Journal Issue

IMF Executive Board Concludes 2019 Article IV Consultation with Malta

International Monetary Fund. European Dept.
Published Date:
February 2019
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On February 22, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Malta. The discussion included an assessment of the financial system based on the work of the Financial Sector Assessment Program (FSAP).2

Malta has been one of the fastest growing countries in Europe post-crisis, thanks to rapid rebalancing toward export-oriented services, notably remote gaming. And the authorities have recently started to explore new development areas around the blockchain technology. Growth remains rapid and increasingly driven by domestic demand, but a cyclical peak may have been reached. GDP is estimated to have expanded by 6.4 percent in 2018. Despite tight labor market conditions, generalized wage and price pressures are yet to materialize. Strong inflows of foreign workers have helped keep wage pressure contained, but they are also putting rising pressure on infrastructure and housing prices. The fiscal balance is estimated to have registered a surplus in 2018, owing to favorable economic conditions and buoyant proceeds from the Individual Investor Program. The current account balance has remained on a positive trend, driven by a continued surplus in services. Over the medium term, growth is projected to gradually moderate to slightly above 3 percent as wage and inflation stabilize and the current account surplus remains large, driven by strong export of services.

The banking system remains well-capitalized, liquid, profitable and resilient, but faces some challenges. The FSAP stressed shortcomings in banking supervision—which extend to the implementation of the anti-money laundering and countering the financing of terrorism (AML/CFT) framework—and weaknesses in the bank liquidation and insolvency framework.

Executive Board Assessment3

Executive Directors commended the authorities for sound policies that have supported strong economic performance and job creation while improving public finances. Directors considered risks to the outlook as broadly balanced and encouraged the authorities to continue implementing policies to address challenges and capacity constraints arising from infrastructure gaps, financial sector innovations, rising housing costs, and shortages of labor and skills.

Directors stressed the need for sustained efforts to safeguard financial integrity and stability. They called on the authorities to pursue ongoing reforms to mitigate money laundering and terrorist financing (ML/TF) risks and swiftly close gaps in supervisory and enforcement capacities. Directors welcomed measures taken to implement the recently-enacted 50-point action plan, while also emphasizing the importance of effective enforcement going forward. They concurred that virtual financial asset service providers should be supervised in line with the Financial Action Task Force standards.

Directors noted shortfalls in supervisory capacity and gaps in banks’ liquidation and insolvency frameworks. They recommended that the long-term financial and operational independence of the supervisor be guaranteed, and the crisis management framework strengthened, including by adopting an administrative bank insolvency regime. In light of the rapid diversification of corporate financing, Directors also encouraged strengthening oversight of the nonbank financial sector and closing remaining data gaps.

Directors welcomed the planned introduction of borrower-based macroprudential instruments to mitigate the build-up of vulnerabilities in the real estate sector. They also supported further measures to improve housing affordability for low-income households.

Directors encouraged the authorities to maintain a prudent fiscal policy, and called for further efforts to strengthen the structural fiscal position excluding revenues from the Individual Investor Program. They agreed that the key priorities are to contain long-term fiscal risks by addressing age-related spending pressures and further restructuring vulnerable SOEs, shifting the balance of expenditure towards growth-enhancing public investment, and strengthening public investment management and risk analysis. Directors noted ongoing efforts to combat tax evasion and avoidance and recommended exploring further avenues for broadening the tax base.

Directors emphasized the importance of structural reforms to foster sustained and inclusive growth. They encouraged measures to bridge infrastructure gaps, upskill and reskill the labor force, further encourage female and elderly participation in the labor market, and stimulate innovation through SMEs’ enhanced access to finance. They also underscored the need to improve the efficiency of the judicial system.

Malta: Selected Economic Indicators, 2015–2020(Year-on-year percent change, unless otherwise indicated)
Per Capita GDP (2017): €24.2 thousand
Quota: 168.3 million SDR, .04% of total
Real economy (constant prices)(Percent change year on year)
Real GDP10.
Domestic demand14.51.1-
CPI (harmonized, average)
Unemployment rate (percent)
Public finance(General government, percent of GDP)
Overall balance-
Primary balance1.
Structural balance1/-
Gross debt57.955.450.245.442.439.0
Financial sector(Percent change year on year)
Credit to nonfinancial private sector2/
Credit to the private sector (percent GDP)87.384.479.4
Interest rates (year average)(Percent)
Interest rate for mortgage purposes3.13.13.1
Ten-year government bond yield1.50.91.3
Balance of payments(Percent of GDP)
Current account balance2.43.410.410.19.38.8
Trade balance (goods and services)
Exchange rate
Exchange rate regimeJoined EMU on January 1, 2008.
Nominal effective rate (2010=100)97.797.999.6
Real effective rate, CPI-based (2010=100)97.998.499.5

As a percentage of Nominal Potential GDP.

Loans to nonfinancial corporate sector and households/individuals.

Sources: National Statistical Office of Malta; Central Bank of Malta; European Central Bank; Eurostat; European Commission; and IMF staff estimates.

As a percentage of Nominal Potential GDP.

Loans to nonfinancial corporate sector and households/individuals.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA), which is discussed by the IMF Executive Board.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

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