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IMF Executive Board Concludes 2020 Article IV Consultation with Malta

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 Article IV Consultation with Malta

April 9, 2020

The Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on April 8, 2020. The staff report reflects discussions with the Maltese authorities in February 2020 and is based on the information available as of February 28, 2020. It focuses on Malta’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Malta and globally.

On April 8, 2020 the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation


Malta and considered and endorsed the staff
appraisal without a meeting on a lapse-of-time basis.


Malta is facing significant challenges owing to the recent COVID-19
outbreak. Entire sections of the Maltese economy, especially in the
services sector, are forced to operate well below normal capacity due to
reduced labor supply and administrative closures. Sectors related to
tourism and transportation, which provide major sources of income for the
Maltese people, are especially affected. The authorities’ near-term efforts
are rightly focused on limiting and containing the adverse social and
economic effects of the COVID-19 outbreak.

In light of recent developments, the risk to the outlook is undoubtedly
skewed to the downside and the extent of the downturn will depend on how
long normal economic activity is subject to pervasive disruptions related
to the COVID-19 pandemic. Malta’s main medium-term challenge is to mitigate
financial integrity risks by continuing to address deficiencies identified
in the anti-money laundering and combating the financing of terrorism
(AML/CFT) framework. The focus should be on improving and demonstrating the
effectiveness of the AML/CFT regime.

Executive Board Assessment

In concluding the Article IV consultation with Malta, Executive Directors
endorsed the staff’s appraisal as follows:

The Maltese economy has continued to overperform European peers. Prudent
fiscal policy and timely structural reforms have helped boost employment
and build fiscal buffers while promoting social inclusion. Growth remained
strong in 2019, even though it weakened from 2018. Domestic demand is
expected to remain the main engine of growth as the economy gradually
reaches cruising speed and the large current account surplus declines. The
risks to the outlook are skewed to the downside and a lot will depend on
how pervasive and long-lasting disruptions related to the Coronavirus
epidemic will be.

Continued efforts are needed to mitigate financial integrity and stability
risks. As pressures on CBRs intensify, it is critically important to
continue to address deficiencies identified with the AML/CFT system. The
focus should be on improving and demonstrating effectiveness of the AML/CFT
framework. In particular, the understanding of risks and the monitoring and
supervision of banks and other higher-risk sectors and programs—such as
remote gaming, VFAs, and the IIP—should continue to be strengthened. It is
also key to enhance AML/CFT enforcement actions, including through timely
and adequate sanctions in case of breaches.

Supervisory capacity should be further enhanced and remaining deficiencies
in the crisis management framework addressed. The operational and financial
independence of the financial supervisor should be assured. Despite
commendable progress, the MFSA remains under strain due to the large number
of financial institutions under supervision, the evolving regulatory
environment, and challenges associated with new and complex products. The
legal framework for bank insolvency should also be updated and streamlined.
An administrative regime for the orderly closure and liquidation of a
failing bank should be introduced to avoid that supervisory actions are
unduly delayed through judicial appeal.

Further improving the analysis of potential risks developing outside of the
banking sector will help uphold financial stability. Inter-company lending
is gradually displacing bank lending as the main source of corporate
funding, posing new challenges to supervision. A better understanding of
the flow of funds between corporates and of their risk-management practices
could help identify potential financial risks and contagion channels to the
financial system. In the meanwhile, it is important to avoid over-exposure
to large, indebted and interconnected corporates and to monitor
developments on the housing market, standing ready to tighten the recently
introduced borrower-based macroprudential measures in due course.

Prudent fiscal policy needs to be maintained. Maintaining gradual
consolidation excluding the proceeds from the IIP is warranted due to
fiscal vulnerabilities from contingent liabilities, age-related spending
pressures, and heavy reliance on corporate income tax revenues
Current-expenditure also needs to be kept in check to ensure enough space
within the budget limits for necessary public investment in transport,
health, education, the environment and additional expenses targeted at
improving social inclusion.

Further enhancing public investment management and reducing fiscal risk
should be key priorities. As public investment rises, enhancing its
management is critical. Efforts should focus on adopting general guidelines
for project appraisal and selection, implementing cost-benefit analysis for
major projects and addressing weaknesses in the public procurement system.
Continued efforts are also needed to further reduce fiscal risks. The new
legal framework for managing government guarantees should be implemented,
ongoing work to release statements on financial performance of public
corporations should be completed, and sound strategies to put financially
vulnerable public corporations on a stronger footing need to be adopted. To
address long-term age-related spending pressures, measures that increase
the effective retirement age and further encourage enrollment in voluntary
savings schemes should be prioritized, while the institutionalization of
the CSRs should be completed. Finally, to diminish Malta’s potential
vulnerability to international taxation regime changes, options to
strengthen and diversify revenues outside of CIT should be explored.

Pursuing structural reforms will help sustain Malta’s growth performance
while promoting social inclusion. The focus should continue to be on
encouraging female and elderly participation in the labor market,
upskilling the labor force and stimulating innovation. Moreover, to
safeguard the business climate, remaining governance shortcomings should be
addressed without delay, including by stepping up the fight against
corruption and by increasing the efficiency of the judicial system while
ensuring its independence. Improving access to affordable housing remains a
key priority in support of greater inclusion.


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 Executive Board takes decisions under its lapse-of-time
procedure when it is agreed by the Board that a proposal can be
considered without convening formal discussions.

IMF Communications Department

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email:


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