Following Fitch Ratings’s report on Malta which rated the Malta's economy at A with a Positive Outlook, Malta has once again been rated positively by the International Monetary Fund (IMF) which heralded Malta as one of the fastest—growing economies in Europe whose banking system remains well-capitalised and liquid, well above the levels seen in European Peers.
The Maltese authorities were commended by IMF’s executive board for implementing sound, macroeconomic policies which have contributed to Malta’s strong economic performance, robust job creation, low unemployment and improved public finances.
This appraisal for the Maltese economy came at the end of the IMF’s latest consultation with Malta, also known as Article IV consultation. Part of the Article IV consultation consists of a visit by a team of IMF’s economists to a country in order to assess its economic and financial developments and to meet with key stakeholders from politics, business, unions and civil society.
IMF pointed out that the authorities dealing with Malta’s small and open economy should promote policies which continue to focus on enhancing the economy’s resilience to shocks and encourage competitiveness.
IMF noted that Malta needed to improve the efficiency of its tax collection system and work on finding ways to contain its fast-growing wage bill and spending on goods and services. In order to reduce fiscal risk, the local authorities should find ways of further improving the financial health of state-owned enterprises and containing long-term spending pressures.
While commending the Maltese’ banking system, IMF noted that protracted low interest rates, weak credit growth, legacy corporate non-performing loans (NPLs) and an uncertain external environment may pose threats. Moreover, banks’ high and increasing exposure to the property market, coupled with persistent house price appreciation could also lead to imbalances. To mitigate this, IMF proposed the use of “targeted macro-prudential tools” which will increase the banks’ resilience to property market swings.
While Malta has moved forward with respect to reducing non-financial corporate sector’s legacy NPLs, “a faster resolution of remaining distressed loans would help unlock resources for growth.”.
With an average growth of nearly 8% in 2014-15, it is estimated that output, which was supported by a strong domestic demand, has expanded by 4.1% in 2016. Vigorous job creation has led unemployment rates to drop to all time lows irrespective of the rising labour supply. Subdued wage pressures have also contributed to low inflation.
2016 saw Malta’s fiscal deficit narrow to an estimated level of 0.7% of the GDP thanks to resilient revenues and consolidation measures. This was well below the budget target of 1.1% of GDP, while public debt has declined further to about 60% of the GDP.
Despite a moderate growth rate of 3.4% being projected for 2017, the outlook on Malta's economy is a favourable one. Growth shall converge to its potential of about 3% over the medium term as the impetus from domestic demand is projected to weaken. The expected result shall be for the output gap to close, while the current account surplus is expected to increase modestly. One can expect that the current strong job creation is likely to continue which will keep unemployment at bay, while inflation is projected to pick up as important prices recover.
The IMF has recommended that the Malta Development Bank could help support viable SMEs by providing access to credit and in turn further support the economy.
Moreover, while working towards maintaining continued structural reform momentum, the IMF has emphasised that Malta should continue to introduce more woman into the workforce, encourage research and innovation and work on improving the efficiency of the judiciary.
Public debt as a proportion of GDP is expected to go down further in coming years thanks to favourable macroeconomic conditions, the low interest rate environment, and persistent primary fiscal surpluses. As can be seen from such reports, long-term planning and a business friendly attitude has helped the Maltese economy to blossom and to expect further growth in the future.
