Journal Issue

IMF Executive Board Concludes Article IV Consultation with Malta

International Monetary Fund. European Dept.
Published Date:
February 2015
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On February 23, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Malta.

Malta’s economy continues to weather the global crisis well. Spillovers from turmoil in international financial markets have been contained due to low reliance on external financing by the government and banks. Real GDP growth has been one of the highest in the euro area since the beginning of the crisis, supported by relatively diversified exports, a recent recovery in domestic demand, and a stable banking sector. Unemployment is close to historical lows and among the lowest in the euro area. The external position is strong, and progress has been achieved in reducing the budget deficit.

The macroeconomic outlook is favorable. Growth is expected to remain robust in 2015–16, supported by domestic demand. Inflation is projected to remain subdued. The current account surplus will likely persist.

The authorities have taken action on multiple fronts. Regarding fiscal policies, the Fiscal Responsibility Act was enacted, and restructuring of various state-owned enterprises are ongoing. As regards financial sector policies, the regulatory and supervisory frameworks have been strengthened in several areas. On structural policies, steps have been taken to increase labor participation and improve the judicial system.

Despite the robust outlook and policy action, Malta faces important challenges: public debt is still high, nonperforming loans in banks are elevated, capital is relatively costly, and maintaining external competitiveness is increasingly difficult.

Executive Board Assessment2

Executive Directors welcomed Malta’s continued good economic performance and commended the authorities for their consistent prudent policies. The external position is strong, the economy is relatively diversified, and the banking sector is stable. Although the economic outlook is robust, challenges remain, and policies should aim to further strengthen fiscal sustainability, maintain financial stability, and enhance competitiveness.

Directors welcomed the authorities’ fiscal targets for 2015–17. They recommended more focus on expenditure measures by containing the growth in current spending while preserving incentives for labor participation and education, and capital spending. Full implementation of the comprehensive spending review would help prioritize and contain spending, while increasing efficiency. Directors commended the authorities’ efforts to strengthen fiscal governance, and stressed the importance of broad-based reforms on pensions, healthcare, and public corporations to contain fiscal pressures going forward.

Directors observed that the large financial sector remains stable, and welcomed the progress in strengthening the regulatory and supervisory frameworks. They considered that reducing the relatively high level of nonperforming loans would further boost the resilience of Maltese banks. It will also be important to remain vigilant to the exposure of banks to the real estate sector. Directors encouraged the authorities to implement the action plans resulting from the ECB’s Comprehensive Assessment of the largest banks, and to apply the same standards across the rest of the banking sector. They saw a need to strengthen the contingency framework in line with reforms at the EU level, by boosting the resources of the deposit compensation scheme, establishing a resolution fund, and introducing a bail-in requirement. Continuing to aim for high standards in the AML/CFT framework will be important as well. Directors supported the authorities’ intention to request an update of the Financial Sector Assessment Program.

Directors encouraged the authorities to maintain the momentum of structural reforms to enhance external competitiveness and boost medium-term growth. They called for continued action to improve labor participation, upgrade skills, and reform the judicial system. To support affordable lending to viable firms, Directors recommended measures to reduce the cost of capital, by developing a strategy for the resolution of nonperforming loans, implementing the planned credit registry, and encouraging a prudent increase in cross-border financing.

Malta: Selected Economic Indicators, 2010–2016
Per Capita GDP (thousands): €18.6Population (thousands): 422
Quota: 102 million SDR, 0.05% of totalTertiary education rate: 38%
Economy based on services: Agriculture (2%); industry and construction (17%); trade and communication (29%); financial and real estate (14%); other services (39%).
Main trade partners: Germany, France, Italy United Kingdom, Singapore, United States, and Libya.
Sources: National Statistical Office of Malta; Central Bank of Malta; European Central Bank; Eurostat; European Commission; and IMF staff estimates.

Loans to nonfinancial corporate sector and households/individuals.

Real economy (constant prices)(Percent change year on year)
Real GDP3.
Domestic demand4.6−2.2−
CPI (harmonized, average)
Unemployment rate (percent)
Public finance(General government, percent of GDP)
Overall balance−3.3−2.6−3.6−2.7−2.2−1.9−1.7
Primary balance−0.20.5−
Gross debt67.669.867.569.570.369.868.4
Money and credit(Percent change year on year)
Broad money16.30.29.611.0
Credit to nonbank private sector 1/3.24.2−1.2−0.1
Interest rates (year average)(Percent)
Interest rate for mortgage purposes3.
Ten-year government bond yield4.
Balance of payments(Percent of GDP)
Current account balance−
Trade balance (goods and services)−
Exchange rate
Exchange rate regimeJoined EMU on January 1, 2008.
Nominal effective rate (2005=100)100.0100.696.899.5
Real effective rate, CPI-based (2005=100)100.099.796.598.199.599.799.9
Sources: National Statistical Office of Malta; Central Bank of Malta; European Central Bank; Eurostat; European Commission; and IMF staff estimates.

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.

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.

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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