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Malta

Author(s):
International Monetary Fund
Published Date:
July 1997
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Malta: Basic Data

I. Social and Demographic Indicators
Land area316 square kilometers (122 square miles)
Population (in thousands, 1995)372
GDP (1995, at current prices)Lm 1,143.8 million
GDP per capita (1995)Lm 3,074 or US$8,712
Infant mortality rate (1995)8.9 per 1,000 births
Life expectancy (years)74.9 (male); 79.5 (female)
II. Economic Indicators, 1991-96
Sources: Central Office of Statistics; Central Bank of Malta; Ministry of Economic Planning and Finance, IMF, International Financial Statistics; and Fund staff estimates.

A new retail price index was introduced in January 1996. The estimate of retail price inflation for 1996 is sensitive to the choice of base period used to splice the old and new price indices.

Public sector includes general government and state enterprises, but not parastatals.

Asset sales are treated as a financing item.

Estimated
199119921993199419951996
Real economy (change in percent)
Real GDP6.34.74.54.09.03.7
Domestic demand4.90.14.84.113.45.5
Retail prices 1/2.61.64.14.24.03.0
GDP deflator3.33.62.84.32.92.8
Unemployment rate (percent of labor force)3.43.84.24.23.43.7
Public finance (percent of GDP)
Public sector borrowing requirement 2/3.73.24.37.16.612.3
Government budget deficit 3/5.93.13.25.24.08.6
Government debt26.327.932.833.336.142.1
Money and credit (end period, percentage change)
Base money6.86.30.27.77.40.2
Broad money8.89.310.314.97.78.0
Domestic credit20.59.112.912.726.618.4
Interest rates (period average)
Three-month Treasury bill4.54.64.64.44.95.0
Government bonds (12-year)7.07.87.87.87.87.8
Balance of payments (percent of GDP)
Trade balance−24.6−19.9−24.3−23.3−23.5−24.1
Current account balance−0.31.1−3.4−4.9−11.7−11.8
Official reserves
(in millions of U.S. dollars)1,4391,3151,3911,8761,6481,501
(in months of imports)6.76.86.77.55.65.3
Exchange rate
RegimePegged to a basket of currencies comprising the ecu, pound sterling, and U.S. dollar.
Nominal effective exchange rate (1990=100)100.299.093.093.494.593.4
Real effective exchange rate (1990=100)97.994.689.691.193.091.6
Current rate (March 20, 1997)US$2.62 per Maltese lira
Sources: Central Office of Statistics; Central Bank of Malta; Ministry of Economic Planning and Finance, IMF, International Financial Statistics; and Fund staff estimates.

A new retail price index was introduced in January 1996. The estimate of retail price inflation for 1996 is sensitive to the choice of base period used to splice the old and new price indices.

Public sector includes general government and state enterprises, but not parastatals.

Asset sales are treated as a financing item.

Sources: Central Office of Statistics; Central Bank of Malta; Ministry of Economic Planning and Finance, IMF, International Financial Statistics; and Fund staff estimates.

A new retail price index was introduced in January 1996. The estimate of retail price inflation for 1996 is sensitive to the choice of base period used to splice the old and new price indices.

Public sector includes general government and state enterprises, but not parastatals.

Asset sales are treated as a financing item.

I. Domestic Economy

1. Over the past 10 years, the Maltese economy has evolved from a heavily regulated system to one in which market mechanisms play a more central role in the allocation of resources: price and import controls have been mostly eliminated, domestic financial markets have been gradually deregulated, and major tax and tariff reforms have been implemented. Against the background of these structural changes, macroeconomic performance has generally been strong, with real GDP growing at an average rate of 5.8 percent per annum during 1987-94 and exports of goods and services expanding at an average rate of 9 percent per annum in volume terms over the same period.

2. The brisk pace of GDP growth was maintained in 1995-96 (Chart 1). However, the strong output growth was accompanied by a sharp deterioration in the external accounts, reflecting, in the main, a decline in national savings, from 27½ percent of GDP in 1992-93 to some 20 percent of GDP in 1995-96. Factors contributing to these developments included a marked loosening in the fiscal stance; accelerated growth in bank lending, linked in part to financial market deregulation and intensified competition among banks; and 1995 tax/tariff reforms that included the introduction of the VAT (which brought a large amount of previously undeclared economic activity to light) and the reduction/elimination of tariffs on a wide range of imported goods.

CHART 1MALTA: MAIN DEVELOPMENTS, 1989–96

(In percent)

Sources: Data provided by the Maltese authorities; staff estimates; and IMF, World Economic Outlook.

A. Output and Expenditure

3. After averaging 4.4 percent growth per annum in the first half of the 1990s, real GDP grew by 9 percent in 1995. The pickup in activity was driven primarily by an increase in domestic demand, although part of the recorded GDP growth—an estimated 2-3 percentage points—reflected improved coverage of economic activities resulting from the introduction of the VAT. The expansion in domestic demand was accompanied by a deterioration in the foreign balance, as the tourism sector turned in a disappointing performance and imports of consumer goods surged in response to the tariff reductions implemented at the beginning of the year (Tables A1 and A2). The pace of output growth eased to an estimated 4 percent in 1996: although consumption remained strong, fixed investment levels eased marginally as several investment projects were completed, and the foreign balance worsened, due primarily to continued weakness in the tourism sector.

4. Consumption expenditure grew by 10.2 percent in real terms in 1995—up from an average of 4 percent growth during 1991-94—and remained buoyant in 1996 (Chart 2). Rapid growth in private consumption (some 11.2 percent in real terms in 1995) was fueled by a high level of consumer confidence, an increase in the quantity and variety of imported goods that became available following the tariff reductions,1 and a rapid expansion in consumer credit; improved recording of private services, following the introduction of fiscal receipts in connection with the VAT, was also a factor. The surge in private consumption continued into 1996, as domestic credit continued to expand and income tax reductions introduced in midyear provided a boost to household disposable income. Figures for the first three quarters of 1996 indicate a 9.3 percent real increase in private consumption relative to the same period in 1995. Public consumption also grew strongly in the last two years, by some 7.5 percent in 1995 and 5.9 percent in 1996. As in previous years, expenditure outlays on health and education absorbed the largest share of current expenditure in 1995-96.2

CHART 2MALTA: DOMESTIC DEMAND, 1989 - 96

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

5. Investment expenditure has expanded vigorously since 1993. The expansion was initially led by the private sector, but public investment also picked up after 1993 (Chart 3). Fixed investment by the private sector increased by an average of 18.6 percent per annum during 1993-95, accounting for over three-quarters of total fixed investment during that period (Table A3). Private investment in construction more than doubled between 1994 and 1995, reflecting various projects undertaken in the retail and catering sectors; the construction or refurbishment of several four- and five-star hotels; and the construction of a number of private hospitals. Investment in plant and machinery by the private sector also rose significantly, due to higher levels of activity by several manufacturing industries (e.g., beverages, machinery, and paper and printing) and once-off expenditures such as the purchase of a floating dock by a local shipping company and the purchase of aircraft by the national airline.3 The level of private fixed investment eased in 1996, as several large projects in the tourism and health services industries were completed, and fewer once-off investment expenditures were made. In the first nine months of 1996, private investment was 7.7 percent lower compared with the same period in 1995.

CHART 3MALTA: INVESTMENT AND SAVINGS, 1989–96

(In percent of GDP)

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

6. After a slow period in 1991-93, public investment—i.e., investment by the general government and public enterprises such as Enemalta, Telemalta, and Malta Freeport Corporation—picked up in 1994 with the commencement of several large capital projects in the energy and telecommunication sectors and the Freeport. Public fixed investment expenditure leveled off in 1995, but rose further in the first nine months of 1996, due primarily to increased construction outlays on physical infrastructure and in social projects.

7. Historically, the savings required to finance investment have been generated domestically: gross national savings averaged 30.4 percent of GDP against average total investment expenditure of 28 percent of GDP during the 1980s. However, recent years have seen a decline in national savings. Public savings have been on a downward trend since 1990, and private savings dropped significantly in 1995; the private saving rate fell from 28 percent of disposable income in 1991-94 to 24 percent in 1995 (Table A4). The drop in private saving stemmed almost entirely from the household sector: the household saving rate (as a percent of household disposable income) fell by 6 percentage points in 1995, reflecting, as noted earlier, the consumption boom induced by the tax/tariff changes and the easier availability of credit (Table A5).

8. The foreign balance made a negative contribution to real GDP growth in 1995 and 1996. The pace of real growth in exports of goods and nonfactor services slowed from an average of 8.6 percent per annum during 1990-94 to below 5 percent in 1995, due mainly to a drop in tourist revenues. The slowdown continued into 1996—real exports in the first nine months of 1996 were almost 6 percent lower than the comparable period in 1995—as the tourism sector remained depressed, and semiconductor exports registered an exceptional drop due to the termination of a subcontracting operation. Real import growth, on the other hand, accelerated sharply in 1995, from an average of 7.5 percent per annum during 1990-94 to over 10 percent, as imports of consumption goods jumped in response to widespread tariff reductions, and imports of capital goods mirrored the expansion in investment. Real imports were slightly lower in the first nine months of 1996 compared with the same period in 1995, as consumption and investment expenditures came down from peak levels.4

B. Sectoral Output Trends

9. In line with earlier trends, service activities—notably, distribution, tourism-related private services, and public administration—were the fastest growing sectors during 1991-96 (Table A6). The relative importance of industry continued to decline, although strong growth continued in export-oriented sectors, notably electrical machinery.

Industry

10. The industrial sector—manufacturing and shipbuilding and repair; construction; and public utilities—accounts for just over one-third of GDP (at factor cost). The largest industrial subsector is manufacturing and shipbuilding and repair. Malta’s overall industrial strategy in recent years has been geared toward encouraging investment in advanced technology sectors, emphasizing low volume, high value-added manufacturing. The best performing industries have tended to be those engaged in the production of electrical machinery, pharmaceuticals, and high precision manufacturing; the majority of these industries are foreign-owned, and produce almost entirely for export. Domestic manufacturing firms are typically small enterprises competing for protected segments of the local market; these enterprises tend to be clustered in the food, metals, nonmetals, and furniture and fixtures industries. However, there are also more established small- and medium-sized enterprises that produce for both the local and export markets; some of these enterprises have exploited niche markets abroad, while others, such as the textiles, clothing, and footwear industries, have recently restructured, in the face of intense competition from lower-cost suppliers, to target less price-sensitive market segments.

11. The domestic ship repair and shipbuilding industry has continued to experience difficulties in achieving long-term viability in a highly competitive international environment. Contracts were secured by both Malta Drydocks and Malta Shipbuilding during 1994-96, but at such heavily discounted rates as to secure no improvement in the profitability and cash flow problems that have plagued the industry5 (Box 1).

12. Following a drop in activity in 1992-93 due to the completion of a number of large projects and the adoption of more stringent criteria in the issuance of building permits, the construction industry rebounded from 1994 onward, growing by almost 20 percent per annum in nominal terms in 1994-95. Demand from both the private sector (construction of a number of luxury hotels and entertainment and commercial facilities) and public enterprises (expansion of facilities and infrastructure) contributed to this robust growth.

13. In contrast, the public enterprise sector, after a period of steady growth in 1991-94, reported a decline in the value of output in 1995, reflecting a marked drop in profitability6 (Table A7). Two large public enterprises, in particular, saw a sharp fall in their profits: Enemalta, the state-owned energy corporation, as a result of its inability to pass on cost increases (including the VAT) to its customers; and Telemalta, the state telecommunications corporation, following extensive rate cuts introduced in the middle of the year.

Box 1.Malta Drydocks

Malta Drydocks is one of the oldest ship repair yards in the Mediterranean. Built to serve the needs of the British naval forces, it was taken over by the state after independence. With the departure of British forces in the 1970s, the Drydocks focused on commercial operations, specializing in the repair of tankers, bulk carriers, and cruise liners. Like many other shipyards, the Drydocks started making losses in the early 1980s.

In 1989, the government signed an agreement to pay the Drydocks Lm 55 million in subsidies over a 10-year period, by which time the Drydocks was expected to have established its financial viability. A second agreement, signed in 1994, envisaged a major restructuring of the Drydocks and a merger between the Drydocks and Malta Shipbuilding; under this agreement, the some 2,000 Malta Shipbuilding employees were to be assimilated into Malta Drydocks’ 3,200-strong workforce, encouraged to retire early, or transferred to one of two new government-owned companies (Malta Gantry Manufacturing Ltd. and Malta Win Cargo Container Ltd.) The planned merger, however, has yet to take place.

Despite these agreements, little progress has been achieved in improving the viability of the Drydocks. According to a report commissioned by the government in 1996, the Drydocks made losses of Lm 25 million in 1994-95 alone (around 1 percent of GDP per year), with accumulated losses totaling some Lm 70 million by 1996. These losses were underwritten by the government, as the Drydocks frequently exceeded its (government guaranteed) overdraft limits with the two major banks, and relied on ad hoc transfers from the Ministry of Finance to pay recurrent expenses such as wages. The government advanced Lm 10 million to the Drydocks under this system in 1995, and a further Lm 7.7 million was provided in the first 10 months of 1996, over and above the amounts given as direct aid. By the end of 1996, the Drydocks owed Lm 50 million to the government and parastatal corporations, and Lm 57 million to the two major banks.

Responsibility for managing the Drydocks is vested in a nine-member council. In February 1997, parliament passed legislation to give the council a majority of government-appointed representatives; prior to that, all council members were elected by the workers.

Services

14. Tourism, the most important service sector, experienced robust growth in the early 1990s, but encountered adverse demand shifts after 1994. Between 1990-1994, gross lira earnings from tourism increased at an average of 11.3 percent per annum and the number of tourist arrivals increased by an average of 7.3 percent per annum, peaking at 1.2 million in 1994. The momentum was not sustained in 1995: the number of tourist arrivals dropped by 5 percent, and gross tourism earnings fell by almost 4 percent. Tourism remained weak in 1996: the number of visitors was 5.6 percent lower and gross lira earnings were almost 2 percent lower compared with 1995 (Table A8).

15. The tourist sector has traditionally relied heavily on middle-income tourists from Europe, particularly the U.K. package tour market.7 Factors contributing to declining revenues in 1995-96 included a drop in outward tourism from the United Kingdom; uncertainty caused by the removal of the forward buying rate scheme and the belated introduction of a new subsidy scheme (Box 2); and increased competition from a range of other destinations, both within the Mediterranean and further afield (e.g., the Caribbean).8 The industrial relations climate in 1996 was reportedly also a negative factor, as cruise ship dockings were discouraged on several occasions by strikes and industrial disputes.

16. The tourism industry is currently undergoing restructuring, with a view to increasing the amount of revenue per tourist, diversifying its source markets, and achieving a better spread of tourist arrivals over the course of each year (Chart 4). Steps have already been taken to increase the supply of higher-quality tourist accommodation: the Industrial Development Act has been amended to offer incentives to hoteliers seeking to upgrade or renovate their facilities, and over 90 percent of the additional 8,000 or so tourist beds expected to come on stream in the next two years will be in the higher-quality range. The recently established Institute of Tourism Studies has also been active in providing training programs to improve the quality of labor in the sector.

CHART 4MALTA: TOURISM, 1989–96

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

1/ Excluding transportation.

Agriculture

17. The share of agriculture and fishing in GDP continued on its downward trend over the 1990s, despite an ongoing government-supported upgrading program; by 1995, agriculture and fishing accounted for less than 3 percent of GDP. Agricultural activity in Malta is concentrated in the production of chicken, pork, milk, and eggs; the two main crops grown are potatoes (the primary export crop) and tomatoes. In the fisheries sector, traditional fishing methods have been complemented by aquacultural production since 1990; some success has recently been achieved in the export of locally farmed species of sea bream and sea bass.

Box 2.The Forward Buying Rate and Tour Operator Support Schemes

The Forward Buying Rate (FBR) scheme was set up in 1983 against the background of a sharply depreciating pound sterling, with the purpose of insulating the important U.K. tourism market from exchange rate uncertainty. Under this scheme, the Central Bank of Malta offered guaranteed exchange rates for the pound sterling to British and Irish tour operators; separate rates were set for the summer (June to October) and winter (November to May) seasons. The FBR tended to be set at a more depreciated level relative to the spot rate prevailing at the time of the agreement; as the pound stabilized, therefore, the scheme took on a subsidy element. The total cost of the subsidy ranged from 0.3-1.2 percent of GDP, and was funded out of central bank profits.

As a multiple currency practice, the FBR ran counter to Article VIII (Sections 2, 3, and 4) of the IMF’s Articles of Agreement. In connection with Malta’s acceptance of the obligations of Article VIII in November 1994, the Maltese authorities eliminated the summer rate in 1996 and the winter rate in 1997.

In November 1995, the government introduced the Tour Operator Support Scheme (TOSS) as a means of supporting tourism in the price-sensitive British and Irish markets. The new scheme is administered by the National Tourism Organization, with funding from the government: Lm 2.5 million (approximately 0.2 percent of GDP) was set aside for this scheme in the 1996 Budget. Under the TOSS, certain British and Irish tour operators who bring in a minimum number of tourists are provided a subsidy intended to achieve a targeted sterling price per package holiday. Negotiations between the NTOM and tour operators typically take place some 6-8 months ahead of season: the tour operators submit their lira cost projections for the season, based on their anticipated number of tourists and the prices of their Maltese suppliers; the NTOM then determines the subsidy rate so as to maintain Malta’s competitive position vis-à-vis other destinations For the summers of 1996 and 1997, the subsidy offered was around 9 percent of the sterling price of a package holiday.

C. Labor Market Developments

18. Conditions in the labor market remained tight in the 1990s, with the unemployment rate averaging 4 percent in 1992-94, and employment growing at a steady pace (Table A9). With the economy edging close to full employment, wage pressures have picked up in the last few years.

19. Employment growth jumped to 4.2 percent in 1995, well above the 1.2 percent average annual growth rate recorded in the past five years. This was entirely due to the private sector, which saw an increase of almost 10 percent in recorded employment (Table A10). The growth in employment was concentrated in the services sector; almost half of this increase—some 3,500 “new” jobs—likely reflected the surfacing of the black economy following the implementation of the VAT. Public sector employment, in contrast, fell by 4 percent in 1995, reflecting policy efforts (such as early retirement schemes) as well as privatization initiatives (notably, the privatization of the Bank of Valletta). Despite this reduction, however, the public sector continues to account for some 35 percent of total employment.

20. The labor market eased slightly in 1996, as the unemployment rate edged up to 4.1 percent of the labor force by November, and the pace of employment growth slowed to 0.5 percent. In early 1997, the government announced the imposition of a hiring freeze in the public sector as part of its fiscal adjustment effort.

21. Since the expiry of the incomes policy agreement at the end of 1993, wages in Malta have been negotiated by collective agreements at the firm level.9 However, mandatory universal cost of living adjustments (COLAs) continue to be set each year by the tripartite Council for Economic Development; these cost of living increases are announced by the government in the budget speech and then used as a starting point for collective agreement negotiations. The COLA for 1997 has been set at a flat rate of Lm 1.50 per week.

22. Collective bargaining contracts in the private and parastatal sectors generally last for three years; the last public sector wage agreement, signed in 1991 as part of the public sector pay reform effort, was a five-year agreement.10 The precise structure of contracts varies across the economy; the public sector, by virtue of its size, tends to be the standard-setter for the whole economy in terms of wages and employment conditions.

23. Both public and private sector collective bargaining contracts specify wage increases exclusive of the COLA.11 In recent years, wages have been drifting upward, reflecting the tightness in the labor market: data from collective agreements and the schedule of pay scales for government employees indicate that average weekly wages (inclusive of the COLA but excluding overtime pay, bonuses, social security benefits, and allowances) rose by 7.2 percent in 1994 and 7.8 percent in 1995 (Table A11). With inflation hovering around 4 percent, real wages are estimated to have risen by some 3-3.5 percent during that time. Provisional estimates show slower growth in 1996.

24. The industrial relations climate became quite turbulent for a period in 1995-96, with strike activity affecting firms in various sectors, including many parastatals such as Air Malta, Gozo Channel, Mid-Med Bank, and the Kalaxlokk Company. A total of 5,300 man-days were lost as a result of industrial actions in 1995; this number more than tripled in the first nine months of 1996. A revision of the industrial relations laws, proposed in 1990, was never undertaken, and many points of disagreement—e.g., the right to sympathy industrial action—continue to exist between employers and unions.

D. Prices

25. Inflation in Malta is conventionally measured by the year-on-year percentage change in the retail price index (RPI). The RPI is compiled monthly by the Central Office of Statistics, under supervision by the RPI Management Board, which consists of representatives from the government, trade unions, and employers’ associations.12 From 1992-1995, the RPI was based on weights derived from the results of a Household Budgetary Survey (HBS) conducted in 1988-89, using 1991 as the base year. Beginning in January 1996, a new RPI was introduced, based on the results of a more recent HBS held in 1993-94, using 1995 as the base year. The new index is more representative (the 1993-94 HBS covered more than twice the number of households used in the 1988-89 survey) and less sensitive to seasonal fluctuations (the weight of food items in the new index is 29.9 percent, down from 36.8 percent) than the old index, but has come under criticism from several quarters for being based on an outdated (pre-VAT) bundle of goods and services.13

26. As measured by the RPI, inflation was modest during the 1980s and early 1990s—averaging 1 percent per annum in 1983-92—but accelerated to 4.1 percent per annum in 1993-94 in the wake of the devaluation of the Maltese lira in November 1992.14 By 1995, the pass-through effects of the devaluation had largely disappeared but despite this—and falling inflation in Malta’s major trading partners—inflation remained close to 4 percent (Table A12). Price developments in 1995 were influenced by various (competing) factors such as domestic demand pressures, tariff reductions, and the introduction of the VAT, resulting in marked differences in the rate of price growth across sectors.

27. The pace of inflation eased somewhat during 1996, with 12-month inflation averaging 2.5 percent.15 It should be noted, however, that the calculation of 12-month inflation rates in 1996 is highly sensitive to the methodology used to link the old and new indices, and estimates range from 2.3-3.4 percent depending on the splicing period used.

II. Fiscal Developments

28. The Maltese public sector comprises the central government, the social security system, the local councils, and the public enterprises. The operations of the central government, the social security system, and the local councils are reflected in the Consolidated Budget Fund.16 Annual accounts for public corporations are published in conjunction with the budget approval process, with aggregate data on the public sector finances (including the PSBR) becoming available only when detailed national accounts data are released, i.e., with a lag of about two years.

29. The fiscal stance was strongly expansionary in 1994-96, with various deficit measures increasing sharply over the period. The public investment-savings balance increased from 2½ percent of GDP in 1993 to near 10 percent of GDP in 1996, reflecting both a widening of the budget deficit (notably in 1996) and a substantial deterioration in the financial position of the public enterprises (particularly in 1995) (Chart 5 and Tables 1 and A13).17 Significant asset sales partly limited the rise in the PSBR during 1994-95, but this is estimated to have reached some 12 percent of GDP by 1996. Given high borrowing levels, government and broader public sector debt levels have increased significantly in recent years, with government debt amounting to 42 percent of GDP at end-1996, up from 28 percent in 1992.

CHART 5MALTA: FISCAL DEVELOPMENTS, 1989-97 1/

(In percent of GDP)

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

1/ Data for 1997 refer to budget estimates.

2/ Data prior to 1992 are not strictly comparable because of changes of coverage in the Consolidated Buget Fund.

3/ Includes net lending.

Table 1.Public Sector Balances(In percent of GDP)
19921993199419951996 Est.
Government budget deficit3.13.35.24.08.6
Public investment-savings balance1.72.65.75.69.9
PSBR3.24.37.16.612.3
Government debt27.932.833.336.142.1
Sources: Data provided by the Maltese authorities; and Fund staff estimates.
Sources: Data provided by the Maltese authorities; and Fund staff estimates.

A. The Budget

The budget structure

30. Budgetary revenues have averaged some 37 percent of GDP during 1992-95, dipping to 35½ percent of GDP in 1996 (Chart 6 and Table A14). Tax revenue provides some three-quarters of total revenues, split almost evenly between receipts from direct and indirect taxation (Chart 7). Tax reforms in recent years (notably VAT introduction) have led to a shift in the composition of tax revenues from direct to indirect taxes, with the latter increasing from 44 percent of tax receipts in 1992-94 to 48 percent in 1995-96. With the elimination of import duties from the EU in conjunction with the introduction of the VAT, revenues from import duties have fallen sharply in both absolute and relative terms, dropping from some 28 percent of total revenues in 1992-94 to a mere 3 percent of revenues in 1995-96.

CHART 6MALTA: BUDGETARY REVENUE, 1989-97 1/

(In percent of GDP)

Source: Data provided by the Maltese authorities.

1/ Data for 1997 refer to budget estimates.

CHART 7MALTA: BUDGETARY TAX REVENUE, 1989-97 1/

(In percent of GDP)

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

1/ Data for 1997 refer to budget estimates.

31. Nontax receipts have declined in importance in recent years, from near 10 percent of GDP in 1992-94 to some 7 percent of GDP in 1995-96. Contributory factors have included weakening financial performance of public enterprises, leading to dwindling profit remittances; loss of dividend income, following asset sales and public enterprise reforms in the early 1990s; reduced interest receipts as the stock of outstanding government loans to enterprises contracted; and stagnation of profit remittances from the central bank.

32. Budgetary outlays averaged some 41 percent of GDP in 1992-95, increasing to near 43½ percent of GDP in 1996 (Chart 8 and Tables A15, A16, and A17). Expenditures for capital purposes account for about one-eighth of total outlays (some 5 percent of GDP), although this share is overstated because of the classification of subsidies to loss-making enterprises, notably Malta Drydocks and Malta Shipbuilding, as capital outlays.18 Classification problems also impair the analysis of current expenditure, for which a complete economic categorization is available only with a lag of about two years. An ad hoc analytical classification provided by the authorities affords a breakdown of current expenditure between spending on personnel (about one-third), social security benefits and health (some 40 percent), subsidies to enterprises (about 10 percent), interest payments (about 5 percent), and other. In recent years, total expenditure has been rising in relation to GDP, reflecting higher current outlays; contributing factors have included the increase in transfers (mostly to public enterprises), and rising interest payments on a higher debt stock. Capital expenditure—which includes infrastructure and social outlays—has been broadly unchanged in relation to GDP with the decline in infrastructure outlays offset by the rise in social outlays (e.g., care of the elderly and hospitals).

CHART 8MALTA: BUDGETARY EXPENDITURE, 1989-97 1/2/

(In percent of GDP)

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

1/ Data for 1997 refer to budget estimates.

2/ Data prior to 1992 are not strictly comparable because of changes of coverage in the Consolidated Budget Fund.

3/ Includes spending on police and armed forces.

Budgetary developments

33. The budgetary position weakened significantly in 1994, with rising expenditure levels and government lending pushing the deficit up to 5.2 percent of GDP, some 2 points higher than in 1992-93.19

34. Fiscal developments in 1995 were influenced by the introduction of the VAT at the outset of the year, in conjunction with wide-ranging tariff reductions. Tax revenues rose sharply in relation to a rapidly growing GDP, with revenues from indirect taxation increasing from 11.4 percent of GDP in 1994 to some 14.4 percent in 1995. Aggregate revenue growth was more modest, however, with sizable declines in various nontax revenues (foreign grants, dividend income, and central bank profits) implying that total revenues increased only marginally in relation to GDP, from 36.9 percent in 1994 to 37.2 percent in 1995. However, some easing in the pace of growth of current outlays (notably on personnel) laid the basis for a drop in budgetary outlays from 42.1 percent of GDP in 1994 to 41.2 percent in 1995, and a decline in the budget deficit of some 1.2 points of GDP.

35. The 1996 Budget sought a further reduction in the budget deficit to some 3.5 percent of GDP, to be achieved through additional growth in indirect tax revenues that would more than compensate for a sizable programmed increase in capital outlays. The budget also included important reforms in the areas of income taxation (consistent with the broader objective of shifting toward greater reliance on indirect taxation) and social expenditures (to improve the targeting of benefits to lower income beneficiaries).20

36. The income tax changes were intended to reduce the average rate of taxation, and make the system more equitable. Personal income tax brackets were raised, with the maximum tax rate of 35 percent (which remained unchanged) applied to an annual income exceeding Lm 10,000, up from Lm 6,000, and the exemption threshold increased from Lm 3,000 to Lm 3,500. These changes resulted in a cut in effective tax rates across the board (Table 2). In an effort to improve compliance, the complex system of tax deductions was also streamlined and income earned from part-time work taxed at a fixed rate of 15 percent.

Table 2.Effective Income Tax Rates(In percent)
Income in LmMarriedSingle
1996199519961995
Up to 2,5000000
3,0000004
3,5000227
4,00005410
4,50028512
5,000310714
5,500411916
6,0005131017
6,5007151118
7,0008161219
7,5009171421
8,00010181521
8,50011191622
9,00012201723
9,50013211824
10,00014221924
11,00015232025
Source: Data provided by the Maltese authorities.
Source: Data provided by the Maltese authorities.

37. The social benefit reform replaced four distinct family benefits with a comprehensive child allowance. While benefits previously took the form of fixed sums given to families with children,21 the new child allowance seeks to achieve better targeting of benefits through means-tested eligibility. (My families with an annual income below Lm 10,000 are eligible for benefits and the allowance is proportional to the difference between Lm 10,000 and the family income with rates depending on the number of children under 16 years of age (Table 3).22 The 1996 budget also introduced a new type of social benefit, called supplementary assistance, for people with an annual family income below Lm 3,500 who were not eligible for the child allowance: the benefit is 1.5 percent of the difference between Lm 10,000 and the income earned.23

Table 3.The New Child Allowance
Number of Children
1234
Rates (in percent) 1/ 2/6911.513
Source: Data provided by the Maltese authorities.

For every child after the first four, the rate increases by 1.5 percent per child.

If a family earns less than Lm 2,500 a year, the child allowance is calculated on Lm 7,500.

Source: Data provided by the Maltese authorities.

For every child after the first four, the rate increases by 1.5 percent per child.

If a family earns less than Lm 2,500 a year, the child allowance is calculated on Lm 7,500.

38. The budgetary outcome for 1996 deviated sharply from programmed targets, reflecting both large revenue shortfalls (almost 4½ points of GDP below budget) and strong growth in current outlays (2 points of GDP above budget). As a result, the budget deficit reached some 8½ percent of GDP, compared with a 1995 outcome of 4 percent and a 1996 target of 3½ percent. Poor tax compliance and weaker collection efforts ahead of the general election, coupled with the incoming government’s commitment to remove the VAT, contributed to the poor revenue performance: in the last quarter of 1996, income tax receipts and revenue from VAT were 36.5 percent and 35.7 percent lower than in the same period of 1995, respectively.24 Nontax revenue was sustained at 1995 levels through higher foreign grants, while the trend decline in central bank and public corporations’ profits continued.25

39. Current expenditure increased to 37.4 percent of GDP from 35.7 percent in 1995, due to higher transfers, both to households and to public enterprises. Spending on social security benefits and pensions rose by 0.8 percentage points of GDP, while subsidies to public enterprises increased by over 25 percent in nominal terms (a half point of GDP). More than a third of the increase in subsidies to public enterprises was accounted for by higher subsidies to the Water Services Corporation (WSC). Capital expenditure rose from 5.2 percent of GDP to 5.6 percent, substantially less than budgeted.

40. The 1997 Budget was presented to parliament on January 13, 1997, some two months later than normal practice because of the timing of the general election. Measures contained in the budget include increases in excise taxes on spirits, tobacco, and petroleum products, and higher registration fees on motor vehicles, collectively projected to yield an additional 1 percent of GDP in revenues; higher tariffs for commercial use of water, allowing a cut in subsidies to the Water Services Corporation; and a hiring freeze in the public sector. The VAT is to be replaced by an alternative form of indirect taxation by midyear; details of the proposed replacement taxes were outlined in a White Paper published on January 30, 1997.

41. Revenues are budgeted to increase by some 0.7 percentage points of GDP in 1997, with higher tax revenues (up 2 points of GDP) being partially offset by a drop in nontax revenues (foreign grants, central bank profits).26 The higher tax take reflects the impact of the new measures, supported by an assumed rebound in revenues from improved revenue collection efforts; a partially offsetting effect is the full-year impact of the income tax reforms introduced in July 1996. Noninterest current outlays are programmed to decline by 1.5 points of GDP, reflecting the hiring freeze and cuts in subsidies; but capital expenditures are set to rise by some 0.6 points of GDP, while the rising public debt level implies higher interest outlays (up 0.3 points of GDP). The budgeted deficit declines from 8.6 percent of GDP in 1996 to 7.5 percent in 1997, financed almost entirely through domestic borrowing, and government debt would reach 47 percent of GDP by end-year, up from 42 percent at end-1996.

B. VAT: Performance and Proposed Replacement

42. The VAT, introduced on January 1, 1995, applies to goods and services. It is levied at a standard rate of 15 percent and a reduced rate of 10 percent for selected hems including catering services and tourist accommodation. Zero-rated items include exports, certain food items, pharmaceutical goods, medical services, bus and ferry transport, and education. Financial services, letting and transfers of immovable property, and nonprofit organizations are exempt.

43. The VAT generated 6.8 percent of GDP in 1995 (23 percent of tax revenue). While this fell slightly in 1996, its productivity, at 0.45 percentage points of GDP for every percentage point of the standard rate, compares favorably to VATs in European countries (Table 4). Despite having a standard rate 15 percent below the average, the yield was only 1 percent below average. Italy, Spain, and the United Kingdom have equal or higher rates but lower yields. This strong performance is largely explained by the high proportion of imports in the VAT base and the existence of only one, minor, reduced rate.

Table 4.Selected Comparisons of VAT Rates and Productivity
CountryStandard Rate

(percent)
Other rates

(percent)
Revenue

(percent of GDP)
Productivity

(percent of GDP per 1 percent of standard rate)
Greece (1994)184,87.50.42
Ireland (1994)2112.57.50.36
Italy (1994)194,9,126.40.33
Portugal (1994)165,307.90.49
Spain (1994)153,65.50.37
U.K. (1994)17.56.70.38
Average17.86.90.39
Malta (1995)15106.80.45
Source: Fund staff estimates.
Source: Fund staff estimates.

44. The White Paper published by the government on January 30 identified a number of problems with the current VAT system, namely, that it is (1) unfair and inefficient; (2) administratively burdensome, especially for small businesses, (3) over-complex, due to the use of zero-rating and exemptions; (4) an additional layer of taxation as businesses already pay income and social security taxes; and (5) insufficiently coordinated with other taxes, especially the income tax.27

45. The proposed replacement for the VAT is a system of import duties and specific excises. Imports will be subject to a 15 percent import duty. Those goods currently not subject to VAT and import duty will be exempt. Imported elements of goods produced locally for domestic consumption in competition with imported final goods that are exempt from import duty shall also be exempt. Export industries and tourism will benefit through exemptions for capital imports and direct support services.

46. All nonexempt goods purchased within Malta, both imported and domestic, will be subject to a single-stage excise tax, known as the Excise Tax on Products (ETP), with a rate of 5 percent. The ETP will be levied on goods when sold to a business for its own consumption or to a retailer. Both the seller and buyer are obliged to maintain a record of the tax. Those items exempt from the import duty will also be exempt from the ETP. Businesses that buy goods to be incorporated into other products will not pay the ETP but will levy it on their output.

47. Selected services will be subject to an excise tax (ETSS). These services include services to businesses and some services provided directly to the public. They will be taxed at 10 percent, while pre-booked accommodation and catering packages will be subject to a rate of 5 percent.

48. The proposed replacement system for the VAT has several weaknesses. It is liable to the criticism of cascading because not all business inputs will be creditable or exempt: for example, it is unlikely that the tax component from exports can be entirely removed. Attempts to replicate the VAT system of crediting through use of exemptions will inevitably increase the degree of arbitrariness in the system and facilitate increased avoidance/evasion, and is likely to be administratively cumbersome.

C. Budget Financing and Public Debt

49. In recent years, the budget deficit has been financed primarily through domestic debt issues (Chart 9), but in the period 1994-95 asset sales were also an important source of financing (on average almost a third of the deficit). With the exception of 1994, net foreign financing has been negative.

CHART 9MALTA: BUDGET DEFICIT FINANCING AND GOVERNMENT DEBT, 1989–96

(In percent of GDP)

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

50. Government debt has been rising rapidly since 1994 due to the deteriorating budgetary position and despite sizable asset sales in 1994 and 1995. The stock of government debt rose from 33.3 percent of GDP at end-1994 to 42.1 percent of GDP at end-1996.28 Domestic debt increased even more rapidly, from 27.8 percent of GDP in 1994 to 38.1 percent of GDP in 1996, while foreign debt declined from 5.5 percent of GDP at end-1994 to 4 percent of GDP at end-1996 (Table A18).

51. At end-1995, three-quarters of the government’s domestic debt stock consisted of medium- and long-term securities: the rest was in the form of treasury bills. The proportion of treasury bills in domestic debt more than doubled between 1994 and 1996, as the limit on the issue of this instrument was raised from Lm 30 million to Lm 100 million in 1995 and to Lm 200 million in November 1996. At end-1995, over a fifth of treasury bills were held by the nonbank public, a ratio which has been rising and is projected to have reached one-third by end-1996. In March 1996, the nonbank public held about 47 percent of the stock of government bonds, the commercial banks 38 percent, with the remainder held by the CBM.

52. Debt of public corporations and authorities is estimated at some Lm 200 million (18 percent of GDP) at end-1995, three-fourths of which is external. Debt of other public enterprises is estimated at about Lm 57 million (5 percent of GDP), almost entirely external, bringing total public debt to Lm 669 million (58 percent of GDP). The government also extends guarantees on bank credits to a variety of entities—these amounted to Lm 403 million (33 percent of GDP) as of end-1996.29

D. Public Enterprises

53. Public enterprises comprise: (1) public corporations and authorities that are entirely government owned, are established by specific legislation, and must have their annual financial statements approved by parliament; (2) direct government investments in firms deemed to be of strategic importance (e.g., commercial banks); and (3) investments undertaken through government agencies, notably Malta Development Corporation (MDC) and, more recently, Malta Government Investments Ltd. (MGI).

54. Since 1987, government policy has been to reduce the direct rote of the public sector in the economy through sale of investments in the government’s portfolio. To this end, in 1988, Malta Investment Management Company Limited (MIMCOL) was set up as an agency entrusted to take over management responsibilities of companies in the portfolio of MDC/MGI, and given the tasks of liquidating companies deemed unviable and improving the performance of those with good prospects to prepare than for sale. In line with this strategy, 12 companies assigned to MIMCOL were privatized in 1994-95 and a number were liquidated; 13 companies are now left with MIMCOL. The government also divested itself of some direct investments, most notably by selling shares in commercial banks, including Bank of Valletta. As of end-September 1996, the government had direct investments in 25 companies, including Mid-Med Bank (the largest commercial bank), Air Malta Co. Ltd., and Malta Freeport.

55. The main public corporations include Enemalta, Telemalta, the Water Services Corporation (WSC), the Maritime Authority, the Housing Authority, and the Transport Authority. Enemalta, the energy company, supplies and distributes electricity, gas and petroleum products. Until 1994, Enemalta was quite profitable, although it relied on cross subsidization of the electricity division with profits made by the petroleum division. In 1995, however, its operating surplus more than halved, reflecting the failure to pass on to consumers increased costs (notably the VAT and higher fuel costs) and inefficient capital outlays.30 In the six months from October 1995 to March 1996, there was a further deterioration in the financial position of Enemalta, partly due to delays in the issue of electricity bills.

56. Telemalta is a public corporation responsible for the provision of telecommunication services.31 It is a profitable enterprise, but its profitability suffered with the introduction of the VAT, again not passed on to consumers, and the reduction of tariffs on overseas calls; in the financial year 1995/96, its profits declined by some 30 percent. Other factors contributing to the deteriorating financial performance were higher personnel costs and debt servicing.

57. Set up in 1992 in place of the Water Works Department, the WSC supplies and distributes water. Since its inception, it has relied heavily on budgetary subsidies to cover operating losses and has borrowed heavily from the domestic banks to finance large capital projects to improve the water supply in the island. Important problems afflicting this enterprise include the rise in operating costs due to the inefficient use of manpower, extensive wastage and pilfering, and, in 1996, the delay in issuing bills to consumers.

58. Large government subsidies are extended to Malta Drydocks and Malta Shipbuilding.32 Budgetary subsidies to these entities averaged 1.3 percent of GDP in 1995-1996, and the government has also provided advances to these companies outside the budgetary framework (Box 1, Chapter I).

III Financial Sector Developments

59. The Maltese financial system includes the Central Bank of Malta (CBM), four domestic deposit money banks, a foreign bank that operates in the domestic market, one mortgage bank, two investment banks, a number of offshore banks that deal exclusively with nonresidents, the stock exchange, and the Malta Financial Services Center (MFSC).33 The government plays a central role in the banking system, being the majority shareholder in the largest domestic commercial bank (Mid-Med Bank) and a minority shareholder in the second largest (Bank of Valletta): these two banks together have over 90 percent of deposits held with the domestic banking system.

60. There have been a number of important changes in the banking environment in recent years. In late 1994, parliament passed a financial legislation package that included amendments to the Central Bank Act and a new Banking Act: the CBM was granted increased autonomy in the conduct of monetary policy and in setting interest rates, while prudential regulations were brought in line with EU directives in areas such as licensing procedures, capital adequacy ratios, liquidity requirements, and single customer exposure limits. Interest rates have been effectively deregulated, with the ceiling on deposit rates having been lifted in 1994 and controls on lending rates having been effectively eliminated in 1995. There has been rapid growth in money market transactions, following the introduction of an interbank money market in 1994 and the introduction of regular auctions of treasury bills in 1995. Finally, the partial privatization of Bank of Valletta in 1995, together with the entry in the domestic market of the U.K.-based Midland Bank in 1996, have increased competition and promoted financial innovation in the banking sector.

A. The CBM and the Conduct of Monetary Policy

61. The CBM’s principal objectives as set out in the amended Central Bank Act are: (1) to promote balanced economic development consistent with the maintenance of monetary stability and the external value of the currency; and (2) to foster a sound financial structure and an orderly capital market. Notwithstanding the CBM’s increased autonomy in pursuing these goals, the Minister of Finance retains the prerogative to give the bank instructions that he deems appropriate in the national interest. The CBM’s board of directors, composed of the governor, the deputy governor, and three other directors, is responsible for deciding the broad outlines of monetary policy, with detailed implementation being delegated to the Monetary Policy Council (MPC), which meets once a month.

62. Monetary policy is conducted within the context of a fixed exchange rate; the value of the lira is pegged to a basket of currencies that includes the ECU, the U.S. dollar, and the pound sterling.34 The presence of capital controls, coupled with imperfect asset substitutability, provides the CBM some capability to conduct an independent monetary policy, although gradual liberalization of the capital account in recent years increasingly limits the CBM’s room for maneuver. The set of instruments used by the CBM to influence monetary developments was expanded in 1994-96 to include term deposit auctions (used only in 1994-95), regular repurchase/reverse repurchase agreements (introduced at end-1994), and foreign currency swaps (Box 3). In setting policy, the CBM looks to a broad range of economic indicators, including external reserve levels (which, according to the CBM Act, must not fall below 60 percent of the CBM’s liabilities), the pace of broad money growth, and the level of economic activity; high weight is given to the objective of limiting interest rate fluctuations.

63. A simplified balance sheet for the CBM is presented in Table 5. External reserves accounted for some 69 percent of total assets at end-1995, with credit to government representing a further 9 percent of assets; other assets include foreign exchange deposits held abroad by the CBM on behalf of the government and public enterprises. Credit to the government takes the form of purchases of treasury bills (in the secondary market only, since early 1996) and government bonds, both in the primary market as the residual subscriber and in the secondary market. The CBM also used to extend short-term (intra-year) unsecured credit to the government through the advances account, but this facility was not used in 1996.35 Base money represents over two-thirds of total liabilities, with the remainder including term deposits of banks, foreign exchange deposits of government and public enterprises, and capital and reserves.

Table 5.CBM Balance Sheet; end-1995(In millions of Maltese liri)
ASSETSLIABILITIES
External reserves508.7Base money513.0
of which: Currency351.8
Deposits of banks80.0
Government securities67.7Government deposits20.2
Other assets163.4Other liabilities206.6
Total assets739.8Total liabilities739.8
Source: Central Bank of Malta.
Source: Central Bank of Malta.

Box 3.The CBM’s Instruments of Monetary Management

Reserve Requirements: Banks are required to maintain 5 percent of deposit liabilities in the form of deposits at the CBM (reserve deposit account). The base is calculated as an average of the stock of deposits on the first and last day of the month and the one-month maintenance period starts the 15th of the following month. Banks must satisfy the requirement on an average basis during the maintenance period. The balances are currently remunerated at the below-market rate of 2.7 percent. If a bank fails to fulfill the reserve requirement, it is charged the penalty rate of 8 percent.

Discount Window: Banks can obtain credit from the discount window by discounting treasury bills at the discount rate, which has been fixed at 5.5 percent for the past ten years. There is no formal limit on access to this facility, but the CBM has full discretion as to when the facility is used. This facility has been resorted to only very seldom in the last two years, as the CBM is seeking to promote the use of repos.

Collateralized Loan Facility: Through this facility, banks can obtain short-term credit at a penalty rate, currently 6 percent. It is fully collateralized, with the admitted securities sanctioned by law and the collateral pledged at all times. It is a stand-by window with limits established on each bank. Banks use this type of loan to replenish their operational account (call account) which must have a positive balance at the end of the day.

Repurchase and reverse repurchase agreements: Every Friday there is either a repo or a reverse repo multiple price auction, depending on the CBM’s forecast of the banking system liquidity. The CBM announces (via Reuters and fax) the type of auction and the interest rate band, which is considerably narrower (recently 3 basis points around 5 percent) than the band set by the MPC. Once the banks have submitted their bids, the CBM decides the quantity it is willing to inject/withdraw. The repo/reverse repo agreements are usually for 7-day money and occasionally for 14-day money. Aside from the auctions, the CBM stands ready to engage in bilateral repos with banks which are short of liquidity; the interest rate applied is posted in Reuters and currently stands at 5.4 percent.

Foreign Currency Swaps: These operations are carried out infrequently, at the discretion of the CBM. The forward buying/selling rate is based on the interest rate differential between Maltese rates and corresponding interest rates abroad.

64. Monetary developments in 1994 were influenced by both a sizable buildup in foreign reserves and a significant growth in credit to government (Chart 10, and Table A19). Auctions of term deposits were introduced by the CBM as a means to limit the impact of these inflows on liquidity; by end-1994, the stock of these deposits amounted to Lm 107 million (equivalent to 22 percent of reserve money), with maturities ranging between 2-12 months.36 These auctions were discontinued in early 1995, with the CBM preferring to use the newly introduced repo/reverse repo auctions to influence short-term liquidity developments, which wore now being subjected to a contractionary impulse from the drop in external reserves. From the second quarter of 1995, the CBM conducted reverse repo auctions with a total volume of Lm 116.4 million, although the stock outstanding at end-year was a mere Lm 5.8 million, reflecting the short-term and self-reversing nature of such transactions. During 1996, the CBM continued to conduct reverse repo auctions to fine-tune liquidity expansion, with the end-year stock amounting to Lm 20.5 million.

CHART 10MALTA: CENTRAL BANK BALANCE SHEET, 1989–96

(Percentage changes)

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

B. The Banking Sector

65. The banking sector includes the deposit money banks, the offshore banks, and other banking institutions. Deposit money banks hold substantial foreign assets (close to 30 percent of total assets) and more modest foreign liabilities (some 10 percent of total liabilities); allowing for domestic foreign currency liabilities, the banks still have a large open foreign exchange position (Table A20).37 Loans account for about one half of total assets, with the largest exposures to the manufacturing and shipbuilding (about 20 percent of total local lending) and the wholesale and retail trade sector (about 19 percent of total lending) (Table A21). Holdings of government securities amount to less than 10 percent of assets, but have increased significantly in 1996 (Table A22). Capital and reserves are close to 20 percent of total liabilities, a share that has risen in recent years.

66. After a poor year in 1994, commercial banks’ profits, from both domestic and foreign sources, increased sharply in 1995 (Table A23).38 Although nonperforming assets amount to some 20 percent of the loan portfolio, commercial banks have high solvency ratios (which average about 14 percent), reportedly use conservative real estate valuation practices for collateral purposes, and have a good recovery record.39

67. The offshore banks, also called international banking institutions, engage in business exclusively with nonresidents, although two of them are subsidiaries of the two largest domestic banks. Most of the offshore banks are currently licensed and supervised by the MFSC, but responsibility for supervision is to be transferred to the CBM by 2004. Offshore banks are funded through nonresident deposits and borrowing from banks abroad; two-thirds of assets are held abroad, with domestic investments reflecting the practice by subsidiaries of domestic banks of placing funds with the parent company. The sector expanded in 1995 with the entry of two new banks. Tax advantages provide the motivation for the establishment of the offshore banks; benefits accruing to Malta include enhanced training opportunities, professional fees, and ancillary services, but employment creation is modest.40

68. Other banking institutions include the mortgage bank and the two investment banks. Loans from deposit money banks provide the main source of funds, while almost all the assets are in the form of lending to the private and parastatal sectors.

C. Money and Credit Developments41

69. The Maltese economy is characterized by low money velocity (a high ratio of broad money to GDP), reflecting a high degree of bank intermediation in the economy.42 At end-1995, the ratio of broad money to GDP was 1.5, compared to 1.0, 0.6, and 0.4 for the United Kingdom, Germany, and Greece, respectively.43 The ratio of broad money plus government securities to GDP was only marginally higher at 1.8.44 Heavy reliance on bank intermediation is reflective of the underdevelopment of the stock exchange, the minimal role of private pension schemes,45 and controls on capital flows that have constrained portfolio diversification abroad. Velocity has bean relatively steady in recent years, reflecting a stable and low inflation macroeconomic environment (Table A24).

70. In the past four years, time deposits have been the fastest growing component of broad money, while currency holdings have contracted significantly in relative terms: the ratio of currency to broad money declined from 35.9 percent in 1991 to 24.9 percent in 1996. With currency holdings falling and banks improving their treasury management in the face of interest rate liberalization and other deregulation measures, the (broad money) multiplier rose from 2.7 in 1991 to 3.6 in 1996 (Chart 11).

CHART 11MALTA: MONETARY DEVELOPMENTS, 1989–96

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

1/ Broad money multiplier.

2/ Broad money velocity.

3/ Broad money comprises currency outside banks and demand, time, and savings deposits.

71. Broad money increased by 14.9 percent in 1994, resulting from both higher NFA (which contributed 69 percent) and domestic credit (which contributed 54 percent) (Table A25). The most dynamic component of credit growth was credit to the parastatal (14 percent) and private (13 percent) sectors following continued brisk economic activity. Lending to the building sector, notably for the construction of new hotels, registered the largest increase (54 percent) followed by lending to the service sector, linked to upgrading of tourist facilities, and projects in the retail and catering sectors.

72. In 1995, broad money growth slowed to 7.7 percent: NFA decreased, while domestic credit expanded rapidly. Credit to the private sector increased by some 29 percent over the year, notably to the transport and communications, construction, tourism, and tirade sectors, while loans and advances to the personal sector rose very rapidly (42 percent), particularly for purchases of consumer durables. The surge in consumer credit was also spurred by financial innovation (e.g., flexicredits and leasing) and the banks’ active promotion of credit cards.

73. The pace of broad money continued substantially unchanged in 1996, with the fall in external reserves more than offset by the expansionary impact of domestic credit. Credit to the government accelerated to 37 percent, while credit to the private and parastatal sectors slowed to 15 percent. Indications for 1996 are that lending to the tourism sector, other services, and the personal sector remained strong.

D. The Rest of the Financial Sector

74. Recent innovations in developing government securities markets include the introduction of weekly auctions for treasury bills, a widening of the range of maturities of t-bills offered, and allowing nonresidents to hold government paper (although such holdings remain low). The CBM disengaged from the primary market for treasury bills in early 1996, but remains the market maker in the secondary market. Secondary market prices are quoted as a fixed spread on primary market prices (currently with the buying spread larger than the selling spread to promote sales by the CBM). Consideration is being given to modifying the price determination mechanism in the secondary market and it is expected that commercial banks will eventually take over the market maker-role from the CBM.

75. Medium- and long-term government securities with maturities ranging from 3-12 years are issued with a fixed interest rate, decided by the Minister of Finance in consultation with the CBM, usually three times a year. Government bonds are first offered to the nonbank public, then to the commercial banks, with the CBM being the residual subscriber. The CBM is the market maker in government bonds that are traded on the stock exchange: secondary market prices are set by the CBM with a view to maintaining a yield curve in line with monetary policy objectives. Plans for changes to the long-term government securities market are still in their infancy, but could eventually lead to floating-rate issues.

76. The CBM has sought to promote the development of interbank money and foreign exchange markets. Initially the CBM acted as a catalyst in domestic money market transactions, but now a commercial bank quotes two-way prices and interbank deals have risen from Lm 16 million in 1994 to Lm 252 million in 1996. Actions taken to encourage interbank foreign exchange transactions have included widening of the CBM buy-sell spread on foreign exchange, limiting the number of intervention currencies to three, and removing the cover for forward transactions.

77. Capitalization on the stock exchange, which started operation in 1992, reached Lm 528 million at end-1996. In addition to government bonds, which account for over half of the capitalization, seven equities (three of commercial banks), one mutual fund, and two corporate bonds are listed. Despite a significant reduction in transaction and brokerage fees and the automation of the trading system, the market is still very thin, with annual turnover of about Lm 25 million, mostly involving government bonds. Factors that impede the development of the exchange include: the low cost of bank credit, family-owned businesses’ preferences for maintaining tight control, the limited number of institutional investors, and selected legal constraints.

E. Interest Rates

78. Until recently, Maltese interest rates were subject to numerous administrative controls, including ceilings on deposit and lending rates and a complex system of preferential rates. Interest rates remained fixed for many years at a level considerably below foreign interest rates,46 which, given the fixed exchange rate regime, was only possible because of extensive exchange controls (Chart 12). In recent years, interest rates have been liberalized: notable steps were the removal of the ceiling on deposit rates in January 1994 and the raising of the ceiling on lending rates to a nonbinding level in November 1995, preceded by the elimination of preferential rates.47

CHART 12MALTA: INTEREST RATE DEVELOPMENTS, 1989–96

Sources: Data provided by the Maltese authorities; International Monetary Fund, International Financial Statistics (IFS); and staff estimates.

1/ Weighted average of interest rates on 3-, 6-. and 12-month treasury bills.

2/ Interest rate on 12-month federal debt register.

3/ Interest rate on 3-month treasury bills.

79. Maltese interest rates rose in 1995, in part reflecting the increase in most foreign rates: the three-month treasury bill rate increased to 4.9 percent from 4.4 percent at end-1994; the reverse repo rate rose from 4.75 percent in April to 4.94 percent in December; the interbank rate was within a few basis points of the reverse repo rate and remained so in 1996; while the CBM discount rate has remained unchanged in the last decade (Table A26). At end-1995, the spread over the synthetic yield on three-month instruments was still a negative 40 basis points. Interest rates on treasury bills remained unchanged in 1996, with the three-month treasury bill rate hovering around 5 percent, despite an increase of some 10 basis points in the reverse repo rate. However, with declining interest rates abroad, Maltese yields closed the year higher than the synthetic yield by a margin of some 30 basis points.

80. In March 1996, the two largest commercial banks announced an increase in interest rates on deposits (of some 50 basis points) and in consumer and real estate loans, which had been fixed for several years. The average deposit rate rose from 4 percent to 4.2 percent and the average interest rate on loans and advances from 7.5 percent to 7.7 percent. Banks also introduced a tier scheme for deposit rates and Mid-Med Bank announced the establishment of a “base rate” (currently 5.5 percent and equal to the CBM’s discount rate) to which all lending rates would be linked. Banks are reported to now link interest rates charged more closely to client risk assessments, and thus a more differentiated structure of interest rates across customers is emerging. Factors contributing to these changes included increased competition in in the banking sector spurred by the privatizatiaon of Bank of Valletta and the entry of Midland Bank, and more active cash management induced by the abolition of the interest rate on call accounts and the introduction of mi averaging reserve requirement.

81. The spread between average lending and deposit rates stood at 3.5 percent in 1996, unchanged from 1995 and slightly higher than 1994. A decomposition of the spread into prime rate spread (i.e., the difference between the prime rate and the average deposit rate) and the credit risk spread (i.e., the difference between the prime rate and the average lending rate) reveals that two-thirds of the bank spread is accounted for by credit risk spread, estimated to have increased in 1996 as the prime rate is reported to have remained unchanged. It is expected that bank spreads will decline with increased competition among banks.

82. Real interest rates have risen over the last two years as inflation has eased and nominal rate have increased slightly. In 1996, real interest rates paid on deposits averaged 1.2 percent, while rates charged on loans averaged 4.6 percent.

IV. External sector developments

83. Since the late 1980s, Malta has been running increasing deficits on the external current account. The capital account, which saw net outflows during the late 1980s, returned to surplus after 1990, although the composition of flows has evolved over the last five years, with long-term foreign borrowing and more volatile short-term capital flows assuming a greater significance. Official reserves have declined in the past two years, but remain at relatively comfortable levels, equivalent to over five months of imports of goods and services at end-1996.

A. The Current Account

84. The current account deficit has widened progressively during the 1990s, from an average of 0.5 percent of GDP in 1990-92, to 4 percent of GDP in 1993-94, and 12 percent of GDP in 1995-96. The sharp deterioration in the current account position during 1995 reflected strong growth in consumer goods imports in the wake of the tax/tariff reforms introduced in the beginning of the year, a drop in tourist revenues, and shortfalls in investment income and unrequited transfers. The current account deficit remained substantial during the first nine months of 1996, with further deterioration in the balance on goods and services offsetting a recovery in official transfers (Chart 13, Table A27).

CHART 13MALTA: CURRENT ACCOUNT, 1989–96

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

Trade account

85. Merchandise exports grew by an average of 15 percent per annum in value terms between 1990 and 1995. The driving force behind the strong export performance was the machinery and transport equipment sector and, in particular, the rapid growth in exports of electronic components by a single semiconductor firm (Box 4). Since the late 1980s, the machinery and transport sector has expanded very rapidly, its share in total exports swelling from 35 percent in 1988 to 63 percent in 1995. Electronic components alone have accounted for over 50 percent of total exports since 1994. During the first nine months of 1996, total exports were 4.4 percent lower (in value terms) compared with the same period in 1995, a drop due in large part to the discontinuation of a subcontracting operation at the major semiconductor plant (Table A28).

Box 4.SGS-Thomson

SGS-Thomson is an independent supplier of a broad range of semiconductors, with manufacturing facilities in the United States, France, Italy, Singapore, Malaysia, China, and Malta. It is 70 percent owned by holding companies of the French and Italian governments.

The Maltese plant was opened in 1981, with a workforce of 25. The plant was initially involved in lower value-added assembling and testing processes. By the early 1990s, Malta had lost its advantage of cheap labor, and the operations of the plant shifted to higher value-added activities. Substantial investments were made from 1993 onward, and today, the plant employs almost 2,000 workers (over 1 percent of Malta’s labor force). Sales were on the order of Lm 300 million in 1995 (close to 50 percent of Malta’s total merchandise exports). Imported inputs represent about three-quarters of the value of output, all of which is exported; one half of sales are to Europe, with the rest approximately evenly divided between Asia and the Americas.

86. The pace of growth of exports by other manufacturing sectors was modest by comparison, averaging 4 percent per annum in nominal terms between 1985 and 1995; nonmachinery manufacturing’s share in total exports dwindled from over 50 percent in the 1980s to 21 percent in 1995. The traditionally important clothing industry recorded virtually no export growth in the first half of the 1990s, due to the increasingly competitive international market confronting Maltese producers; the share of clothing in total exports fell from over 30 percent in the 1980s to below 10 percent in 1995. Available data for 1996 suggest a slight reversal in this trend, reflecting recent efforts to reposition the industry to focus on higher value-added and higher quality product lines.

87. The EU continues to be Malta’s principal export market, absorbing over 70 percent of Malta’s exports (Table A29). Of the EU countries, Italy is Malta’s largest export market, accounting for some 30 percent of Malta’s total exports, followed by Germany and France. Among non-European destinations, Asia has increased in prominence in the past two years, as a number of Maltese firms have entered into subcontracting arrangements to export key products, such as electrical machinery, to counterparts in Asia. The United States has also emerged as an important export market in recent years, the main export items again being electrical machinery and equipment.

88. Merchandise imports increased in value terms by an average 12.5 percent per annum during 1990-95. The rapid expansion in imports has reflected a number of factors, including the ongoing effects of trade liberalization; rising household incomes supporting growing consumer demand; strong growth in manufactured exports with a high import content; and the government’s program of infrastructural investment, which has required a high level of capital goods imports.

89. Industrial supplies—primary, semifinished, and finished—are the main category of imports, accounting for around 57 percent of the total in recent years (Table A30). The heavy reliance on imported inputs reflects domestic resource limitations and weak inter-sectoral manufacturing linkages, particularly in the machinery and transport equipment sector, where the expansion in semiconductor exports over the past decade has been accompanied by a concomitant expansion in related imports: between 1988 and 1995, the share of machinery and transport equipment in total imports rose from 37 percent to 51 percent (Table A31).

90. Consumer goods are the next largest category of imports, making up some 20 percent of total imports. In 1995, they were the fastest growing category, increasing by 37 percent in value terms, and accounting for almost half of the 13 percent growth in total imports. The sharp increase in consumer goods imports in 1995 could be traced primarily to the removal of tariffs on imports from the EU and the reduction of tariffs on imports from non-EU countries; notwithstanding the concurrent introduction of the VAT (at 15 percent), the cut in tariffs led to a substantial reduction in import prices, particularly those of consumer durables such as television sets (previously subject to a tariff rate of around 70 percent).48 Preliminary data for 1996 show a continued increase of around 2 percent in consumer imports.

91. The robust momentum of capital formation in the past few years has been reflected in a high level of capital goods imports: capital goods have accounted for around 17 percent of total imports in recent years, due to numerous investment projects undertaken by both the public and private sectors, including purchases of aircraft by the national airline in 1992-95, and purchases of gas turbines by the state-owned energy corporation in 1995. Imported capital goods account for some 70 percent of total machinery investment.

92. Over 70 percent of Malta’s total imports originate from the EU. Of the EU countries, Italy is the most important source, accounting for over one-quarter of total imports, followed by the United Kingdom and Germany. Asia is the second most important source of imports after the EU; the main markets in this region are Singapore, Japan, Hong Kong, and Korea, from which Malta imports mostly machinery, appliances, and transport equipment.

Services and transfers

93. A sizable part of the recent deterioration in Malta’s external current account may be traced to a decline in the invisibles balance. The surplus on the services account has fallen markedly in the last two years, from around 13 percent of GDP during 1990-94 to 9 percent in 1995-96. Net investment income has also been on a declining trend since 1991, as has net transfer income (Table A32).

94. Tourism, the most important item in the services account, recorded strong growth in 1990-94, with gross earnings increasing at an average of 10.5 percent per annum, to peak at Lm 324 million (33 percent of GDP) in 1993-94.49 However, the sector entered a downturn in 1995, as gross earnings fell by 3.8 percent in nominal terms, reflecting a contraction in the European outgoing market as well as an emerging shift in tourist preferences toward longer-haul destinations. Uncertainty associated with the initial phaseout of the forward buying rate scheme further contributed to the 13 percent drop in tourist arrivals from the important UK, market. The tourism sector showed no signs of improvement in 1996, with gross earnings from travel services dropping by a further 2 percent.50 On the debit side, higher disposable incomes, together with the recent increases in the overseas travel allowance, have led to an increase in Maltese tourist expenditure abroad in the past two years.

95. Net freight and insurance payments have become an increasing drain on the services surplus, growing by an average 12 percent per year in value terms during 1990-95. The continuing rise in these payments—currently equivalent to some 7.5 percent of GDP—is directly related to the growth of imports over this period.

96. Net investment income has declined steadily throughout the 1990s, from 7.5 percent of GDP in 1990 to 1 percent 1995-96. This reflects a relative decline in net income earned from foreign investments by the banking system and the central bank, as well as growing profits of foreign-owned firms operating in Malta.51

97. Net transfers include private remittances and pension payments, and official grants. This item averaged 3.5 percent of GDP in 1990-94, but fell to 1.6 percent of GDP in 1995 due mainly to a delay in the disbursement of some Lm 12 million (US$34 million) worth of official foreign grants under the Malta-Italy Financial Protocol. The funds were subsequently received in the second quarter of 1996; net transfers in the first nine months of 1996 have been estimated at around 2 percent of GDP.

B. The Capital Account

98. In contrast to the late 1980s, when the rapid accumulation of net foreign assets by banks made Malta a net capital exporter,52 the 1990s have seen the re-emergence of a small surplus on the capital account, reflecting large international loans taken out by public enterprises and parastatal corporations, and an expansion in nonresident deposits placed with Maltese offshore banks and on-lent into domestic markets (Chart 14, Table A33). In 1995, the surplus on the capital account financed only about one-sixth of the current account deficit, as substantial inflows of direct investment (mainly reinvested earnings) wore partially offset by government debt repayments and an increase in the commercial banks’ net external position. Preliminary indications for 1996 are that capital inflows—mostly short-term, in the form of repatriation of residents’ deposits abroad and a rundown in commercial banks’ external reserves—have financed a larger portion of the (still substantial) current account deficit.

CHART 14MALTA: CAPITAL ACCOUNT, 1989–96

(In percent of GDP)

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

99. Net direct foreign investment inflows have been positive and quite substantial during the 1990s. Capital flows in this category include reinvested earnings of foreign companies based in Malta, equity share capital from foreign companies establishing in Malta, and loans between Malta-based subsidiaries and their foreign parents. Between 1992 and 1994, direct foreign investment more than quadrupled from Lm 13 million (equivalent to 1.4 percent of GDP) to Lm 58 million (5.7 percent of GDP). Net direct foreign investment remained strong in 1995, at 3.8 percent of GDP, consisting mainly of reinvested earnings by the electronics sector and equity share capital from a foreign bank that established a branch in Malta.

100. Other long-term capital flows are classified into: (1) portfolio investment, which includes foreign borrowing by domestic private enterprises and public corporations such as Air Malta and the Freeport; and (2) official flows, which include foreign borrowing by the government and public enterprises. The portfolio investment component of long-term capital, historically less important due to restrictions and underdeveloped domestic money and capital markets, has seen a greater amount of activity in the past three years, notably, in 1994, when Freeport Terminal sold Lm 80 million (US$210 million) worth of guaranteed notes in the international market and Air Malta raised an international loan of Lm 15 million (US$40 million), and in 1995, when Air Malta borrowed a further Lm 10 million (US$28 million) overseas to finance its fleet expansion; on the debit side, capital outflows have also risen to reflect the higher level of loan repayments associated with the increased debt. Official long-term capital inflows have fallen off sharply since 1992; in 1995, a surge in the repayment of foreign loans by two large public corporations led to a net outflow being recorded in official long-term capital for the first time since 1988. Malta received its first international credit ratings in 1994: A2 from Moody’s and A from Standard & Poor’s, the latter subsequently upgraded to A+ in May 1996.

101. Short-term capital flows include: (1) private financial investment flows, such as changes in domestic residents’ deposits held abroad and net short-term portfolio investments abroad;53 and (2) other private investment flows, such as trade credits and debits between locally based companies and nonparent companies abroad, and progress payments. Both types of flows fluctuate considerably from year to year. Short-term private financial investments swung from a net inflow of Lm 28.6 million in 1994 (due in part to a public enterprise’s rundown of term deposits abroad) to net outflows of Lm 2.5 million in 1995 and Lm 6.9 million in the first nine months of 1996; net inflows have been recorded in other private investments since 1993.

102. Transactions involving the domestic banking sector are recorded as a separate item in the balance of payments, under changes in the net foreign assets (NFA) of banks and financial institutions. Changes in the NFA of banks and financial institutions have been affected by the liberalization of financial markets and the expansion of international banking activity.54 Net capital outflows of Lm 24.5 million were recorded from the banking sector in 1995; these outflows were reversed in the first nine months of 1996, when net capital inflows of Lm 28.4 million were recorded as commercial banks ran down their foreign assets in the face of strong domestic demand for foreign exchange.

C. Official Reserves and External Debt

103. After a significant buildup in the early 1990s, official reserves declined markedly in 1995. The drop in reserves, equivalent to about 10 percent of GDP, largely reversed the sharp jump recorded in 1994, when capital inflows were swollen by the Freeport Terminal’s international bond issue. By end-1995, official reserves stood at Lm 580 million (US$1.6 billion), equivalent to about 50 percent of GDP, or 5½ months of goods and services imports. The pace of the reserves rundown appears to have slowed in 1996; by September, official reserves stood at some Lm 550 million (US$1.5 billion), a decline of around 5.5 percent since end-1995.

104. The bulk of official reserves—over 90 percent in recent years—is held in the form of term deposits with foreign banks and securities denominated in convertible currencies; the remainder is held in the form of gold and precious metals, SDR holdings, and a reserve tranche position with the IMF.

105. External debt of the government, which averaged 5 percent of GDP between 1990-94, continued to remain at a low level in 1995-96. At the end of 1995, outstanding foreign loans by the government stood at Lm 53 million (US$147 million) or 4.6 percent of GDP. Debt service payments amounted to some 1.4 percent of exports of goods and services. The government’s external debt commitments are to foreign governments, development funds, and multilateral organizations; loans are earmarked to finance public capital investment projects. For the public sector as a whole, including parastatal corporations such as the Freeport and Air Malta, outstanding external debt was much higher: at end-1995, public sector external debt was on the order of Lm 253 million (US$0.7 billion) or 22 percent of GDP, with debt service payments of around 3.8 percent of exports of goods and services. Commercial banks in Malta have a significant net foreign asset position: for the banking sector as a whole (excluding the central bank), net foreign assets stood at just over Lm 200 million (US$560 million) in 1996.

D. Exchange Rate Management and Competitiveness

106. Since 1989, the Maltese lira has been pegged to a basket of three currencies: the ECU, the pound sterling, and the U.S. dollar. The weights attached to the three currencies are 67 percent (ECU), 21 percent (U.S. dollar) and 12 percent (pound sterling); these weights have remained unchanged since 1992. Commitment to the exchange rate anchor has served Malta well in terms of facilitating a high level of price stability over the longer term. In recent years, maintaining export competitiveness has also been an important consideration in exchange rate management. The 10 percent devaluation of the Maltese lira relative to the currency basket in November 1992—a move prompted by concern over the competitiveness of Malta’s exports in the wake of devaluations/depreciations in the currencies of the United Kingdom, Italy, Spain, and Portugal following the 1992 ERM crisis—resulted in a depreciation of some 8.5 percent in the real effective exchange rate index. Since then, however, rising inflation (in excess of that of key trading partners) has eroded this gain in competitiveness somewhat, as the real effective exchange rate appreciated gradually between 1993 and 1995, although it eased slightly in 1996 and remains some 5 percent below its pre-devaluation level55 (Chart 15, Table A34).

CHART 15MALTA: EFFECTIVE EXCHANGE RATE DEVELOPMENTS, 1985–96

Sources: International Monetary Fund, Information Notice System (INS); and staff estimates.

1/ Based on consumer price indices.

E. Developments in the Exchange and Trade System

Exchange controls

107. Some progress has been made in the liberalization of exchange controls since the last Article IV consultation. In November 1994, Malta accepted the obligations of Article VIII, Sections 2, 3, and 4, of the IMF’s Articles of Agreement. In accordance with this agreement, the settlement period under the bilateral payments arrangement with Libya was shortened56 and the forward-buying rate scheme for British and Irish tour operators was terminated as of the winter 1997 tourist season (Box 2, Chapter I).

108. During 1995 and 1996, a number of exchange control liberalization measures announced in the budget for 1995 came into effect. These included: (1) the raising of the limit on portfolio investments abroad by residents from Lm 2,500 to Lm 5,000 (in January 1995), and the extension of this allowance to resident nonfinancial companies as well; (2) the raising of the limit on foreign direct investment by individuals and nonfinancial companies from Lm 50,000 per year to Lm 150,000 per year (in January 1996);57 (3) foil liberalization of the transfer of dividends abroad (from 1995);58 (4) the amalgamation of the cash gift allowance (previously set at a maximum of Lm 250 per annum) and the family allowance (previously set at a maximum of Lm 2,000 per annum), with an annual limit of Lm 2,500 (in 1995); and (5) the lifting of the prohibition on life insurance contracts between Maltese residents and nonresident insurance companies, for annual premiums not exceeding Lm 5,000 (in 1996).

109. The remaining exchange controls continue to be administered by the central bank on behalf of the government.59 The government has indicated that there will be no changes in the system of capital controls during 1997.

Trade system

110. Up to the late 1980s, the Maltese economy had been heavily protected through a system of stiff quantitative import controls, with every imported item bang subject either to product-specific import licensing requirements, or the state import monopoly under the bulk buying scheme. Since then, the authorities have been moving gradually to a system primarily based on tariffs and import levies. Import licensing requirements have been abolished for most of the products originally covered by such controls, with the remaining licensing requirements applying mainly to certain imported goods that are in direct competition with locally produced goods (handmade silver, lace, and certain types of gold jewelry) and to other items (such as chemicals and ammunitions) for health, security, and environmental reasons. The government’s bulk buying scheme has also been eliminated; at present, only grains (barley, maize, and wheat), fresh fish, and certain petroleum products are undertaken solely by state-owned enterprises.

111. Export trade—particularly manufacturing exports and tourism—continues to be supported by the government through an extensive system of investment and training incentives, and a subsidy scheme in the case of tourism. As noted in Chapter I, the Tour Operator Support Scheme (TOSS) was introduced in 1995 following the decision to discontinue the Forward Buying Rate. The new scheme, funded by the budget and administered by the National Tourism Organization, operates as a system of discounts granted to British and Irish tour operators who bring in more than a certain number of visitors.

112. Concurrent with the introduction of the VAT at the beginning of 1995, customs duties were eliminated on imports from EU countries, while duties on non-EU imports were reduced and brought closer in line with the EU tariff structure. In order to mitigate the impact on domestic industry of the tariff reduction, import levies on most products that had originally been scheduled for elimination remained in effect, while additional protective levies were introduced for certain products that had previously been covered by tariffs. Also in 1995, quantitative restrictions on agricultural goods imports were dismantled and replaced with import levies.

113. In the White Paper on changes to the indirect tax system released in January 1997, it was proposed that customs duties be reimposed on EU products (at a rate of 15 percent, in lieu of the VAT) and raised on non-EU products as necessary to maintain the differential in favor of the EU stipulated in the Association Agreement with the EU.

STATISTICAL APPENDIX
Table A1.Malta: GDP in Constant Prices, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri; 1973 prices)
Total consumption301.4317.6324.1334.9369.0276.7300.1
Private229.4239.2241.0246.5274.0205.4224.6
Public72.078.483.188.495.071.375.5
Gross fixed capital formation82.882.691.898.3118.889.186.9
Construction34.636.038.741.755.941.642.8
Machinery48.246.653.156.663.047.544.1
Increase in stocks15.60.13.73.47.2−26.2−22.6
Total domestic demand399.8400.3419.6436.6495.0339.6364.4
Exports of goods and nonfactor services277.2304.0320.1342.9358.9263.0247.9
Imports of goods and nonfactor services267.7275.8292.0314.0346.3254.2250.0
Foreign balance9.528.228.128.912.68.8−2.1
GDP409.3428.5447.7465.5507.6348.4362.3
Net factor income from abroad21.718.014.87.96.18.19.4
GNP431.0446.5462.5473.4513.7356.5371.7
(Annual percentage change)
Total consumption5.55.42.03.310.210.78.5
Private3.84.30.82.311.211.69.3
Public10.98.96.06.47.58.05.9
Gross fixed capital formation0.0−0.211.17.120.926.4−2.5
Construction−1.74.07.57.834.132.12.9
Machinery1.3−3.313.96.611.321.8−7.2
Increase in stocks 1/0.8−3.80.8−0.10.8−1.11.0
Total domestic demand4.90.14.84.113.414.07.3
Exports of goods and nonfactor services7.59.75.37.14.72.7−5.7
Imports of goods and nonfactor services5.43.05.97.510.312.3−1.7
Foreign balance 1/1.54.60.00.2−3.5−6.4−3.1
GDP6.34.74.54.09.06.34.0
Source: Central Office of Statistics.

Change as percentage of previous year’s GDP.

Source: Central Office of Statistics.

Change as percentage of previous year’s GDP.

Table A2.Malta: GDP by Expenditure Components, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri; current prices)
Total consumption641.6695.9750.4817.8937.0702.6784.8
Private494.5531.5561.5608.3704.2527.8592.9
Public147.1164.3188.9209.5232.8174.8191.9
Gross fixed capital formation239.1240.9276.8302.6365.9274.9268.9
Construction64.567.373.682.8113.584.588.4
Machinery174.6173.5203.2219.8252.5190.4180.5
Increase in stocks15.60.13.73.87.2−26.2−22.6
Total domestic demand896.3936.91,030.91,124.21,310.1951.31,031.1
Exports of goods and nonfactor services701.9804.1896.3994.21,067.6782.1756.1
Imports of goods and nonfactor services791.2866.0987.21,098.91,233.9905.9902.8
Foreign balance−89.4−62.0−90.8−104.7−166.3−123.8−146.7
GDP806.9874.9940.01,019.51,143.8827.5884.4
Net factor income from abroad49.741.735.519.315.220.223.8
GNP856.5916.6975.51,038.81,159.0847.7908.2
(In percent of GDP; current prices)
Total consumption79.579.579.880.281.984.988.7
Private61.360.859.759.761.663.867.0
Public18.218.820.120.520.421.121.7
Gross fixed capital formation29.627.529.429.732.033.230.4
Construction8.07.77.88.19.910.210.0
Machinery21.619.821.621.622.123.020.4
Increase in stocks1.90.00.40.40.6−3.2−2.6
Total domestic demand111.1107.1109.7110.3114.5115.0116.6
Exports of goods and nonfactor services87.091.995.497.593.394.585.5
Imports of goods and nonfactor services98.199.0105.0107.8107.9109.5102.1
Foreign balance−11.1−7.1−9.7−10.3−14.5−15.0−16.6
GDP100.0100.0100.0100.0100.0100.0100.0
Net factor income from abroad6.24.83.81.91.3 #2.42.7
GNP106.2104.8103.8101.9101.3 #102.4102.7
Source: Central Office of Statistics.
Source: Central Office of Statistics.
Table A3.Malta: Gross Fixed Investment, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Total gross fixed investment239.1240.9276.8302.1366.0274.9268.9
By sector:
Private enterprises and households 1/160.9177.6216.1229.4293.4222.8205.7
Agriculture and fisheries2.22.23.02.2
Construction and quarrying7.46.86.48.4
Manufacturing, shipbuilding, and repairs44.438.151.357.6
Transport and communications59.869.878.972.3
Wholesale and retail trade4.24.76.37.4
Hotels6.712.512.412.8
Private services12.416.820.630.2
Other services23.926.737.138.5
Public enterprises 2/41.532.218.624.830.725.824.9
General Government 3/36.831.142.248.041.926.338.3
By type of asset:
Dwellings and other construction works64.567.373.681.9113.584.588.4
Total machinery and equipment174.7173.6203.2220.2252.4190.4180.5
Transport equipment49.758.378.264.4
Non-electrical machinery44.844.248.658.7
Electrical machinery and appliances34.235.139.545.2
Other machinery and equipment46.036.036.952.0
(In percent of total)
By sector:
Private enterprises and households 1/67.373.778.175.980.281.076.5
Agriculture and fisheries0.90.91.10.7
Construction and quarrying3.12.82.32.8
Manufacturing, shipbuilding, and repairs18.615.818.519.1
Transport and communications25.029.028.523.9
Wholesale and retail trade1.71.92.32.5
Hotels2.85.24.54.2
Private services5.27.07.410.0
Other services10.011.113.412.7
Public enterprises 2/17.313.46.78.28.49.49.3
General Government 3/15.412.915.215.911.49.614.2
By type of asset:
Dwellings and other construction works27.027.926.627.131.030.732.9
Total machinery and equipment73.172.173.472.969.069.367.1
Transport equipment20.824.228.221.3
Non-electrical machinery18.718.317.619.4
Electrical machinery and appliances14.314.614.315.0
Other machinery and equipment19.214.913317.2
Memorandum item:
Total gross fixed investment
(annual percentage change)2.80.714.99.221.125.5−2.2
Source: Central Office of Statistics.

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

Includes Enemalta, Telemalta, Posts, Public Lotto, Water Services Corporation, Malta Development Corporation, Malta Freeport Corporation, Malta Financial Services Center, Public Broadcasting Services, and Malta International Airport.

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

Source: Central Office of Statistics.

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

Includes Enemalta, Telemalta, Posts, Public Lotto, Water Services Corporation, Malta Development Corporation, Malta Freeport Corporation, Malta Financial Services Center, Public Broadcasting Services, and Malta International Airport.

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

Table A4.Malta: Savings and Investment, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Gross domestic savings 1/165.3179.1189.7201.7206.8124.999.6
Net factor income from abroad49.741.735.519.315.220.223.8
Net unrequited transfers from abroad37.329.923.335.617.69.717.2
Gross national savings 2/252.3250.7248.4256.6239.6154.8140.6
Public sector 3/64.148.837.417.5
Private sector188.3201.8211.1237.9
Households 3/98.4104.1112.3130.085.977.157.0
Corporations 4/90.097.798.7108.0
Foreign savings 5/2.4−9.632.149.7133.693.9105.7
Gross savings (national plus foreign)254.7241.0280.5306.3373.2248.7246.3
Gross domestic investment 6/254.7241.0280.5306.4373.1248.7246.3
(In percent of GDP)
Gross domestic savings 1/20.520.520.219.818.115.111.3
Net factor income from abroad6.24.83.81.91.32.42.7
Net unrequited transfers from abroad4.63.42.53.51.51.21.9
Gross national savings 2/31.328.626.425.221.018.715.9
Public sector 3/7.95.64.01.7
Private sector23.323.122.523.3
Households 3/12.211.911.912.77.59.36.4
Corporations 4/11.111.210.510.6
Foreign savings 5/0.3−1.13.44.911.711.312.0
Gross savings (national plus foreign)31.627.529.830.032.630.127.8
Gross domestic investment 6/31.627.529.830.132.630.127.8
Sources: Central Office of Statistics; and data provided by the Maltese authorities.

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 from the balance of payments, with opposite sign.

Gross fixed capital formation plus increase in stocks.

Sources: Central Office of Statistics; and data provided by the Maltese authorities.

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 from the balance of payments, with opposite sign.

Gross fixed capital formation plus increase in stocks.

Table A5.Malta: Household Disposable Income, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Wages and salaries332.2359.6396.5430.7484.5363.7391.8
Employers’ social security contributions21.724.031.633.038.226.429.2
Nonwage income 1/213.4236.9243.0261.5267.0205.0218.8
Net transfers from Government 2/82.991.498.5107.1116.985.294.9
Net transfers from abroad17.012.313.413.112.28.99.7
Less: income taxes on households83.094.4116.0121.9136.289.799.8
Disposable income584.2629.8667.0723.5782.6599.5644.6
Less: private consumption494.5531.5561.5608.3704.2527.8592.9
Household savings 3/89.798.3105.5115.278.471.751.7
(In percent of household disposable income)
Wages and salaries56.957.159.459.561.960.760.8
Employers’ social security contributions3.73.84.74.64.94.44.5
Nonwage income 1/36.537.636.436.134.134.233.9
Net transfers from Government 2/14.214.514.814.814.914.214.7
Net transfers from abroad2.92.02.01.81.61.51.5
Less: Income taxes on households14.215.017.416.817.415.015.5
Disposable income100.0100.0100.0100.0100.0100.0100.0
Private consumption84.684.484.284.190.088.092.0
Household savings 3/15.415.615.815.910.012.08.0
(Annual percentage change)
Wages and salaries11.28.210.38.612.513.47.7
Employers’ social security contributions6.910.631.74.415.89.510.6
Nonwage income 1/7.011.02.67.62.15.26.7
Net transfers from Government 2/4.310.37.88.79.29.011.4
Net transfers from abroad−1.2−27.68.9−2.2−6.9−12.79.0
Income taxes on households2.413.822.95.011.86.511.3
Disposable income9.47.85.98.58.210.27.5
Private consumption7.37.55.68.315.816.312.3
Household savings 3/22.59.57.39.3−32.0−20.4−27.9
Memorandum item:
Real disposable income 4/5.94.61.02.43.91.84.7
Sources: Central Office of Statistics; and Ministry for Economic Affairs and Finance, Economic Survey.

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

Includes social benefit payments.

Excludes depreciation.

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

Sources: Central Office of Statistics; and Ministry for Economic Affairs and Finance, Economic Survey.

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

Includes social benefit payments.

Excludes depreciation.

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

Table A6.Malta: Sectoral Distribution of GDP at Factor Cost, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri; current prices)
GDP at factor cost709.9769.6834.1910.1987.2729.5783.2
Agriculture and fisheries23.423.525.125.628.622.122.9
Industry272.9278.8290.6317.1335.0246.5255.6
Manufacturing, shipbuilding and repairs188.1191.8200.9215.3236.8174.4177.7
Construction and quarrying26.525.326.231.237.428.031.8
Public enterprises 1/58.261.863.470.660.844.146.1
Services413.5467.3518.4567.4623.6460.9504.7
Transport and communication41.852.259.467.467.748.756.0
Wholesale and retail trade101.4110.0115.7117.1129.095.594.7
Insurance, banking, and real estate49.757.159.661.373.852.066.8
Private services65.173.584.293.0101.776.282.1
Property51.457.564.480.589.466.972.9
Public administration104.2117.0135.0148.0162.0121.6132.2
(In percent of GDP at factor cost; current prices)
GDP at factor cost100.0100.0100.0100.0100.0100.0100.0
Agriculture and fisheries3.33.13.02.82.93.02.9
Industry38.436.234.834.833.933.832.6
Manufacturing, shipbuilding and repairs26.524.924.123.724.023.922.7
Construction and quarrying3.73.33.13.43.83.84.1
Public enterprises 1/8.28.07.67.86.26.05.9
Services58.360.762.262.363.263.264.4
Transport and communication5.96.87.17.46.96.77.2
Wholesale and retail trade14.314.313.912.913.113.112.1
Insurance, banking, and real estate7.07.47.26.77.57.18.5
Private services9.29.610.110.210.310.410.5
Property7.27.57.78.89.19.29.3
Public administration14.715.216.216.316.416.716.9
(Annual percentage change)
GDP at factor cost9.38.48.49.18.58.17.4
Agriculture and fisheries4.00.46.72.211.612.83.6
Industry8.32.24.29.15.64.63.7
Manufacturing, shipbuilding and repairs7.11.94.87.210.08.41.9
Construction and quarrying15.9−4.73.719.019.920.213.6
Public enterprises 1/9.06.02.711.3−13.9−14.24.5
Services10.213.010.99.49.99.89.5
Transport and communication12.724.813.813.30.5−4.915.0
Wholesale and retail trade8.18.55.21.210.111.8−0.8
Insurance, banking, and real estate17.415.04.42.820.317.928.5
Private services11.912.914.610.49.39.27.7
Property0.712.011.925.111.012.69.0
Public administration12.412.315.49.69.510.58.7
Source: Central Office of Statistics.

Includes Enemalta, Telemalta, Posts, Public Lotto, Water Services Corporation, Malta Development Corporation, Malta Freeport Corporation, Malta Financial Services Center, Public Broadcasting Services, and Malta International Airport.

Source: Central Office of Statistics.

Includes Enemalta, Telemalta, Posts, Public Lotto, Water Services Corporation, Malta Development Corporation, Malta Freeport Corporation, Malta Financial Services Center, Public Broadcasting Services, and Malta International Airport.

Table A7.Malta: Factor Incomes in GDP, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri; current prices)
Income from employment353.9383.5428.1464.8522.6390.1421.0
Income from farming, fishing, and private services 1/45.149.754.057.259.445.446.6
Gross trading profits 1/225.0242.9250.9265.6289.6209.2223.2
Gross trading surpluses of public enterprises 1/34.536.036.742.026.117.919.4
Income from property 1/51.457.564.480.589.466.972.9
GDP at factor cost709.9769.6834.1910.1987.1729.5783.1
Net factor income from abroad49.741.735.519.315.220.223.8
GNP at factor cost759.5811.3869.6929.51,002.3749.7806.9
Indirect taxes net of subsidies97.0105.1105.9109.0156.598.1101.2
GDP at market prices806.9874.8940.01,019.21,143.6827.6884.3
GNP at market prices856.5916.4975.51,038.51,158.8847.8908.1
(Annual percentage change)
Income from employment11.08.411.68.612.413.27.9
Income from farming, fishing, and private services 1/9.910.28.75.83.94.42.6
Gross trading profits 1/9.48.03.35.99.05.86.7
Gross trading surpluses of public enterprises 1/4.84.42.014.4−37.9−39.78.4
Income from property 1/0.712.011.925.111.012.69.0
GDP at factor cost9.38.48.49.18.58.17.3
Net factor income from abroad 2/−0.8−1.1−0.8−1.9−0.5−0.50.5
GNP at factor cost7.86.87.26.97.87.37.6
Indirect taxes net of subsidies 3/1.61.00.10.34.72.70.4
GDP at market prices9.88.47.58.412.210.06.9
GNP at market prices8.57.06.46.511.69.27.1
(In percent of GDP at factor cost)
Income from employment49.949.851.351.152.953.553.8
Income for farming, fishing, and private services 1/6.46.56.56.36.06.26.0
Gross trading profits 1/31.731.630.129.229.328.728.5
Gross trading surpluses of public enterprises 1/4.94.74.44.62.62.52.5
Income from property 1/7.27.57.78.89.19.29.3
GDP at factor cost100.0100.0100.0100.0100.0100.0100.0
Source: Central Office of Statistics; and data provided by the Maltese authorities.

Before allowing for depreciation.

Contribution to GNP (factor cost) growth.

Contribution to GDP (market price) growth.

Source: Central Office of Statistics; and data provided by the Maltese authorities.

Before allowing for depreciation.

Contribution to GNP (factor cost) growth.

Contribution to GDP (market price) growth.

Table A8.Malta: Tourism Indicators, 1991-96
Prov.
199119921993199419951996
(In thousands, unless otherwise specified)
Tourist arrivals 1/895.01,002.41,063.21,176.21,116.01,053.8
Cruise passengers40.352.367.562.877.269.2
Tourist-days stayed9,48411,85511,75511,9518,807
Average length of stay per tourist10.611.811.110.27.9
Full-time employment in hotels and catering establishments, end of period 2/8.28.28.69.310.0
(In percent of total employment)6.36.36.57.07.1
(In percent of total arrivals)
Tourist arrivals by nationality
United Kingdom51.252.449.045.141.337.9
Germany15.215.316.617.016.817.3
Italy7.27.68.18.48.78.5
Other26.424.726.429.533.136.4
(In percent of total tourist-days stayed)
Type of accomodation
Hotels46.342.241.642.441.8
Of which
4-star and 5-star20.819.220.022.124.2
Villages, complexes, and aparthotels23.523.626.225.526.3
Holiday furnished flats29.533.631.331.330.5
Guest houses and hostels0.80.51.00.91.0
(In millions of Maltese liri, unless otherwise specified)
Gross foreign exchange earnings 3/175.3180.5232.2241.9232.8228.9
(In millions of ECUs)438.1437.9518.4539.0504.2500.8
(In percent of exports of goods and nonfactor services)25.022.425.924.321.8
(In percent of GDP)21.720.624.723.720.4
Per tourist (in Maltese liri)195.9180.1218.4205.7208.6217.2
(Annual percentage change)
Tourist arrivals2.712.06.110.6−5.1−5.6
Cruise passengers−28.730.028.9−6.922.9−10.3
Gross foreign exchange earnings 2/
In Maltese liri11.43.028.64.2−3.8−1.7
In U.S. dollars9.54.57.05.42.9−3.7
Sources: Central Office of Statistics; and Ministry for Economic Affairs and Finance, Economic Survey.

Excludes cruise passengers.

Includes private and public sector tourism-related services.

Excluding foreign exchange revenue from transportation.

Sources: Central Office of Statistics; and Ministry for Economic Affairs and Finance, Economic Survey.

Excludes cruise passengers.

Includes private and public sector tourism-related services.

Excluding foreign exchange revenue from transportation.

Table A9.Malta: Population, Labor Force, and Employment, 1991-96
Nov.
199119921993199419951996
(In thousands of persons; end of period)
Total population359.5363.0366.4369.4372.0
Labor force 1/135.3137.2138.4139.5144.7146.5
Male100.0101.5102.1102.6105.5105.8
Female35.235.736.336.939.240.7
Gainfully occupied 2/130.3131.6132.3133.9139.5140.4
Male96.097.096.897.7101.1100.8
Female34.334.635.436.238.439.6
Registered unemployed4.95.56.25.65.26.1
Male4.04.55.34.84.45.0
Female0.91.10.90.80.81.1
Self-employed17.216.816.316.016.315.8
Male14.514.213.813.513.813.3
Female2.72.62.52.52.62.5
(In percent)
Labor force / Population37.637.837.837.838.9
Females / Labor force26.026.026.326.527.127.8
Unemployed / Labor force3.64.04.54.03.64.1
(Annual percentage change)
Total population1.01.00.90.80.7
Labor force2.21.40.90.83.81.1
Gainfully occupied2.51.00.51.24.20.5
(In thousands of persons, unless otherwise specified; period average)
Memorandum items
Labor force 1/136.2138.3139.4143.1146.0
Gainfully occupied 2/131.0132.5133.6138.2140.7
Registered unemployed4.65.25.85.85.05.3
Unemployed / Labor force
(in percent)3.84.24.23.53.6
Source: Central Office of Statistics.

Includes members of the armed forces.

Includes temporary employment.

Source: Central Office of Statistics.

Includes members of the armed forces.

Includes temporary employment.

Table A10.Malta: Employment by Sector, 1991-96
Nov.
199119921993199419951996
(In thousands of persons, end of period)
Gainfully occupied130.3131.6132.3133.9139.5140.4
Private sector74.775.476.878.786.386.6
Direct production38.437.937.738.039.736.3
Agriculture and fisheries3.23.23.13.13.23.2
Construction and quarrying5.55.45.35.36.33.3
Manufacturing29.729.329.329.630.229.8
Market services36.437.539.140.746.647.3
Transport and communications5.75.85.85.96.56.4
Wholesale and retail trade13.613.814.114.415.615.9
Hotels and catering8.28.28.68.99.69.5
Other services8.99.710.611.614.915.6
Public sector48.651.250.851.049.149.4
General government 1/29.732.132.332.532.332.6
Public enterprises 1/9.09.39.19.29.49.3
Cos. with govt./MDC majority shareholding9.99.89.49.47.47.5
Temporary employment 3/7.04.94.64.24.14.4
(In percent of labor force)
Gainfully occupied96.496.095.596.096.495.9
Private sector55.355.055.556.459.659.1
Direct production28.427.627.227.227.524.8
Agriculture and fisheries2.42.32.22.22.22.2
Construction and quarrying4.13.93.83.84.32.2
Manufacturing22.021.421.221.220.920.3
Market services26.927.328.329.232.232.3
Transport and communications4.24.24.24.24.54.4
Wholesale and retail trade10.110.110.210.310.810.9
Hotels and catering6.16.06.26.46.66.5
Other services6.57.17.78.310.310.6
Public sector35.937.336.736.633.933.7
General government 1/21.923.423.323.322.322.3
Public enterprises 2/6.66.86.66.66.56.4
Cos. with govt./MDC majority shareholding7.47.26.86.75.15.1
Temporary employment 3/5.23.63.33.02.83.0
(In percent of gainfully occupied)
Private sector57.357.358.158.861.961.7
Public sector37.338.938.438.135.235.2
Temporary employment 3/5.43.73.53.12.93.1
Source: Central Office of Statistics.

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

Includes Telemalta, Enemalta, Maltese Development Corporation (MDC), Broadcasting Authority, Central Bank of Malta, National Tourism Organization, Malta Drydocks, Malta Freeport Corporation, Housing Authority, University of Malta, Malta Financial Services Center, Employment and Training Corporation, Malta Maritime Authority, and Public Transport Authority.

Includes persons whose contract leads to permanent employment.

Source: Central Office of Statistics.

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

Includes Telemalta, Enemalta, Maltese Development Corporation (MDC), Broadcasting Authority, Central Bank of Malta, National Tourism Organization, Malta Drydocks, Malta Freeport Corporation, Housing Authority, University of Malta, Malta Financial Services Center, Employment and Training Corporation, Malta Maritime Authority, and Public Transport Authority.

Includes persons whose contract leads to permanent employment.

Table A11.Malta: Wages, 1991-96
Provisional
199119921993199419951996
(In Maltese liri)
National minimum wage (per week)34.135.636.638.140.442.4
Average weekly wage 1/46.949.051.353.655.357.7
Unskilled laborers39.641.142.745.246.848.0
Skilled laborers48.250.553.155.457.058.5
Clerks and supervisors51.454.057.058.860.766.0
Managers 2/75.177.980.983.985.489.2
Weighted average weekly wage
(inclusive of cost of living adjustment)52.756.359.663.968.873.2
(Annual percentage change)
National minimum wage (per week)3.84.42.84.15.95.0
Average weekly wage 1/9.84.54.74.53.243
Unskilled laborers7.63.83.95.93.52.6
Skilled laborers10.64.85.14.32.92.6
Clerks and supervisors12.25.15.63.23.28.7
Managers 2/8.73.73.93.71.84.4
Weighted average weekly wage
(inclusive of cost of living adjustment)12.76.85.97.27.86.4
Source: Central Bank of Malta, Annual Report.

Central Bank estimates based on data from collective agreements provided by the Department of Labor, and on the Schedule of Pay Scales published by the Ministry of Finance. Excludes overtime pay, production bonuses, social security benefits, and allowances.

Refers to middle management and professionals; the wages of the top managerial grades are not covered by collective agreements.

Source: Central Bank of Malta, Annual Report.

Central Bank estimates based on data from collective agreements provided by the Department of Labor, and on the Schedule of Pay Scales published by the Ministry of Finance. Excludes overtime pay, production bonuses, social security benefits, and allowances.

Refers to middle management and professionals; the wages of the top managerial grades are not covered by collective agreements.

Table A12.Malta: Retail Price Index, 1991-96 1/
WeightsWeights
(1991=100)(1995=100)199119921993199419951996
(Annual percentage change)
All items100.0100.02.51.64.14.24.02.4
Food36.829.92.00.05.23.63.3
Beverages and tobacco8.67.314.11.23.04.78.7
Clothing and footwear8.210.10.03.63.00.41.2
Housing3.95.30.00.31.81.89.6
Fuel and power2.82.50.00.00.20.10.1
Durable household goods5.29.32.31.33.95.36.4
Transport and communications13.416.04.32.03.95.10.8
Personal care and health6.46.50.11.53.95.05.2
Education and entertainment8.38.30.12.45.57.24.9
Other goods and services6.44.70.10.93.47.45.3
Memorandum item:
GDP deflator 2/3.33.62.84.32.92.8
Source: Central Office of Statistics.

Prior to 1992, the retail price index was based on weights derived from the 1980/81 Household Budgetary Survey, with 1983 as the base year; from 1992-95, the retail price index was based on weights derived from the 1988/89 Household Budgetary Survey, with 1991 as the base year; for 1996, the retail price index was based on weights derived from the 1993/94 Household Budgetary Survey, with 1995 as the base year. Hence, the inflation rates in 1992 and 1996 are not directly comparable with those in other years.

The 1996 figure is the percentage change in the GDP deflator based on 1996 January-September data relative to the GDP deflator based on 1995 January-September data.

Source: Central Office of Statistics.

Prior to 1992, the retail price index was based on weights derived from the 1980/81 Household Budgetary Survey, with 1983 as the base year; from 1992-95, the retail price index was based on weights derived from the 1988/89 Household Budgetary Survey, with 1991 as the base year; for 1996, the retail price index was based on weights derived from the 1993/94 Household Budgetary Survey, with 1995 as the base year. Hence, the inflation rates in 1992 and 1996 are not directly comparable with those in other years.

The 1996 figure is the percentage change in the GDP deflator based on 1996 January-September data relative to the GDP deflator based on 1995 January-September data.

Table A13.Malta: Government Budget Accounts, 1992-1997 1/ 2/
Est.Budget
199219931994199519961997
(In millions of Maltese liri)
Total revenue3/324.0351.6377.0424.9424.6460.7
Tax revenue236.8263.5273.9342.7338.1386.8
Direct taxes127.1151.0156.8178.3177.5196.8
Indirect taxes109.7112.5117.1164.4160.6189.9
Non-tax revenue87.288.1103.182.286.573.9
Total expenditure and net lending351.2381.1429.2470.2529.3558.4
Current expenditure299.5332.2371.3408.8455.9473.1
Capital expenditure42.948.652.159.368.680.6
Net lending8.80.45.92.14.84.7
Repayment6.310.84.49.00.20.3
Loans15.111.110.311.15.05.0
Balance−27.2−29.5−52.2−45.3−104.7−97.7
Financing27.229.552.245.3104.797.7
Domestic financing30.228.430.341.5104.793.4
Foreign loans, net−4.0−0.58.2−11.90.02.61
Disbursements0.92.911.30.7
Repayments4.93.43.112.6
Asset sales1.01.613.615.70.01.7
(In percent of GDP)
Total revenue37.037.437.037.234.835.4
Tax revenue27.128.026.930.027.729.7
Direct taxes14.516.115.415.614.515.1
Indirect taxes12.512.011.514.413.214.6
Non-tax revenue10.09.410.17.27.15.7
Total expenditure and net lending40.140.542.141.143.442.9
Current expenditure34.235.336.435.737.436.3
Capital expenditure4.95.25.15.25.66.2
Net lending1.00.00.60.20.40.4
Repayment0.71.10.40.80.00.0
Loans1.71.21.01.00.40.4
Balance−3.1−3.1−5.1−4.0−8.6−7.5
Financing3.13.15.14.08.67.5
Domestic financing3.53.03.03.68.67.2
Foreign loans, net−0.5−0.10.8−1.00.00.2
Disbursements0.10.31.10.1
Repayments0.60.40.31.1
Asset sales0.10.21.31.40.00.1
(In millions of Maltese liri)
Memorandum items:
GDP at current market prices874.9940.01,019.51,143.71,220.01,302.5
Balance (authorities’ presentation) 2/−30.2−31.7−43.8−35.5−112.1−90.7
Sinking Fund contributions4.03.85.25.47.28.1
Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Consolidated with the Social Security Account.

The authorities classify contributions to the Sinking Fund for the repayment of long term debt as expenditure and asset sales as revenue; in the staff presentation, these transactions are treated as a financing item.

Excludes asset sales, which in the authorities’ presentation are classified as miscellaneous nontax revenue.

Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Consolidated with the Social Security Account.

The authorities classify contributions to the Sinking Fund for the repayment of long term debt as expenditure and asset sales as revenue; in the staff presentation, these transactions are treated as a financing item.

Excludes asset sales, which in the authorities’ presentation are classified as miscellaneous nontax revenue.

Table A14.Malta: Current Budgetary Revenue, 1992-1997 1/
Est.Budget
199219931994199519961997
(In millions of Maltese liri)
Total revenue324.0351.6377.0424.9424.6460.7
Tax receipts236.8263.5273.9342.7338.1386.8
Direct taxes127.1151.0156.8178.3177.5196.8
Income taxes71.385.187.999.893.0106.2
Individuals42.553.258.268.3
Corporations28.831.929.731.5
Social security contributions 2/53.764.467.977.784.090.1
Death and donation duties2.11.51.00.80.50.5
Indirect taxes109.7112.5117.1164.4160.6189.9
Excise taxes9.07.78.823.622.333.2
Import duties73.375.863.29.09.79.1
VAT78.179.090.0
Licenses, taxes, and levies27.429.045.153.749.657.7
Non-tax receipts87.288.1103.182.286.573.9
Foreign grants16.48.412.94.520.710.5
Fees & reimbursements6.87.79.910.110.811.5
Rents, dividends, interest23.326.326.523.117.317.6
Central Bank profits21.424.230.024.523.120.0
Lotteries4.65.66.26.56.56.8
Civil aviation and posts 3/9.99.211.28.25.96.7
Miscellaneous4.86.76.45.32.10.9
(In percent of tax revenue)
Direct taxes53.757.357.252.052.550.9
Income taxes30.132.332.129.127.527.5
Individuals17.920.221.219.9
Corporations12.212.110.89.2
Social security contributions 2/22.724.424.822.724.823.3
Death and donation duties0.90.60.40.20.10.1
Indirect taxes46.342.742.848.047.549.1
Excise taxes3.82.93.26.96.68.6
Import duties31.028.823.12.62.92.3
VAT22.823.423.3
Licenses, taxes, and levies11.611.016.515.714.714.9
(Annual percentage change)
Total revenue7.88.57.2−4.5−0.18.5
Tax receipts11.411.34.025.1−1.314.4
Direct taxes13.718.83.813.7−0.410.9
Income taxes15.719.43.213.6−6.814.2
Social security contributions 2/11.919.95.414.48.17.3
Death and donation duties−4.5−28.6−30.7−18.9−40.70.0
Indirect taxes8.92.64.140.4−2.318.3
Excise taxes0.0−14.414.5167.60.00.0
Import duties9.63.4−16.6−85.70.00.0
VAT1.113.9
Licenses, taxes, and levies10.55.855.519.1−7.716.4
Non-tax receipts−1.01.117.0−28.95.2−14.6
Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report; and staff estimates.

Excludes asset sales, which in the authorities’ presentation are classified as miscellaneous nontax revenue.

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

Excludes posts from 1996 (taken over by Posta Ltd.).

Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report; and staff estimates.

Excludes asset sales, which in the authorities’ presentation are classified as miscellaneous nontax revenue.

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

Excludes posts from 1996 (taken over by Posta Ltd.).

Table A15.Malta: Current Budgetary Expenditure, 1992-1997
Est.Budget
199219931994199519961997
(In millions of Maltese liri)
Total current expenditure299.5332.2371.3408.8455.9473.1
Functional classification
Education41.247.950.656.057.657.9
Health services and administration38.143.546.449.250.555.9
Pensions 1/12.313.413.814.918.519.5
Police and armed forces15.918.320.421.723.423.9
Finance, Treasury, Inland Revenue, Customs and Audit10.813.314.721.8
Public works15.016.817.717.815.721.2
Water7.49.011.011.814.614.6
Agriculture5.05.65.95.86.66.5
Postal services and transport4.35.15.65.7
Labor, culture, and welfare9.68.89.78.9
Other administrative, economic and social services30.232.043.552.5
Social security benefits 2/97.7105.8115.5123.9140.0152.2
Interest payments11.713.616.518.822.427.6
Economic classification
Personnel expenditure 3/112.7124.5136.9145.3158.0157.5
Social services and subsidies 4/148.1162.8175.7188.0215.4222.5
Interest payments10.713.216.518.822.427.6
Other 5/28.031.742.156.760.065.4
(In percent of total current expenditure, selected items)
Education13.814.413.613.712.612.2
Health services and administration12.713.112.512.011.111.8
Social security benefits 2/32.631.931.130.330.732.2
Interest payments3.94.14.44.64.95.8
Personnel expenditure 3/37.637.536.935.534.733.3
(Annual percentage change, selected items)
Education23.016.35.610.72.80.7
Health services and administration24.914.26.76.02.610.8
Social security benefits 2/9.38.39.27.313.08.7
Interest payments25.416.121.814.119.123.1
Personnel expenditure 3/22.610.510.06.18.7−0.3
Total current expenditure9.410.911.810.111.53.8
Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report, and staff estimates.

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

Excludes National Health Scheme which is covered under health outlays; includes retirement pensions, children’s allowances, bonuses, and other benefits. Also includes non-contributory benefits payable under the Social Security Act of 1987.

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.

Sources: Ministry of Finance, Budget Estimates; Treasury, Malta Financial Report, and staff estimates.

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

Excludes National Health Scheme which is covered under health outlays; includes retirement pensions, children’s allowances, bonuses, and other benefits. Also includes non-contributory benefits payable under the Social Security Act of 1987.

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.

Table A16.Malta: Budgetary Capital Expenditure and Lending, 1992-1997
Est.Budget
199219931994199519961997
(In millions of Maltese liri)
Infrastructure41.141.342.845.9
Ship repair and ship building 1/14.413.515.719.8
Telecommunications0.00.00.00.0
Development of industries 2/8.69.19.97.5
Agriculture and fisheries1.00.90.70.3
Airport development0.41.01.51.3
Water0.00.00.00.0
Roads6.55.74.33.3
Sewers1.72.21.93.9
Port development6.06.05.56.0
Tourism2.22.63.13.7
Electricity0.30.30.20.1
Extraordinary capital expenditure0.00.00.00.0
Social16.918.419.524.5
Health1.03.24.03.7
Housing 3/4.02.82.32.4
Education1.32.63.73.4
Culture, environment, and sports2.42.02.52.1
Care of the elderly10.813.314.721.8
Public buildings, plant and equipment7.57.56.112.7
Other0.00.00.00.0
Extraordinary capital expenditure0.00.00.00.0
Total capital expenditure and lending58.059.762.370.373.685.6
(Annual percentage change)
Total capital expenditure and lending2.94.412.84.716.2
Infrastructure0.53.67.2
Social8.96.025.6
Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Largely transfers to the drydocks and shipyard to cover operating losses; the capital components of these transfers is small.

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

Includes rent subsidies and cash grants.

Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Largely transfers to the drydocks and shipyard to cover operating losses; the capital components of these transfers is small.

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

Includes rent subsidies and cash grants.

Table A17.Malta: Social Security, 1992-1995
1992199319941995
(In millions of Maltese liri)
Receipts80.597.0101.8115.5
Contributions by employees, private employers, and self-employed persons45.853.556.866.0
Contributions by Government as employer8.210.911.111.7
Ordinary contributions by Government26.532.633.937.8
Payments133.9145.8163.3175.9
Benefits and expenses98.0105.8115.5123.9
Retirement pensions36.539.843.448.3
Pensioners’ bonus4.76.18.18.3
Children’s allowance14.514.515.615.5
Other benefits22.623.725.327.8
Noncontributory schemes 1/19.721.823.124.0
Health services and administration35.939.947.952.0
Hospitalization and community care28.032.339.641.8
Care of the elderly6.36.16.78.5
Administrative expenses1.71.61.61.7
Overall balance−53.5−48.8−61.6−60.4
(In percent of GDP)
Receipts9.210.310.09.5
Contributions by employees, private employers, and self-employed persons5.25.75.65.8
Contributions by Government as employer0.91.21.11.0
Ordinary contributions by Government3.03.53.33.1
Payments15.315.516.014.4
Benefits and expenses11.211.311.310.2
Retirement pensions4.24.24.34.0
Pensioners’ bonus0.50.60.80.7
Children’s allowance1.71.51.51.3
Other benefits2.62.52.52.3
Noncontributory schemes 1/2.32.32.32.0
Health services and administration4.14.24.74.3
Hospitalization and community care3.23.43.93.4
Care of the elderly0.70.70.70.7
Administrative expenses0.20.20.20.1
Overall balance−6.1−5.2−6.0−5.0
Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Includes amounts borrowed directly by the Government and re-loaned to public enterprises and other organizations.

Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Includes amounts borrowed directly by the Government and re-loaned to public enterprises and other organizations.

Table A18.Malta: Government Debt, 1992-1996
Est.
19921993199419951996
(In millions of Maltese liri; end of period)
Domestic197.8254.6283.3361.0465.1
Local stocks & debentures167.7224.6253.3286.0356.2
Treasury bills30.030.030.075.0108.9
Other0.10.10.10.10.0
External1/46.553.256.052.449.0
China1.21.30.20.0
Federal Republic of Germany4.44.54.23.9
United Kingdom0.00.00.00.0
United States1.31.51.41.3
Saudi Arabia7.17.56.04.9
France0.20.10.10.0
Italy17.019.624.723.6
Canada0.20.20.20.2
European Union14.316.416.38.2
Council of Europe0.01.52.52.4
Abu Dhabi and Kuwait Funds0.90.70.40.2
Japan (Sumitomo Bank)0.00.00.07.5
Total government debt244.3307.9339.3413.4514.1
(In percent of GDP)
Total government debt27.932.833.333.942.1
Domestic22.627.127.829.638.1
External5.35.75.54.34.0
Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Includes amounts borrowed directly by the Government and re-loaned to public enterprises and other organizations.

Sources: Ministry of Finance, Budget Estimates; and Treasury, Malta Financial Report.

Includes amounts borrowed directly by the Government and re-loaned to public enterprises and other organizations.

Table A19.Malta: Monetary Base, 1991-96
Est.
199119921993199419951996
(In millions of Maltese liri; end of period)
Sources
Net foreign assets410.4475.0533.4617.6508.7492.8
Net credit to General Government58.056.615.637.547.571.3
Other−51.9−89.1−105.5−177.5−43.2−49.9
Monetary base 1/416.5442.6443.6477.6513.0514.2
Uses
Currency in circulation344.3337.6353.3365.9351.8362.2
Bank reserves52.978.567.273.080.091.7
Required reserves 2/40.847.257.268.578.390.0
Free reserves 1/12.131.310.04.51.71.7
Other19.326.523.138.781.260.3
(In percent of monetary base; end of period)
Sources
Net foreign assets98.5107.3120.2129.399.295.8
Net credit to General Government13.912.83.57.99.313.9
Other−12.5−20.1−23.8−37.2−8.4−9.7
Uses
Currency in circulation82.776.379.676.668.670.4
Bank reserves12.717.715.115.315.617.8
Required reserves 2/9.810.712.914.315.317.5
Free reserves 1/2.97.12.20.90.30.3
Other4.66.05.28.115.811.7
(Percentage change)
Sources
Net foreign assets−3.915.712.315.8−17.6−3.1
Net credit to General Government361.3−2.4−72.4139.726.850.0
Monetary base 1/6.86.30.27.77.40.2
Uses
Currency in circulation4.2−1.94.63.6−3.93.0
Bank reserves15.548.5−14.48.79.614.6
Required reserves 2/12.715.721.219.814.314.9
Free reserves 1/26.2159.4−68.1−54.6−61.9−1.5
Other2.4−11.110.467.0109.9−25.7
Memorandum Items:
Multiplier, narrow money0.980.920.960.970.850.88
Multiplier, broad money2.722.803.083.293.303.55
Sources: Central Bank of Malta, Quarterly Review; International Monetary Fund, International Financial Statistics; data provided by the Maltese authorities; and staff estimates.

The stock of term deposits outstanding at end-1994, that is Lm 106.6 million, has been subtracted from base money, other items net and banks’ free reserves.

Banks are required to maintain reserve deposits with the Central Bank equal to five percent of deposit liabilities.

Sources: Central Bank of Malta, Quarterly Review; International Monetary Fund, International Financial Statistics; data provided by the Maltese authorities; and staff estimates.

The stock of term deposits outstanding at end-1994, that is Lm 106.6 million, has been subtracted from base money, other items net and banks’ free reserves.

Banks are required to maintain reserve deposits with the Central Bank equal to five percent of deposit liabilities.

Table A20.Malta: Deposit Money Banks’ Assets and Liabilities, 1991-96
Est.
1,991.01,992.01,993.01,994.01,995.01,996.0
(In millions of Maltese liri; end of period)
Assets963.71,142.91,337.71,576.41,880.72,142.1
Cash & deposits at the CBM62.893.883.3194.5100.696.8
Foreign Assets246.5330.1378.6417.4557.4583.4
Local Lending & bills discounted480.5539.4627.6707.4938.41,079.6
Local Investments147.1147.0212.8210.5234.4301.3
Fixed and other assets26.832.535.546.550.081.1
Liabilities963.71,142.91,337.71,576.41,880.72,142.1
Deposits777.9886.51,002.61,179.71,330.41,496.5
Demand53.357.959.672.479.287.2
Savings308.7365.0415.8462.8510.5540.5
Time416.0463.7527.2644.5740.6868.8
Foreign Liabilities92.162.0105.095.3193.4229.6
Capital and Reserves93.6194.3230.1301.4356.9415.9
(In percent of total assets)
Assets100.0100.0100.0100.0100.0100.0
Cash & deposits at the CBM6.58.26.212.35.44.5
Foreign Assets25.628.928.326.529.627.2
Local Lending & bills discounted49.947.246.944.949.950.4
Local Investments15.312.915.913.412.514.1
Fixed and other assets2.82.82.73.02.73.8
(In percent of total liabilities)
Liabilities100.0100.0100.0100.0100.0100.0
Deposits80.777.675.074.870.769.9
Demand5.55.14.54.64.24.1
Savings32.031.931.129.427.125.2
Time43.240.639.440.939.440.6
Foreign Liabilities9.65.47.96.010.310.7
Capital and Reserves9.717.017.219.119.019.4
(Percentage change)
Total Assets18.617.017.819.313.9
Foreign Assets33.914.710.333.54.7
Local Lending & bills discounted12.316.412.732.715.0
Local Investments0.044.7−1.111.328.6
Deposits14.013.117.712.812.5
Foreign Liabilities−32.769.3−9.3103.018.7
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 A21.Malta: Deposit Money Banks’ Loans and Advances by Sector, 1993-96
Est.
1993199419951996
(In millions of Maltese liri; end of period)
Energy and Water30.432.680.886.9
Transport, storage & communication22.924.655.060.6
All banking institutions108.9119.065.612.7
Agriculture and Fisheries5.67.18.611.1
Manufacturing, Shipbuilding and repair149.0161.4188.8202.5
o.w. Shipbuilding and repair0.00.063.564.1
Building and Construction28.143.365.573.7
Hotel, restaurants & tourist trades30.338.179.2102.1
Wholesale & retail trades113.8137.5181.8208.0
Personal58.464.191.3109.7
House purchases16.135.546.4
Consumer durables3.59.023.0
Other38.819.521.8
Other services16.622.336.748.9
Other62.856.182.497.2
Total Local Lending626.7705.9935.71077.5
Total Foreign Lending5.96.313.5
Total632.6712.2949.2
(In percent of total local lending)
Energy and Water4.84.68.68.1
Transport, storage & communication3.63.55.95.6
All banking institutions17.416.97.01.2
Agriculture and Fisheries0.91.00.91.0
Manufacturing, Shipbuilding and repair23.822.920.218.8
o.w. Shipbuilding and repair0.00.06.86.0
Building and Construction4.56.17.06.8
Hotel, restaurants & tourist trades4.85.48.59.5
Wholesale & retail trades18.219.519.419.3
Personal9.39.19.810.2
House purchases2.65.05.0
Consumer durables0.61.32.5
Other6.22.82.3
Other services2.73.23.94.5
Other10.07.98.89.0
(Percentage change)
Energy and Water7.4147.97.5
Transport, storage & communication7.5123.710.2
All banking institutions9.2−44.9−80.7
Agriculture and Fisheries26.621.430.2
Manufacturing, Shipbuilding and repair8.317.07.2
o.w. Shipbuilding and repair0.9
Building and Construction54.351.212.5
Hotel, restaurants & tourist trades25.7108.128.9
Wholesale & retail trades20.832.314.4
Personal9.742.520.3
House purchases121.330.7
Consumer durables153.7156.1
Other−49.611.7
Other services34.464.233.4
Other−10.747.017.9
Total Local Lending12.632.615.2
Total Foreign Lending7.1113.5
Total12.633.3
Sources: Central Bank of Malta, Quarterly Review; data provided by the Maltese authorities; and staff estimates.
Sources: Central Bank of Malta, Quarterly Review; data provided by the Maltese authorities; and staff estimates.
Table A22.Malta: The Financial Position of the Governemnt vis-a-vis the Financial System, 1991-96
Est.
199119921993199419951996
(In millions of Maltese liri; end of period)
Deposits with:
Central Bank0.15.72.41.720.25.6
Commercial banks1.82.02.72.26.77.4
Special government deposits account16.711.518.720.710.80.0
Credit from:
Central Bank58.262.318.139.267.776.9
Treasury bills 1/20.620.50.02.624.725.4
LDRs37.641.818.136.643.051.5
Ways and means0.00.00.00.00.00.0
Commercial banks79.578.2142.7135.9149.8182.4
Treasury bills 1/9.07.229.226.630.246.1
LDRs70.571.0113.5109.3119.6136.3
Net liabilities119.5121.5137.0150.5179.8246.3
Sources: Central Bank of Malta, Quarterly Review; and data provided by the Maltese authorities.

In January 1995, the total amount of Treasury bills outstanding was raised from Lm 30 million to Lm 100 million and in November 1996 to Lm200 million.

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

In January 1995, the total amount of Treasury bills outstanding was raised from Lm 30 million to Lm 100 million and in November 1996 to Lm200 million.

Table A23.Malta: Deposit Money Banks’ Income and Expenditure, 1991-95
19911992199319941995
(In millions of Maltese liri)
Gross operating income70.778.992.194.5120.8
Income from domestic sources44.550.855.468.385.6
Loans and overdrafts31.035.437.745.059.6
Public securities and Treasury bills6.16.88.410.59.3
Balances with the Central Bank2.53.03.95.14.5
Exchange and commissions4.04.05.99.5
Other1.61.41.82.7
Income from foreign sources26.228.136.626.235.2
Loans and overdrafts0.30.60.40.50.7
Deposits and balances with banks abroad9.99.18.14.24.6
Money at call0.00.00.30.11.6
Foreign securities9.113.311.315.023.4
Exchange and capital gains/losses3.85.112.96.44.9
Operating expenses56.663.673.382.3102.4
Interest payments on deposits38.542.646.954.567.4
Demand deposits0.20.10.4
Savings deposits14.416.318.8
Time deposits32.338.148.1
Other0.02.00.00.00.1
Wages and salaries11.913.615.816.918.8
Provisions1.2−0.11.20.83.6
Other5.07.59.410.112.6
Income before tax14.115.318.812.218.4
(In percent of gross operating income)
Gross operating income100.0100.0100.0100.0100.0
Income from domestic sources62.964.460.272.370.9
Loans and overdrafts43.844.940.947.649.3
Public securities and Treasury bills8.68.69.111.17.7
Balances with the Central Bank3.53.84.25.43.7
Exchange and commissions5.14.36.27.9
Other2.01.51.92.2
Income from foreign sources37.135.639.727.729.1
Loans and overdrafts0.40.80.40.50.6
Deposits and balances with banks abroad14.011.58.84.43.8
Money at call0.00.00.30.11.3
Foreign securities12.916.912.315.919.4
Exchange and capital gains/losses5.46.514.06.84.1
Operating expenses80.180.679.687.184.8
Interest payments on deposits54.554.050.957.755.8
Wages and salaries16.817.217.217.915.6
Provisions1.7−0.11.30.83.0
Other7.19.510.210.710.4
Income before tax19.919.420.412.915.2
(Annual percentage change)
Gross operating income13.711.616.72.627.8
Income from domestic sources6.214.29.123.325.3
Income from foreign sources29.17.330.2−28.434.4
Operating expenses8.212.415.312.324.4
Income before tax42.48.522.9−35.150.8
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 A24.Malta: Selected Monetary Indicators, 1991-96
Est.
199119921993199419951996
(In percent of broad money; end of period) 1/
Composition of money supply
Narrow money35.933.031.129.525.824.9
Currency30.427.325.823.320.819.8
(in percent of narrow money)84.782.683.178.980.579.7
(in percent of quasi money)47.440.737.533.128.026.4
Demand deposits5.55.75.36.25.05.0
Quasi-money64.167.068.970.574.275.1
Savings deposits27.429.630.429.430.228.4
Time deposits36.737.438.541.044.046.7
Of which:
Resident foreign currency deposits7.07.97.87.89.28.9
(In percent)
Contribution to broad money growth
Net foreign assets13.577.536.169.0−53.3−47.0
Monetary authorities−18.549.544.869.2−90.6−29.7
Financial system32.028.1−8.7−0.337.3−17.3
Domestic credit129.759.876.953.7212.6167.0
Claims on general government31.11.912.36.524.249.4
Claims on private and parastatal sectors98.657.864.647.1188.5117.5
Claims on private sector43.636.0148.683.1
Velocity
GDP/currency2.342.592.662.793.253.37
GDP/narrow money1.982.142.212.202.622.69
GDP/quasi-money1.111.051.000.920.910.89
GDP/broad money0.710.710.690.650.680.67
Memorandum items:
Nominal GDP growth rate9.88.47.48.512.26.7
Real GDP growth rate6.34.74.54.09.03.7
Sources: Central Bank of Malta, Quarterly Review; data provided by the Maltese authorities; and staff estimates.

Broad money comprises currrency outside banks and demand, time, and savings deposits.

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

Broad money comprises currrency outside banks and demand, time, and savings deposits.

Table A25.Malta: Financial Survey, 1991-96 1/
Est.
199119921993199419951996
(In millions of Maltese liri; end of period)
Net foreign assets608.9691.0737.2877.5812.9749.6
Monetary authorities439.9492.2549.5690.4580.7540.7
Financial system169.1198.8187.7187.1232.2208.9
Domestic credit696.4759.7858.0967.21,224.81,449.7
Claims on General Government119.5121.6137.3150.6179.9246.5
Claims on private and parastatal sectors576.8638.1720.7816.61,044.91,203.2
Claims on private sector502.0557.8631.0811.0922.9
Claims on parastatal sector136.1162.9185.6233.9280.3
Total assets = Total liabilities1,305.31,450.61,595.21,844.82,037.72,199.3
Narrow Money406.7408.6425.1463.5436.8454.3
Currency344.3337.6353.3365.9351.8362.2
Demand deposits62.370.971.897.685.092.1
Quasi-money726.2830.2941.71,106.71,254.61,371.8
Savings deposits310.3367.1415.3462.4510.8518.5
Time deposits415.9463.1526.4644.3743.8853.3
Broad money1,132.91,238.81,366.71,570.31,691.41,826.1
Other items, net145.6211.9228.4274.5346.3373.2
(In percent of total assets; end of period)
Net foreign assets46.647.646.247.639.934.1
Monetary authorities33.733.934.437.428.524.6
Financial system13.013.711.810.111.49.5
Domestic credit53.452.453.852.460.165.9
Claims on General Government9.28.48.68.28.811.2
Claims on private and parastatal sectors44.244.045.244.351.354.7
Claims on private sector34.635.034.239.842.0
Total assets = Total liabilities100.0100.0100.0100.0100.0100.0
Narrow money31.228.226.625.121.420.7
Currency26.423.322.119.817.316.5
Demand deposits4.84.94.55.34.24.2
Quasi-money55.657.259.060.061.662.4
Savings deposits23.825.326.025.125.123.6
Time deposits31.931.933.034.936.538.8
Broad money86.885.485.785.183.083.0
Other items, net11.214.614.314.917.017.0
(Annual percentage change)
Net foreign assets2.113.56.719.0−7.4−7.8
Monetary authorities−3.711.911.625.6−15.9−6.9
Financial system20.917.6−5.6−0.324.1−10.0
Domestic credit20.59.112.912.726.618.4
Claims on General Government31.11.712.99.719.437.0
Claims on private and parastatal sectors18.510.612.913.328.015.2
Claims on private sector11.113.128.513.8
Claims on parastatal sector19.713.926.019.8
Total assets = Total liabilities11.111.110.015.610.57.9
Narrow money5.80.54.09.1−5.84.0
Currency4.2−1.94.63.6−3.93.0
Demand deposits15.213.71.336.0−13.08.4
Quasi-money10.514.313.417.513.49.3
Savings deposits19.018.313.111.410.51.5
Time deposits4.911.313.722.415.414.7
Broad money8.89.310.314.97.78.0
Other items, net9.545.57.820.226.27.8
Sources: Central Bank of Malta, Quarterly Review, data provided by the Maltese authorities; and staff estimates.

The financial survey covers the monetary authorities, deposit money banks, international banking institutions (from 1995) and other banking institutions.

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

The financial survey covers the monetary authorities, deposit money banks, international banking institutions (from 1995) and other banking institutions.

Table A26.Malta: Selected Nominal and Real Interest Rates, 1991-96
Est.
199119921993199419951996
(In percent; end of period)
Nominal interest rates
Central Bank of Malta
Discount rate5.55.55.55.55.55.5
Call balances (“free” deposits)3.0-4.03.0-4.03.0-4.02.52.50.0
Required deposits4.84.84.84.32.52.8
Repo rate 1/4.45.55.4
Reverse repo rate 2/4.95.0
Government securities
Treasury bill yield
Three months4.504.604.604.404.945.00
Six months5.165.29
Twelve months5.345.36
Government bonds
Five years6.506.756.355.796.606.73
Ten years7.007.757.006.657.087.24
Deposit money bank deposits 3/
Average deposit rate3.93.93.94.04.04.2
Demand deposits1.01.01.01.01.03.0
Savings deposits3.03.03.03.03.03.3
Time deposits
Three months4.04.04.04.04.04.0
Six months4.54.54.54.54.54.5
One year4.55.05.05.05.05.5
Two years5.35.35.35.35.35.8
Three years5.55.55.55.55.56.1
Loans and advances 4/
Deposit money banks7.17.17.27.37.57.7
Other financial institutions7.87.46.67.37.27.2
Real interest rates 5/
Central Bank of Malta
Discount rate2.93.81.31.31.42.4
Call balances (“free” deposits)0.4-1.41.4-2.4−1.1-0.1−1.6−1.4−2.9
Reverse repo rate 1/0.92.0
Government securities
Three month Treasury bills1.92.90.50.20.91.9
Government bonds
Five years3.85.02.11.62.53.6
Ten years4.36.02.82.43.04.1
Deposit money banks
Average deposit rate1.32.2−0.3−0.20.01.2
Average lending rate4.45.42.93.03.44.6
Memorandum item:
RPI inflation rate2.61.64.14.24.03.0
Sources: Central Bank of Malta, Quarterly Review; and data provided by the Maltese authorities.

Rates on seven-day Central Bank repurchase agreements.

Rates on seven-day Central Bank reverse repurchase agreements.

In January 1994, interest rate ceilings on current accounts, savings, and time deposits of different maturities were effectively lifted although a minimum interest rate of 3 percent per annum was set for term and savings deposits.

In November 1995, the Central Bank liberalized bank lending rates by widening the stipulated margin over the discount rate from 3 to 10 percent.

Nominal rates deflated by the RPI inflation rate.

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

Rates on seven-day Central Bank repurchase agreements.

Rates on seven-day Central Bank reverse repurchase agreements.

In January 1994, interest rate ceilings on current accounts, savings, and time deposits of different maturities were effectively lifted although a minimum interest rate of 3 percent per annum was set for term and savings deposits.

In November 1995, the Central Bank liberalized bank lending rates by widening the stipulated margin over the discount rate from 3 to 10 percent.

Nominal rates deflated by the RPI inflation rate.

Table A27.Malta: Summary Balance of Payments, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Trade balance−198.4−174.4−228.7−237.6−268.7−207.9−225.5
Exports, f.o.b.414.9496.6518.2593.3669.6476.8450.4
Imports, f.o.b.613.3671.1746.9830.9938.3684.7675.9
Balance on services109.0112.5137.9132.9102.484.178.7
Exports287.0307.4378.2400.9398.0305.3305.7
Of which
Tourism 1/238.2256.5317.3330.5321.3249.0245.6
Imports178.0195.0240.3268.0295.7221.2227.0
Investment income, net49.741.735.519.315.220.223.8
Unrequited transfers, net37.329.923.335.617.69.617.2
Private21.413.715.423.414.09.910.3
Public15.916.37.912.23.7−0.36.9
Current account balance−2.49.6−32.1−49.7−133.5−93.9−105.7
Direct investment24.912.626.257.743.814.04.2
Other long term capital9.934.318.695.5−4.24.74.9
Portfolio investment1.31.55.193.410.17.6−7.0
Official long term capital8.632.813.52.1−14.3−8.87.4
Short term capital, net 2/−1.90.024.832.56.2−0.9
Change in net foreign position of banks−28.6−38.37.6−4.0−24.528.4
Capital account balance4.38.677.1181.721.2−24.832.1
Errors and omissions−27.4−5.36.512.61.227.840.9
Overall balance 3/−25.512.951.6144.6−111.1−90.9−32.8
(In percent of GDP)
Current account balance−0.31.1−3.4−4.9−11.7−11.3−12.0
Merchandise−24.6−19.9−24.3−23.3−23.5−25.1−25.5
Services13.512.914.713.09.010.28.9
Investment income6.24.83.81.91.32.42.7
Transfers4.63.42.53.51.51.21.9
Memorandum items:
Official reserves 4/54.556.358.567.750.8
(in millions of Maltese liri)439.9492.2549.5690.4580.7600.2548.7
(in millions of U.S. dollars)1,439.41,315.51,390.71,875.61,647.91,711.01,513.7
(in months of imports of goods and services)6.76.86.77.55.6
Source: Data provided by the Maltese authorities.

Includes transportation.

Excludes banking institutions.

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

Includes customers’ deposits and sinking funds held with the Central Bank, and other official funds held with the Treasury.

Source: Data provided by the Maltese authorities.

Includes transportation.

Excludes banking institutions.

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

Includes customers’ deposits and sinking funds held with the Central Bank, and other official funds held with the Treasury.

Table A28.Malta: Exports by Commodity Groups, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Total exports405.5490.9518.3587.0671.9479.7458.4
Domestic exports, f.o.b.372.0451.5476.7541.8625.9446.1416.7
Food, beverages, and tobacco8.19.711.19.49.76.29.9
Crude materials, fuels, and oils1.21.21.91.31.5
Chemicals6.28.610.110.311.27.310.4
Semi-manufactured goods29.031.533.133.438.527.830.9
Machinery and transport216.0274.7280.4356.6423.3300.9258.5
Of which
Electronic components176.1237.1227.7302.8348.5
Manufactures110.6124.6139.8130.6141.1103.9107.0
Of which
Clothing53.355.758.054.154.940.942.7
Miscellaneous0.81.20.30.10.5
Re-exports33.539.441.645.246.033.641.7
(In percent of total exports)
Total exports100.0100.0100.0100.0100.0100.0100.0
Domestic exports, f.o.b.91.792.092.092.393.293.090.9
Food, beverages, and tobacco2.02.02.11.61.41.32.2
Crude materials, fuels, and oils0.30.30.40.20.2
Chemicals1.51.82.01.81.71.52.3
Semi-manufactured goods7.16.46.45.75.75.86.7
Machinery and transport53.355.954.160.763.062.756.4
Of which
Electronic components43.448.343.951.651.9
Manufactures27.325.427.022.221.021.723.3
Of which
Clothing13.111.311.29.28.28.59.3
Miscellaneous0.20.20.10.00.1
Re-exports8.38.08.07.76.87.09.1
(Annual percentage change)
Total exports13.321.15.613.214.59.7−4.4
Domestic exports, f.o.b.13.221.45.613.615.510.6−6.6
Semi-manufactured goods−2.68.84.91.015.213.511.2
Machinery and transport24.127.12.127.218.713.5−14.1
Of which
Electronic components27.134.7−4.033.015.1
Manufactures−1.012.612.2−6.68.13.83.0
Of which
Clothing−6.04.54.2−6.71.5−0.74.4
Other23.926.713.3−9.88.4−3.650.4
Re-exports14.917.65.68.71.8−0.924.1
Sources: Ministry for Economic Affairs and Finance, Economic Survey; Central Office of Statistics, Trade Statistics; and data provided by the Maltese authorities.
Sources: Ministry for Economic Affairs and Finance, Economic Survey; Central Office of Statistics, Trade Statistics; and data provided by the Maltese authorities.
Table A29.Malta: Direction of Trade, 1991-96 1/
Exports 2/Imports
Jan.-Sep.Jan.-Sep.
199119921993199419951996199119921993199419951996
(In percent of total exports)(In percent of total imports)
Europe80.179.374.575.373.163.181.181.976.379.976.573.5
EU77.775.371.773.871.261.175.576.771.675.772.869.0
United Kingdom7.36.58.17.37.38.614.712.913.415.315.513.8
Italy38.640.832.237.430.615.636.337.727.226.527.320.2
Germany17.814.215.614.114.915.111.110.714.317.612.19.5
France9.19.110.49.812.315.24.66.38.48.48.815.8
Other EU countries5.04.75.45.26.16.68.79.08.37.99.19.6
Other European countries2.43.92.81.51.82.05.65.24.74.23.74.5
America4.46.18.18.610.313.05.64.09.75.96.97.8
Asia and the Middle East4.75.97.97.211.217.510.311.211.210.113.313.9
Africa7.45.76.15.83.02.92.72.72.62.63.64.4
Oceania0.10.10.00.40.10.10.30.20.30.30.30.5
Source: Ministry of Economic Affairs and Finance. Economic Survey.

Customs basis.

Includes re-exports.

Source: Ministry of Economic Affairs and Finance. Economic Survey.

Customs basis.

Includes re-exports.

Table A30.Malta: Imports by Final Use, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Total imports684.0747.8830.9918.81,042.5760.8755.0
Consumer goods135.5152.9159.9164.8226.5162.0165.6
Food and beverages53.054.157.554.776.053.352.5
Durable goods55.369.470.772.1105.475.277.6
Other27.229.431.738.045.133.535.5
Industrial supplies392.7432.0470.8540.0588.2425.4411.5
Primary15.417.517.918.219.212.816.9
Semi-finished353.6398.1430.9502.4546.8396.3376.9
Finished23.716.422.019.422.216.317.7
Capital goods and others155.8162.9200.2213.9227.8173.4177.9
Capital goods111.1119.6155.0163.7178.0137.9132.1
Of which
Aircraft0.012.335.728.29.49.40.0
Fuel34.034.138.440.540.929.437.0
Nonspecified and gold10.79.26.89.78.96.18.8
(In percent of total imports)
Total imports100.0100.0100.0100.0100.0100.0100.0
Consumer goods19.820.419.217.921.721.321.9
Food and beverages7.77.26.96.07.37.07.0
Durable goods8.19.38.57.810.19.910.3
Other4.03.93.84.14.34.44.7
Industrial supplies57.457.856.758.856.455.954.5
Primary2.32.32.22.01.81.72.2
Semi-finished51.753.251.954.752.552.149.9
Finished3.52.22.62.12.12.12.3
Capital goods and others22.821.824.123.321.922.823.6
Capital goods16.216.018.717.817.118.117.5
Of which
Aircraft0.01.64.33.10.91.20.0
Fuel5.04.64.64.43.93.94.9
Nonspecified and gold1.61.20.81.10.90.81.2
(Annual percentage change)
Total imports10.29.311.110.613.515.9−0.8
Consumer goods18.412.84.63.137.438.22.2
Food and beverages19.92.16.3−4.938.942.5−1.5
Durable goods20.525.51.92.046.243.83.2
Other11.98.17.819.918.721.86.0
Industrial supplies12.110.09.014.78.97.4−3.3
Primary−7.813.62.31.75.50.832.0
Semi-finished11.912.68.216.68.87.6−4.9
Finished34.7−30.834.1−11.814.47.98.6
Capital goods and others−0.14.622.96.86.520.92.6
Capital goods−1.17.729.65.68.728.8−4.2
Fuel6.90.312.65.51.0−1.025.9
Nonspecified and gold−9.3−14.0−26.142.6−8.2−7.644.3
Sources: Ministry of Economic Affairs and Finance, Economic Survey; and data provided by the Maltese authorities.
Sources: Ministry of Economic Affairs and Finance, Economic Survey; and data provided by the Maltese authorities.
Table A31.Malta: Imports by Commodity Groups, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Total imports, c.i.f.684.0747.8830.9918.81,042.5760.8777.9
Food, beverages, and tobacco69.774.179.379.2101.671.174.1
Crude materials, fuels, and oils49.350.955.259.863.042.749.0
Chemicals46.750.756.463.670.853.256.0
Semi-manufactured goods124.5126.7130.4131.2143.1105.7128.7
Machinery and transport321.7361.7416.1482.0532.6397.8373.2
Manufactures61.674.686.893.3122.784.588.2
Miscellaneous10.59.16.89.78.75.98.6
(In percent of total imports)
Total imports, c.i.f.100.0100.0100.0100.0100.0100.0100.0
Food, beverages, and tobacco10.29.99.58.69.79.39.5
Crude materials, fuels, and oils7.26.86.66.56.05.66.3
Chemicals6.86.86.86.96.87.07.2
Semi-manufactured goods18.216.915.714.313.713.916.6
Machinery and transport47.048.450.152.551.152.348.0
Manufactures9.010.010.410.211.811.111.3
Miscellaneous1.51.20.81.10.80.81.1
(Annual percentage change)
Total imports, c.i.f.10.29.311.110.613.515.82.2
Food, beverages, and tobacco13.76.37.0−0.128.229.14.2
Crude materials, fuels, and oils6.83.38.58.35.4−0.114.8
Chemicals9.48.511.212.711.414.35.4
Semi-manufactured goods3.61.82.90.79.19.921.8
Machinery & transport13.212.415.015.810.516.3−6.2
Manufactures13.121.116.47.431.524.74.5
Others8.94.96.97.415.0−9.845.2
Sources: Central Office of Statistics, Trade Statistics; and Central Bank of Malta, Quarterly Review.
Sources: Central Office of Statistics, Trade Statistics; and Central Bank of Malta, Quarterly Review.
Table A32.Malta: Invisible Transactions, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Balance on services109.0112.5137.9132.9102.484.178.7
Exports of services287.0307.4378.2400.9398.0305.3305.7
Freight and insurance7.99.211.313.313.810.011.6
Other transportation 1/62.976.085.188.888.569.174.2
Travel175.3180.5232.2241.7232.8179.9171.4
Other services40.841.749.657.163.046.348.5
Private30.334.641.949.755.240.443.1
Official10.57.17.77.47.85.95.4
Imports of services178.0195.0240.3268.0295.7221.2227.0
Freight and insurance66.572.479.987.398.772.170.5
Other transportation20.824.540.846.946.336.636.8
Travel42.843.959.066.875.458.161.3
Other services48.054.260.667.075.254.458.4
Private39.746.354.459.968.749.753.5
Official8.27.86.27.06.54.74.9
Investment income, net49.741.735.519.315.220.223.8
Credit78.177.783.276.097.068.076.7
Debit28.536.047.756.781.847.852.9
Unrequited transfers, net37.329.923.335.617.69.617.2
Private, net21.413.715.423.414.09.910.3
Official, net15.916.37.912.23.7−0.36.9
Total invisible transactions, net196.0184.1196.6187.8135.2113.9119.7
(In percent of GDP)
Balance on services13.512.914.713.09.010.28.9
Exports of services35.635.140.239.334.836.934.6
Freight and insurance1.01.11.21.31.21.21.3
Other transportation 1/7.88.79.08.77.78.48.4
Travel21.720.624.723.720.421.719.4
Other services5.14.85.35.65.55.65.5
Imports of services22.122.325.626.325.826.725.7
Freight and insurance8.28.38.58.68.68.78.0
Other transportation2.62.84.34.64.04.44.2
Travel5.35.06.36.66.67.06.9
Other services5.96.26.46.66.66.66.6
Investment income, net6.24.83.81.91.32.42.7
Credit9.78.98.97.58.58.28.7
Debit3.54.15.15.67.25.86.0
Unrequited transfers, net4.63.42.53.51.51.21.9
Private, net2.71.61.62.31.21.21.2
Official, net2.01.90.81.20.30.00.8
Total invisible transactions, net24.321.020.918.411.813.813.5
Memorandum items:
Tourism earnings 2/
(in millions of Maltese liri)238.2256.5317.3330.5321.3249.0245.6
(in percent of GDP)29.529.333.832.428.130.127.8
(in percent of exports of goods and services)43.043.737.334.631.931.832.5
Source: Central Office of Statistics.

Includes passenger fares, port disbursements (pilotage, harbor, and quarantine dues; landing, parking, and seradio dues; ships’ and aircraft stores and bunker fuel and repairs), and charter hire revenue.

Travel and other transportation services exports.

Source: Central Office of Statistics.

Includes passenger fares, port disbursements (pilotage, harbor, and quarantine dues; landing, parking, and seradio dues; ships’ and aircraft stores and bunker fuel and repairs), and charter hire revenue.

Travel and other transportation services exports.

Table A33.Malta: Capital Account Transactions, 1991-96
Jan.-Sep.Jan.-Sep.
1991199219931994199519951996
(In millions of Maltese liri)
Capital account4.38.677.1181.721.3−24.832.1
Direct investment, net24.912.626.257.743.814.04.2
Credit69.280.342.8
Debit11.536.538.6
Other long term capital, net9.934.318.695.5−4.2−1.20.4
Portfolio investment, net1.31.55.193.410.17.6−7.0
Credit100.120.70.6
Debit6.710.67.5
Official long term capital, net8.632.813.52.1−14.3−8.87.4
Credit9.437.718.211.99.421.7
Debit0.84.94.79.823.714.3
Short term capital, net−1.90.024.832.56.2−0.9
Private financial investments 1/−1.70.24.828.6−2.5−6.9
Credit43.717.88.4
Debit15.120.315.3
Other private investments 2/−0.2−0.219.93.98.70.96.0
Credit76.253.435.3
Debit72.344.729.3
Change in net foreign position of banks 3/−28.6−38.37.6−4.0−24.528.4
(In percent of GDP)
Capital account0.51.08.217.81.9−3.03.6
Direct investment, net3.11.42.85.73.81.70.5
Portfolio investment, net0.20.20.59.20.90.9−0.8
Official long term capital, net1.13.71.40.2−1.2−1.10.8
Short term capital, net−0.20.02.63.20.5−0.1
Private financial investments 1/−0.20.00.52.8−0.2−0.8
Other private investments 2/0.00.02.10.40.80.10.7
Change in net foreign position of banks 3/−3.5−4.40.8−0.4−2.13.2
Memorandum item:
Change in nonresident deposits
(In millions of Maltese liri)18.547.816.148.151.165.0
Source: Data provided by the Maltese authorities.

Short term private financial investments exclude changes in nonresident deposits, which are recorded under changes in the net foreign position of banks.

Includes trade credits with non-parent companies abroad.

Beginning in 1995, this item includes changes in net foreign assets held by international banking institutions.

Source: Data provided by the Maltese authorities.

Short term private financial investments exclude changes in nonresident deposits, which are recorded under changes in the net foreign position of banks.

Includes trade credits with non-parent companies abroad.

Beginning in 1995, this item includes changes in net foreign assets held by international banking institutions.

Table A34.Malta: Exchange Rate Developments, 1991-96
US dollar per Maltese liraPound sterling per Maltese liraDeutschemark per Maltese liraNominal effective exchange rate 1/Real effective exchange rate 2/
(Period average)
19913.101.755.13100.2394.56
19923.151.784.9098.9789.60
19932.621.744.3392.9791.14
19942.651.734.2993.3892.98
19952.831.794.0694.5491.60
19962.77
1991
Q13.291.735.0499.6298.73
Q23.001.765.20100.6498.35
Q32.981.775.19100.7597.82
Q43.131.765.0799.9096.76
1992
Q13.131.775.0699.8695.34
Q23.151.755.0999.9895.83
Q33.341.764.8998.9593.88
Q42.951.875.9097.1093.17
1993
Q12.641.794.3293.2289.10
Q22.671.744.3392.3788.51
Q32.581.724.3492.5789.35
Q42.571.724.3293.7191.44
1994
Q12.551.714.3893.8591.54
Q22.601.734.3393.0890.60
Q32.711.754.2393.1690.98
Q42.731.734.2293.4391.44
1995
Q12.781.764.1294.4093.12
Q22.871.804.0195.0493.53
Q32.841.814.0694.3192.35
Q42.841.824.0594.3992.90
1996
Q12.791.824.1093.9091.65
Q22.741.804.1893.3392.02
Q32.781.794.1693.1591.13
Q42.781.704.2593.30
Sources: Central Bank of Malta, Quarterly Review; and IMF, International Financial Statistics.

Index number (1990=100.) Trade-weighted average of exchange rates, expressed as units of foreign currency per Maltese lira. A decline in the index indicates a depreciation.

Index number (1990=100.) 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. (Price indices used are not seasonally adjusted.)

Sources: Central Bank of Malta, Quarterly Review; and IMF, International Financial Statistics.

Index number (1990=100.) Trade-weighted average of exchange rates, expressed as units of foreign currency per Maltese lira. A decline in the index indicates a depreciation.

Index number (1990=100.) 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. (Price indices used are not seasonally adjusted.)

Imports of consumer goods swelled by 37 percent in value terms, accounting for fully two-thirds of the (nominal) growth in private consumption.

Developments in public expenditure are discussed further in Chapter II.

The official classification includes Air Malta and other parastatal corporations as part of the private sector.

Developments in the foreign balance are discussed further in Chapter IV.

The Drydocks’ main criterion in its pricing policy was the need to keep its workforce occupied. Labor costs were equivalent to 95 percent of turnover in 1994, but some 150 percent of turnover in 1995.

The official sectoral breakdown of GDP classifies the following as public enterprises: Enemalta, Telemalta, Posta Ltd., Public Lotto, Water Services Corporation, Malta Development Corporation, Malta Freeport Corporation, Malta Financial Services Center, Public Broadcasting Services, and Malta International Airport.

Although the proportion of U.K. tourists in total arrivals has been on a declining trend for more than 10 years, it is still substantial, at around 40 percent.

Tourism was also adversely affected by the introduction of a discriminatory airport tax in the United Kingdom in 1995. At £10 for non-EU destinations compared to £5 for EU destinations, the airport tax added an estimated 2.32 percent surcharge to the cost of an average two-week holiday in Malta, putting it at a disadvantage relative to EU destinations such as Greece, France, and Italy.

The incomes policy agreement signed by the social partners had pegged cost of living increases to wages and had been credited with keeping industrial peace. It was in effect from December 1990 to December 1993.

The agreement covered both the public service and public enterprises. It expired in January 1996. A new contract that would cover the period 1996-2000 is still under negotiation.

This was not always the case in the past in the private and parastatal sectors.

Only food prices are monitored monthly; prices for the other RPI subcategories are monitored once every 2-4 months.

The old and new price indices were linked using a specific (nonstandard) methodology approved by the RPI Management Board.

The factors contributing to the decision to devalue in 1992 are discussed in Malta-Staff Report for the 1994 Article IV Consultation, SM/94/277 (11/14/94).

Based on IMF staff calculations using data for January to December.

The transparency of the fiscal accounts is somewhat impaired by operations carried out via a number of extrabudgetary funds.

Estimates of the investment-savings balance and the PSBR for 1995-96 are staff estimates based on incomplete data; full national accounts are available only up to 1994.

These subsidies were about half of capital expenditure in 1995-96.

The staff presentation of the fiscal accounts differs from that of the authorities in a number of respects; in addition to the differences in treatment outlined in Malta—Recent Economic Developments, Chapter 3, Annex, (SM/94/288, 12/6/94), the staff presentation here treats asset sales as a financing item, while the authorities’ presentation classifies them as revenue.

Both the income tax and the social benefit reforms were implemented in the second half of 1996.

The four types of benefits were: (1) the child allowance to families with children under 16 years of age, which depended only on the number of children; (2) the family bonus (a fixed sum); (3) the parental allowance to families with children under 12 years of age and with an income lower than Lm 2,938 per annum; and (4) a fixed sum for families with children older than 16 years of age but still in school without a stipend.

Families with children between 16 and 21 years of age who are still in school, but not in receipt of a stipend, are entitled to an allowance of 1.5 percent of the difference between Lm 10,000 and the family income.

For single persons, the threshold is set at Lm 3,000 and the benefit rate at 1 percent.

Although the income tax reform could account for part of the decline, the third quarter revenue was only 1.7 percent lower than in 1995: this suggests that the effect of the reform was not the main explanatory factor of the decline.

Foreign grants increased from 0.4 percent of GDP in 1995 to 1.7 percent of GDP in 1996.

The staff presentation of the budget excludes from revenue projected income tax and social security receipts of Lm 14.3 million from the Drydocks, to be financed through a government loan not accounted for in the budget.

Based on the White Paper For A Better Tax System In Malta.

At times, the increase in the debt stock has been considerably higher than the budget deficit, reflecting extrabudgetary debt operations. Examples of these were the issue of Lm 10 million worth of treasury bills to the central bank as a counterpart to the phasing out of the ways and means advance facility and an issue of government bonds in exchange for church property.

Only a small part of these are likely to be called.

In addition, discounts and rebates were granted to selected consumers.

Radio and television services were hived off four years ago.

Malta Drydocks is akin to a public corporation as it has been set up through ad hoc legislation, but is managed by a board partly appointed by the government and partly elected by the workforce. Malta Shipbuilding is in the portfolio of MGI.

The MFSC is an autonomous body entrusted with the licensing, monitoring, and supervision of offshore companies operating in Malta, including offshore banks and financial institutions. It also promotes Malta as an international business center and advises the government on financial services and related matters.

The ECU is given a 67 percent weight in the basket, with the U.S. dollar and pound sterling having weights of 21 percent and 12 percent, respectively. The value of the lira in terms of the currency basket has remained unchanged since a 10 percent devaluation in November 1992.

An amendment to the CBM Act that would prevent the central bank from extending unsecured credit to the government has not yet been approved by parliament, so that legally the government can still use the advances account.

Term deposits at the CBM are classified under other liabilities.

Foreign currency deposits of residents, mainly belonging to export companies, represent less than 10 percent of deposits. Prudential regulations on the net foreign exchange open position are in the form of bank-to-bank limits, but not directly linked to capital.

Two-thirds of income from domestic sources comes from loans and overdrafts, while income from government securities represents only 10 percent of domestic income. Two-thirds of income from foreign sources comes from securities.

Nonperforming assets are defined as loans more than 90 days overdue.

About 100 people are currently employed in the offshore banking sector.

Money and credit aggregates refer to the financial survey which comprises the monetary authorities, deposit money banks, international banking institutions (from 1995), and other banking institutions.

Broad money comprises currency outside banks, and demand, time, and savings deposits.

Data for the United Kingdom include also building societies’ deposits; data for Greece refer to end-1994.

The sum of broad money and government securities proxies the country’s total financial wealth which should include also financial instruments issued by the corporate sector and insurance companies.

In 1996, the first collective investment scheme to invest in Malta’s capital market was launched.

A key measure of foreign interest rates is the so-called synthetic yield, a measure that weights foreign interest rates by the importance of each currency in the basket to which the Maltese lira is pegged. Data on synthetic yields are only available from May 1995 onward.

Legal restrictions prevented the outright abolition of the ceiling on lending rates. Instead, the maximum margin on lira-denominated loans over the CBM’s discount rate was raised from 3 percentage points to 10 percentage points above, while the margin on FX-denominated loans was raised from 5 percentage points to 10 percentage points over LIBOR. The only restriction that remains on lending rates concerns housing loans for own use up to Lm 15,000 for which the margin over the discount rate is 1.5 percentage points. Deposit rates are subject to a floor of 3 percent.

Tariffs applied on EU products previously ranged from 15-130 percent, with a concentration around the 40 percent mark, whilst tariffs on non-EU products previously ranged from 25-140 percent.

The gross earnings figures presented here include also earnings from tourism-related transportation services, such as passenger fares, port charges, and charter hire.

Developments in the tourism sector are discussed further in Chapter I.

Reinvested profits of foreign-owned firms operating in Malta are recorded in the capital account as a credit item under direct foreign investment.

Capital account deficits were recorded in each year except 1988, with net annual capital outflows averaging 1.7 percent of GDP.

The authorities classify changes in nonresident deposits as short-term private financial investment flows; the staff presentation includes changes in nonresident deposits under changes in the net foreign position of banks and financial institutions.

Changes in recording practices introduced in 1995 relating to the treatment of international banking institutions complicate analysis of year-to-year flows.

Calculations of the real effective exchange rate index from January 1996 onward have been complicated by the change in the base year for the retail price index and the nonstandard method used by the authorities to splice the price index series. The figures cited here are based on staff estimates.

The arrangement with Libya is the only such bilateral payments arrangement currently existing in Malta. It is seen as an important means of facilitating prompt settlement of outstanding trade debts between Maltese and Libyan businessmen. Up to 1995, the balances outstanding had been settled once a year by a cash payment in U.S. dollars to the respective central banks; beginning in January 1995, settlements have been made on a quarterly basis.

Outward direct investments exceeding Lm 150,000 require central bank approval.

Beginning in 1995, the authority to approve the payment of dividends to nonresidents has been delegated to credit institutions.

A full description of existing exchange controls may be found in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1997.

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