364.4436.0
Local liquid assets158.0135.0154.9107.3132.9148.1183.1226.0
Commercial bank excess liquidity 3/
Total liquid assets 2/106.886.1118.5124.2116.6168.2123.6175.9
Local liquid assets100.970.780.151.770.771.494.2129.6
(In percent of total liabilities)
Commercial bank liquidity 1/
Total liquid assets 2/42.736.739.132.529.932.127.229.8
Local liquid assets29.922.421.912.713.813.013.715.4
Commercial bank excess liability 3/
Total liquid assets 2/20.214.316.714.712.114.79.212.0
Local liquid assets19.111.711.36.17.36.27.08.9
(In percent of deposit liabilities) 2/
Commercial bank liability 1/
Total liquid assets 2/49.643.246.339.637.041.436.340.0
Local liquid assets34.726.325.915.417.116.718.320.7
Commercial bank excess liability 3/
Total liquid assets 2/23.516.819.817.915.019.012.316.1
Local liquid assets22.213.813.47.49.18.19.411.9
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

The total liquidity ratio is computed on the basis of total deposits liabilities, while the local liquidity ratio is computed by using local deposits liabilities.

Between April 1971 and September 1990 the commercial banks were required to hold an amount equivalent to 25 percent of their total deposit liabilities in the form of specified liquid assets. In October 1990, this ratio was reduced to 20 percent.

The amount of liquid assets held in excess of those required to be held for prudential reasons.

Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

The total liquidity ratio is computed on the basis of total deposits liabilities, while the local liquidity ratio is computed by using local deposits liabilities.

Between April 1971 and September 1990 the commercial banks were required to hold an amount equivalent to 25 percent of their total deposit liabilities in the form of specified liquid assets. In October 1990, this ratio was reduced to 20 percent.

The amount of liquid assets held in excess of those required to be held for prudential reasons.

Table A24.Malta: Income and Expenditure—Commercial Banks, 1987–94
1987198819891990199119921993June

1994
(In millions of Maltese liri)
Gross operating income35.540.851.262.270.778.992.144.7
Income from domestic source28.331.837.241.944.550.855.432.0
Loans and overdrafts17.018.922.326.931.035.437.721.7
Public securities and Treasury bills1.21.73.64.06.16.88.44.8
Balances with the Central Bank5.96.45.53.82.53.03.92.2
Exchange and commissions3.13.53.75.24.04.02.4
Other1.11.32.12.01.61.40.9
Income from foreign sources7.39.113.420.326.228.136.612.7
Loans and overdrafts0.10.30.60.40.2
Deposits and balances with banks abroad3.54.16.19.89.99.18.12.0
Money at call0.81.21.81.60.30.1
Foreign securities1.82.23.86.19.113.311.37.4
Exchange and capital gains, losses1.11.61.62.63.85.112.91.3
Operating expenses32.134.541.952.356.663.673.340.0
Interest payments on deposit19.421.526.734.738.542.646.926.2
Demand deposits0.10.2
Saving deposits4.55.314.48.0
Time deposits14.816.032.318.2
Other2.00.0
Wages and salaries7.17.48.19.811.913.615.88.3
Provisions1.91.40.80.21.2-0.11.20.4
Other3.74.26.37.65.07.59.45.1
Income before tax3.56.49.410.013.115.318.74.8
(In percent of gross operating income)
Gross operating income100.0100.0100.0100.0100.0100.0100.0100.0
Income from domestic source79.777.972.767.462.964.460.271.6
Loans and overdrafts47.946.343.643.243.844.940.948.5
Public securities and Treasury bills3.44.27.06.48.68.69.110.7
Balances with the Central Bank16.615.710.76.13.53.84.24.9
Exchange and commissions8.78.67.28.45.14.35.4
Other1.11.32.12.01.61.42.0
Income from foreign sources20.622.326.232.637.135.639.728.4
Loans and overdrafts0.30.40.80.40.4
Deposits and balances with banks abroad9.910.011.9.15.814.011.58.84.5
Money at call2.32.93.52.60.30.2
Foreign securities5.15.47.49.812.916.912.316.6
Exchange and capital gains, losses3.13.93.14.25.46.514.02.9
Operating expenses90.484.681.884.180.180.679.689.5
Interest payments on deposits54.652.752.155.854.554.050.958.6
Demand deposits0.20.2
Saving deposits12.713.015.6
Time deposits41.739.235.1
Other2.5
Wages and salaries20.018.115.815.816.817.217.218.6
Provisions5.43.41.60.31.7-0.11.3
Other3.74.26.37.65.07.59.4
Income before tax9.915.718.416.118.519.420.310.7
(Annual percentage change)
Gross operating income4.714.925.521.513.711.616.77.7
Income from domestic sources6.812.417.012.66.214.29.121.7
Loans and overdrafts14.111.218.020.615.214.26.511.9
Puulic securities and Treasury bills41.7111.811.152.511.523.526.3
Balances with the Central Bank-10.68.5-14.1-30.9-34.220.030.029.4
Exchange and commissions6.912.95.740.584.6
Income from foreign sources-1.424.747.351.529.17.330.2-16.4
Loans and overdrafts-100.0100.0-33.3
Deposits and balances with banks abroad20.717.148.860.71.0-8.1-11.0-42.9
Money at call-20.050.050.0-11.1-100.0
Exchange and capital gains, losses-31.245.562.546.234.2152.9-63.9
Operating expenses14.67.521.424.88.212.415.317.3
Interest payments on deposits9.610.824.230.011.010.610.116.4
Wages and salaries24.64.29.521.021.414.316.213.7
Income before tax-40.782.946.96.431.016.822.2-35.1
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.
Table A25.Malta: Selected Nominal and Real Interest Rates, 1984–94(In percent; end of period)
1984198519861987198819891990199119921993June

1994
Nominal interest rates:
Central bank discount rate6.56.06.05.05.55.55.55.55.55.55.5
Central bank “free” deposits5.5–5.95.0–5.95.0–5.94.5–5.34.5–5.34.5–5.33.0–4.03.0–4.03.0–4.03.0–4.03.0–4.0
Central bank required deposits4.84.84.84.84.8
Commercial bank deposits
Demand1.01.01.01.01.01.01.01.01.01.01.0
Savings3.03.03.03.03.03.03.03.03.03.03.0
Time
Three months4.04.04.04.0
Six months5.04.54.54.54.54.54.54.54.54.54.5
One year6.05.55.55.05.05.04.54.55.05.05.0
Two years0.00.00.05.35.35.35.35.35.35.35.3
Three years0.00.00.05.55.55.55.55.55.55.55.5
Advances and loans
Commercial banks7.67.57.37.37.27.17.07.17.17.27.2
Other financial institutions8.27.67.37.27.78.18.27.87.46.66.9
Real Interest Rates 1/
Central bank discount rate6.96.33.94.64.62.42.92.93.91.40.8
Central bank “free” deposits5.4–6.25.3–6.12.9–3.84.1–4.83.6–4.33.6–4.30.0–1.00.5–1.51.4–2.4-1.1—0.1--1.8—0.8
Central bank required deposits1.72.2
Commercial banks deposits
Demand1.41.3-1.00.10.1-1.9-1.5-1.5-0.6-3.1-3.8
Savings3.43.31.02.12.10.00.50.51.4-1.1-1.8
Time
Three months1.52.4-0.1-0.8
Six months5.44.82.53.63.61.52.02.02.90.4-0.3
One year6.45.83.44.14.11.92.42.43.40.90.2
Two years0.00.00.04.34.32.22.72.73.71.20.5
Three years0.00.00.04.64.62.42.92.93.91.40.7
Advances and loans
Commercial banks8.07.85.36.96.36.24.04.65.53.12.4
Other financial institutions8.67.95.36.86.87.25.25.35.82.52.1
Memorandum item:
CPI inflation rate-0.4-0.32.00.40.90.93.02.51.64.14.8
Source: Central Bank of Malta, Quarterly Review; International Monetary Fund, International Finance Statistics; and staff estimates.

Nominal rates deflated by CPI inflation rates.

Source: Central Bank of Malta, Quarterly Review; International Monetary Fund, International Finance Statistics; and staff estimates.

Nominal rates deflated by CPI inflation rates.

Table A26.Malta: Financial Survey, 1987–94
1987198819891990199119921993June

1994
(In millions of Maltese liri; end of period)
Net foreign assets555.8573.6577.4572.3582.2676.7721.7757.6
Monetary authorities484.6495.4468.4432.4413.1477.9534.0559.4
Financial system71.278.2109.0139.9169.1i98.8187.7198.2
Domestic credit308.1353.8448.5578.0696.4759.7858.0912.3
Claims on General Government24.828.358.391.2119.5121.6137.3163.7
Claims on private sector283.3325.5390.2486.8576.8638.1720.7748.6
Total assets = Total liabilities863.9927.41025.51150.31278.61436.41579.71669.9
Narrow money350.4362.2367.9384.4406.7408.5425.1446.4
Currency300.2314.3319.4330.3344.3337.6353.3353.5
Demand deposits50.247.948.554.162.370.971.892.9
Quasi money428.8486.3566.8657.2726.2830.2941.71020.4
Saving deposits150.2178.1205.3260.7310.3367.1415.3424.0
Time deposits278.6308.2361.5396.5415.9463.1526.4596.4
Broad money779.2848.5934.71041.71132.91238.81366.81466.8
Other items, net84.778.991.2108.6145.6197.5213.0203.0
(In percent of total assets)
Net foreign assets64.361.956.349.845.547.145.745.4
Monetary authorities56.153.445.737.632.333.333.833.5
Financial system8.28.410.612.213.213.811.911.9
Domestic credit35.738.143.750.254.552.954.354.6
Claims on General Government2.93.05.77.99.38.58.79.8
Claims on private sector32.835.138.042.345.144.445.644.8
Total assets = Total liabilities100.0100.0100.0100.0100.0100.0100.0100.0
Narrow money40.639.135.933.431.828.426.926.7
Currency34.833.931.128.726.923.522.421.2
Demand deposits5.85.24.74.74.94.94.55.6
Quasi money49.652.455.257.156.857.859.661.1
Saving deposits17.419.220.022.724.325.626.325.4
Time deposits32.233.235.234.532.532.233.335.7
Broad money90.291.591.190.688.686.286.587.8
Other items, net9.88.58.99.411.413.713.512.2
(Annual percentage change)
Net foreign assets3.63.20.7-0.91.716.26.610.4
Monetary authorities3.42.2-5.5-7.7-4.515.711.712.9
Financial system4.49.839.428.320.917.6-5.63.7
Domestic credit25.014.826.828.920.59.112.911.5
Claims on General Government1144.714.1106.356.431.11.712.911.9
Claims on private sector13.914.919.924.818.510.612.911.4
Total assets = Total liabilities10.37.410.612.111.212.310.011.0
Narrow money10.03.41.64.55.80.44.17.1
Currency9.74.71.63.44.2-2.04.73.2
Demand deposits12.3-4.51.311.615.213.71.325.0
Quasi money9.313.416.616.010.514.313.415.5
Saving deposits11.118.615.227.019.018.313.110.4
Time deposits8.310.617.39.74.911.313.719.4
Broad money9.68.910.211.48.89.310.312.8
Other items, net17.1-6.815.619.134.135.67.8-0.6
Memorandum items:
GDP nominal growth rate7.310.410.59.69.88.17.4 1/
GDP real growth rate4.18.48.26.36.34.33.8 1/
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

Estimates.

Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

Estimates.

Table A27.Malta: Financial Survey, Quarterly Data, 1987–94 1/(In millions of Maltese Uri: end of period)
Total assets
Net foreign assets 2/Domestic credit=Narrow money 3/Quasi money 3/
TotalMonetary

authorities
Financial

system
TotalGeneral

Government
Other

sectors
Total liabilitiesTotal CurrencyDemand

deposits
TotalSavings

deposits
Time

deposits 4/
Broad

money
Other

items (net)
1987
Q1534.8464.270.6253.0-4.1257.0787.8319.1276.043.1404.0139.8264.2723.064.7
Q2536.5463.473.2282.410.5271.9819.0340.4292.148.2409.5141.5268.0749.869.2
Q3552.5478.773.9289.515.9273.5842.0347.5294.952.5418.5142.7275.8765.976.1
Q4555.8484.671.2308.124.8283.3863.9350.4300.250.2428.8150.2278.6779.284.7
1988
Q1543.4470.872.6324.631.4293.2868.0340.5296.444.1445.9160.0285.9786.581.5
Q2546.0474.871.1336.231.2305.0882.2352.7304.148.6457.3163.9293.4810.072.1
Q3565.0489.675.4350.234.1316.1915.1363.2305.757.5469.2168.3300.8832.382.8
Q4573.6495.478.2353.828.3325.5927.4362.2314.347.9486.3178.1308.2848.578.9
1989
Q1563.8480.283.6383.939.5344.3947.7359.2306.852.4508.6189.6318.9867.879.9
Q2563.1476.187.0410.553.8356.7973.7367.9312.655.3524.6188.5336.2892.581.2
Q3579.3481.997.4435.160.9374.21,014.4371.1316.554.7546.5197.1349.4917.696.7
Q4577.4468.4109.0448.558.3390.21,025.9367.9319.448.5566.8205.3361.5934.791.2
1990
Q1566.7446.1120.6478.165.2412.91,044.8358.6312.246.5594.6217.4377.2953.391.5
Q2567.8442.1125.7522.982.8440.11,090.7369.8323.046.7619.7233.2386.4989.4101.3
Q3572.6440.9131.8554.489.9464.51,127.0380.5328.052.5634.7244.8389.81,015.2111.8
Q4572.3432.4139.9578.091.2486.81,150.3384.4330.354.1657.2260.7396.51,041.7108.6
1991
Q1567.4420.8146.7600.383.1517.11,167.7378.8330.848.0673.7272.1401.61,052.4115.2
Q2566.6404.5162.2635.0107.2527.81,201.7390.9335.255.6684.7280.0404.71,075.5126.1
Q3579.5413.5166.0661.2106.1555.11,240.8396.5339.157.4696.0291.0405.01,092.5148.3
Q4582.2413.1169.1696.4119.5576.81,278.6406.7344.362.3726.2310.3415.91,132.9145.6
1992
Q1558.8385.6173.2732.5129.7602.71,291.3409.9345.264.7753.2324.3428.91,163.2127.3
Q2572.1388.1184.0747.9137.6610.31,320.1418.4351.666.9775.8337.7438.11,194.2125.3
Q3596.3412.8183.5774.4143.0631.41,370.6416.4343.772.7795.7346.4449.31,212.1158.6
Q4676.7477.9198.8759.7121.6638.11,436.3408.5337.670.9830.2367.1463.11,238.7197.5
1993
Q1674.0468.6205.4797.2133.0664.21,471.2399.4334.265.2863.7375.0488.71,263.1208.2
Q2686.5495.4191.1818.5146.4672.11,505.0417.0342.774.3883.6384.2499.41,300.6204.3
Q3718.6529.7188.9842.8149.8693.01,561.4423.5348.874.7909.3397.7511.61,332.8228.6
Q4721.7534.0187.7858.0137.3720.71,579.7425.1353.371.8941.7415.3526.41,366.8213.0
1994
Q1755.7551.1204.6895.2150.7744.51,650.8441.3351.689.7989.5420.0569.61,430.8220.0
Q2757.6559.4198.2912.3163.7748.61,670.0446.4353.592.91,020.4424.0596.41,466.8203.0
Sources: Central Bank of Malta Quarterly Review, and data provided by the Maltese authorities.

The Financial Survey extends the coverage of the Monetary Survey to the other financial institutions operating in Malta. All interbank transactions are excluded.. The Survey does not conform entirely to the IMF definition in so far as life insurance companies are not covered owing to the unavailability of the relevant data.

Does not include foreign assets of Other Official Funds.

Excludes Malta government deposits, balance belonging to non-residents, and local uncleared effects drawn on local commercial banks.

As of November 1987, it includes 2-and 3-year deposits.

Sources: Central Bank of Malta Quarterly Review, and data provided by the Maltese authorities.

The Financial Survey extends the coverage of the Monetary Survey to the other financial institutions operating in Malta. All interbank transactions are excluded.. The Survey does not conform entirely to the IMF definition in so far as life insurance companies are not covered owing to the unavailability of the relevant data.

Does not include foreign assets of Other Official Funds.

Excludes Malta government deposits, balance belonging to non-residents, and local uncleared effects drawn on local commercial banks.

As of November 1987, it includes 2-and 3-year deposits.

Table A28.Malta: Selected Monetary Indicators, 1987–94
1987198819891990199119921993June

1994
(In percent of broad money; end of period)
Composition of money supply
Narrow money45.042.739.436.935.933.031.130.4
Currency38.537.034.231.730.427.325.924.1
Demand deposits6.45.65.25.25.55.75.36.3
Quasi money55.057.360.663.164.167.068.969.6
Saving deposits19.321.022.025.027.429.630.428.9
Time deposits of which:35.836.338.738.136.737.438.540.7
of which:
Resident Foreign Currency deposits1.41.63.76.27.17.97.88.1
Monetary ratios(In percent)
Currency/narrow money85.786.886.885.984.782.683.179.2
Currency/quasi money70.064.656.450.347.440.737.534.6
Currency/broad money38.537.034.231.730.427.325.924.1
Quasi money/broad money55.057.360.663.164.167.068.969.6
Narrow money/broad money45.042.739.436.935.933.031.130.4
(In percent)
Contribution to growth of broad money
Net foreign assets2.72.30.4-0.51.08.33.65.5
Domestic credit8.75.911.213.911.45.67.97.2
Of which:
Claims on General Government-3.80.43.53.52.70.21.31.3
Velocity
GDP/currency1.8291.9292.0982.2252.3432.5832.641
GDP/narrow money1.5671.6741.8221.9111.9842.1352.195
GDP/quasi money1.2801.2471.1821.1181.1111.0500.991
GDP/broad money0.7050.7150.7170.7050.7120.7040.683
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorites.
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorites.
Table A29.Malta: Monetary Base, 1987–94
1987198819891990199119921993June

1994
(In millions of Maltese liri; end of period)
Sources
Net foreign assets479.2491.1464.2427.1410.4475.0533.4558.7
Net credit to General Government-4.4-28.0-3.212.658.156.815.732.6
Other-45.7-33.0-48.3-49.9-52.0-89.2-102.0-86.6
Monetary base 1/429.1430.1412.8389.8416.5442.6447.1504.7
Uses
Currency in circulation300.2314.3319.4330.3344.3337.6353.3353.5
Bank reserves105.697.077.745.852.978.567.2112.7
Required reserves 2/36.240.847.257.262.6
Free reserves105.697.077.79.612.131.310.050.1
Other23.218.815.713.819.326.526.638.5
(In percent of monetary base)
Sources
Net Foreign Assets111.7114.2112.5109.698.5107.3119.3110.7
Net credit to General Government-1.0-6.5-0.83.213.912.83.56.5
Other-10.7-7.7-11.7-12.8-12.5-20.2-22.8-17.2
Monetary base100.0100.0100.0100.0100.0100.0100.0100.0
Uses
Currency in circulation70.073.177.484.782.776.379.070.0
Bank reserves24.622.518.811.712.717.715.022.3
Required reserves9.39.810.712.812.4
Free reserves24.622.518.82.52.97.12.29.9
Other5.44.43.83.54.66.06.07.6
(Percentage change)
Sources
Net Foreign Assets4.12.5-5.5-8.0-3.915.712.313.3
Net credit to General Government45.2-539.888.7498.5361.9-2.2-72.4-48.1
Monetary base2.80.2-4.0-5.66.86.31.06.5
Uses
Currency in circulation9.74.71.63.44.2-2.04.73.2
Bank reserves-13.0-8.2-19.8-41.115.548.5-14.44.8
Required reserves12.715.721.219.5
Free reserves-13.0-8.2-19.8-87.726.2159.4-68.1-9.3
Memorandum items
Multiplier, narrow money0.8170.8420.8910.9860.9760.9230.9510.884
Multiplier, broad money1.8161.9732.2642.6722.7202.7993.0572.906
Sources: Central Bank of Malta, Statement of Assets and Liabilities, Quarterly Review, and International Monetary Fund, International Financial Statistics.

International Financial Statistics, line 14.

In October 1990, the Central Bank of Malta imposed a five percent reserve deposit requirement on domestic deposit liabilities.

Sources: Central Bank of Malta, Statement of Assets and Liabilities, Quarterly Review, and International Monetary Fund, International Financial Statistics.

International Financial Statistics, line 14.

In October 1990, the Central Bank of Malta imposed a five percent reserve deposit requirement on domestic deposit liabilities.

Table A30.Malta: Monetary Base, Quarterly Data, 1987–94(In millions of Maltese liri; end of period)
SourcesUses
External

reserves 1/
Credit

General

Government

(net)
Other

items

(net)
Monetary

base 2/
Currency 3/Bank

reserves
Other
requiredfree 4/
1987
Q1456.4-9.8-26.6420.0276.0123.820.2
Q2456.94.9-32.2429.6292.1115.721.8
Q3473.910.6-32.8451.7294.9133.123.7
Q4479.2-4.4-45.8429.1300.2105.623.2
1988
Q1467.213.7-37.9443.0296.4129.117.4
Q2470.114.0-28.3455.8304.1131.420.3
Q3486.117.4-34.0469.5305.7135.628.2
Q4491.1-28.1-33.0430.1314.397.018.8
1989
Q1475.3-4.0-35.1436.2306.8108.720.7
Q2472.111.9-35.0449.0312.6114.022.4
Q3476.119.7-42.8452.9316.5117.818.7
Q4464.2-3.2-48.2412.8319.477.715.7
1990
Q1443.023.5-45.1421.4312.297.312.0
Q2437.830.4-46.2421.9323.087.011.8
Q3436.336.1-50.5422.0328.081.312.6
Q4427.112.6-49.9389.8330.336.29.613.8
1991
Q1416.114.8-39.1391.8330.838.011.611.4
Q2399.935.4-36.8398.5335.238.99.714.7
Q3409.644.7-42.4411.9339.139.718.414.7
Q4410.458.0-51.9416.5344.340.812.119.3
1992
Q1382.163.1-19.7425.4345..241.419.319.5
Q2384.476.0-21.3439.1351.644.021.222.4
Q3410.573.0-38.4445.1343.746.625.029.8
Q4475.056.7-89.1442.6337.647.231.326.5
1993
Q1466.249.7-82.2433.8334.249.227.722.7
Q2493.362.1-81.3474.1342.752.454.624.4
Q3528.637.8-97.0469.4348.854.741.924.1
Q4533.415.6-101.9447.1353.357.210.026.6
1994
Q1550.427.0-77.4500.0351.660.448.739.3
Q2558.732.6-86.6504.7353.562.650.138.5
Sources: International Monetary Fund, International Financial Statistics.

The Central Bank balance sheet figure for external reserves are not comparable with that in the financial survey; Central Bank figures are valued according to the prevailing accounting practices (see notes to the Account of the Central Bank of Malta, Annual Report).

International Financial Statistics, line 14.

Currency in circulation.

Excludes the currency working balances held by the commercial banks.

Sources: International Monetary Fund, International Financial Statistics.

The Central Bank balance sheet figure for external reserves are not comparable with that in the financial survey; Central Bank figures are valued according to the prevailing accounting practices (see notes to the Account of the Central Bank of Malta, Annual Report).

International Financial Statistics, line 14.

Currency in circulation.

Excludes the currency working balances held by the commercial banks.

Table A31.Malta: The Financial Position of the Government vis-a-vis the Financial System, 1987–94(In millions of Maltese liri; end of period)
1987198819891990199119921993June

1994
Deposits with:
Central Bank8.529.96.19.60.15.52.42.2
Commercial banks0.10.11.21.81.42.02.73.5
Special Government deposits Account:16.117.520.213.416.711.518.721.3
Credit from:
Central Bank8.21.92.922.258.262.318.134.8
Treasury bills4.11.81.78.920.620.50.00.1
LDRS4.00.11.213.337.641.818.119.6
Ways and means 1/0.10.00.00.00.00.00.015.1
Commercial banks43.770.479.288.679.578.2142.7156.0
Treasury bills24.012.617.820.99.07.229.229.3
LDRS19.757.861.467.770.571.0113.5126.7
Other financial institutions1.33.43.35.10.00.00.00.0
Treasury bills0.10.10.00.00.00.00.00.0
LDRS1.23.33.35.10.00.00.00.0
Net Liabilities:24.828.358.291.3119.5121.5137.0163.8
Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

The Government may call on the Central Bank of Malta’s “ways & means” facility during the year up to an amount of 15 percent of estimated recurrent budget revenue. These advances have to be repaid by year-end.

Sources: Central Bank of Malta, Quarterly Review, and data provided by the Maltese authorities.

The Government may call on the Central Bank of Malta’s “ways & means” facility during the year up to an amount of 15 percent of estimated recurrent budget revenue. These advances have to be repaid by year-end.

Table A32.Malta: Summary Balance of Payments, 1985–93
198519861987198819891990199119921993 1/
(Transactions basis: in millions of Maltese liri)
Trade balance-120.1-106.5-138.7-153.5-160.8-190.3-198.4-174.5-224.1
Exports, f. o. b.197.8205.0218.1250.9301.9366.8414.9496.6517.8
Imports, f. o. b.317.9311.5356.8404.4462.7557.1613.3671.1741.9
Services, net83.683.0118.0120.9123.2144.8158.6154.2181.3
Freight and insurance-28.7-27.8-32.3-36.4-43.6-53.7-58.6-63.2-68.5
Travel46.456.884.898.4106.5113.9132.5136.6155.9
Investment income38.828.130.728.335.855.049.741.747.5
Other27.125.934.830.624.529.535.039.146.4
Transfers25.728.129.855.136.427.837.329.923.2
Private25.526.930.041.228.320.521.413.715.3
Public0.21.2-0.213.98.17.315.916.27.9
Current account balance-10.84.69.122.5-1.2-17.7-2.59.6-19.5
Long-term capital11.76.08.210.219.527.134.846.773.3
Direct investment8.98.66.713.418.014.624.9-0.914.0
Portfolio investment0.41.10.3-1.70.20.21.31.51.2
Official long-term capital2.4-3.71.2-1.51.312.38.646.158.1
Basic balance0.910.617.332.818.39.432.356.353.8
Short-term capital-4.5-5.2-2.012.05.012.616.647.818.2
Net errors and omissions-9.10.6-11.2-16.0-11.10.7-27.4-5.3-38.1
Allocation of SDRs
Changes in net foreign position of banks-18.7-7.8-6.7-17.4-40.9-53.3-47.1-86.1-8.5
Overall balance 2/-31.4-1.8-2.611.4-28.7-30.6-25.612.725.4
(In percent of GNP)
Memorandum items:
Trade balance-23.3-19.7-23.9-24.2-22.8-24.1-23.2-19.1-22.9
Invisible balance21.220.625.427.722.621.922.920.120.9
Current account-2.10.91.63.6-0.2-2.2-0.31.02.0
Sources: Central Office of Statistics National Accounts of the Maltese Islands, 1991; Ministry of Finance, Economic Survey, 1993; and data provided by the Maltese authorities.

Preliminary data.

The overall balance figures are not necessarily comparable to changes in net official foreign reserves because of exchange rate effects and differences in the timing of valuation.

Sources: Central Office of Statistics National Accounts of the Maltese Islands, 1991; Ministry of Finance, Economic Survey, 1993; and data provided by the Maltese authorities.

Preliminary data.

The overall balance figures are not necessarily comparable to changes in net official foreign reserves because of exchange rate effects and differences in the timing of valuation.

Table A33.Malta: Exchange Rate Developments, 1985–94(Index number 1980 = 100: period averages)
U.S. Dollar/

Maltese

Lira
Pound

Sterling/

Maltese

Lira
Deutsche

Mark/

Maltese

Lira
Nominal

Effective

Exchange

Rate 1/
Real

Effective

Exchange

Rate 2/
198573.8133.3119.1127.4104.2
198688.0139.4104.9121.198.6
1987100.1142.298.9119.895.5
1988104.5136.4100.9120.794.2
198999.1140.8102.5122.291.7
1990108.9142.296.7120.088.0
1991107.0140.897.5119.886.0
1992108.6143.493.3117.982.8
199390.4140.182.3109.077.3
1988
I106.8138.398.6119.593.2
II106.7134.6100.2120.093.7
III100.3137.5103.0122.296.5
IV104.1135.1101.7120.993.3
1989
I101.8135.3103.6122.093.4
II97.7139.6104.0122.892.2
III97.5142.0103.3122.691.4
IV99.6146.099.3121.489.8
1990
I104.0146.196.8120.588.5
II105.1146.097.1120.788.8
III111.0138.597.4120.087.7
IV115.4138.195.5118.786.6
1991
I113.7138.695.8119.086.7
II103.6141.198.9120.486.6
III102.9142.198.7120.585.6
IV108.0141.396.4119.484.8
1992
I108.2141.996.3119.384.0
II108.8140.296.8119.484.3
III115.5141.193.1117.781.9
IV102.0150.286.9115.080.9
1993
I91.3143.882.1109.877.4
II92.4140.182.4108.576.6
III89.2138.082.5108.377.1
IV88.8138.482.2109.378.2
1994
I88.0137.583.4109.378.9
II90.0139.182.3109.378.7
III92.9139.379.9
Sources: IMF, International Financial Statistics: and staff estimates.

Trade weighted average of exchange rates expressed as units of foreign currency per Maltese lira. A decline in the index indicates a depreciation. The weights are based on the distribution of export and import trade with 19 partner countries during 1980–82.

Index of the trade weighted average ratio of Malta’s consumer price index to the consumer price indices of partner countries multiplied by the nominal effective exchange rate. The weights are the same as in footnote 1 and a decline in the index also indicates a depreciation.

Sources: IMF, International Financial Statistics: and staff estimates.

Trade weighted average of exchange rates expressed as units of foreign currency per Maltese lira. A decline in the index indicates a depreciation. The weights are based on the distribution of export and import trade with 19 partner countries during 1980–82.

Index of the trade weighted average ratio of Malta’s consumer price index to the consumer price indices of partner countries multiplied by the nominal effective exchange rate. The weights are the same as in footnote 1 and a decline in the index also indicates a depreciation.

Table A34.Malta: Merchandise Trade, 1985–93(Customs data)
Domestic Exports f. o. b.Re-exports f. o. b.Total Exports f. o. b.Imports, c. i. f.Trade Deficit 1/
In millions of LmPercentage change 2/In millions of LmIn millions of LmPercentage change 2/In millions of LmPercentage change 2/In millions of Lm
1985169.22.717.9187.13.2354.17.1-167.0
1986180.36.614.4194.74.1347.9-1.8-153.2
1987190.75.817.9208.67.1392.912.9-184.3
1988217.113.818.8235.913.1447.413.9-211.5
1989273.626.020.8294.424.8515.815.3-221.4
1990328.720.129.2357.921.6620.520.3-262.6
1991372.013.233.5405.513.3684.010.2-278.5
1992451.521.439.4490.921.1747.49.3-256.5
1993