Statement by the IMF Staff Representative

Malta has advanced toward accession to the European Union (EU), and its progress in international competition and fiscal deficit reduction has contributed to rapid growth and enhanced the economy's resilience to economic shocks. Executive Directors stressed the need for fiscal consolidation, strengthening of public finances, monetary, and exchange rate policies and the banking system. They welcomed the authorities' efforts in antimoney laundering and the combating of the financing of terrorism, and urged the authorities to criminalize the financing of terrorism.

Abstract

Malta has advanced toward accession to the European Union (EU), and its progress in international competition and fiscal deficit reduction has contributed to rapid growth and enhanced the economy's resilience to economic shocks. Executive Directors stressed the need for fiscal consolidation, strengthening of public finances, monetary, and exchange rate policies and the banking system. They welcomed the authorities' efforts in antimoney laundering and the combating of the financing of terrorism, and urged the authorities to criminalize the financing of terrorism.

1. This statement provides an update on economic and policy developments since the staff report was issued. The new information does not change the thrust of the staff appraisal, but—given the continued fiscal slippages—strengthens the call for improved expenditure control.

2. Economic indicators for the first quarter (Q1) provide a mixed picture with regard to the modest economic recovery that began last year. Employment increased by a healthy 3.4 percent (year-on-year), and the improvement in the tourist sector persisted as arrivals from the United Kingdom continued growing. However, preliminary GDP estimates for Q1 show that despite sharp increases in investment and public consumption, output fell by 1.9 percent (year-on-year) largely due to a strong increase in imports.

3. Fiscal developments in the first half of 2003 suggest that the deficit is likely to be about 7 percent of GDP, appreciably higher than in the staff report. So far, the authorities’ efforts have had limited impact in containing expenditure overruns. In addition, revenues continued to disappoint in the second quarter. Preliminary data suggest that public debt increased by about 4½ percentage points in the first half of 2003 to just under 69 percent of GDP at end-June 2003. Part of this increase, however, could reflect routine cash management operations.

4. The Central Bank of Malta left interest rates unchanged in July noting the stable level of international reserves in the last two months, and the continued presence of imbalances in the fiscal position. Inflation remains low.

Malta: Staff Report for the 2003 Article IV Consultation
Author: International Monetary Fund