January 5, 2017: The International Monetary Fund (IMF) has reported Malta’s ‘exceptionally strong’ economic growth, commenting that its ‘sound policies and favourable external and domestic conditions have led to robust employment growth and an improvement in public finances’.
The report followed a 10-day mission in December 2016 to Malta during which the state of Malta’s economy was evaluated in depth.
Looking ahead, the key policy challenge is to sustain the high growth and make it more inclusive in an increasingly uncertain external environment. Efforts should therefore focus on further enhancing the economy’s resilience to shocks, and addressing the remaining structural impediments:
- Robust economic activity is projected to continue, albeit at a more moderate pace
- External downside risks predominate
- Fiscal consolidation is expected in the near term
- Well-specified measures should underpin the medium-term consolidation plan
- Improving the financial health of state-owned enterprises would reduce fiscal risks
- Long-term spending pressures should be contained
- Safeguarding financial stability and improving access to finance
- The banking system appears sound and resilient, but faces a number of challenges.
- The resilience of the private sector needs to be bolstered further
- The planned Malta Development Bank (MDB) could support the economy but fiscal risks should be contained
- Ongoing vigilance is needed to contain risks to the integrity of the financial system. Boosting productivity and making growth more inclusive
- Steady reform implementation will support high and inclusive long-term growth
In particular, sustained efforts are needed to:
- Increase the labour force participation. Recent measures supporting female labour force participation continue to bear fruit. Further actions are needed to integrate the remaining inactive population, particularly women, into the labour market. Expanding labour activation policies, and enhancing education quality in line with the recently completed in-depth review, would reduce skill mismatch in the face of the changing labour demand. Further incentivising delayed retirement would boost labour force participation among the elderly.
- Enhance SMEs’ innovation. Higher R&D activity would boost productivity growth and competitiveness. Strengthening firms’ balance sheets and broadening SMEs’ non-bank and equity financing would alleviate financing constraints, including for innovative projects. Increased public R&D spending as a share of GDP towards the EU average, close partnerships with education institutions and improved access to foreign markets would complement these efforts.
- Streamline the legal process. Recent measures to speed up the settlement of civil and commercial cases will strengthen the business environment. Completion of ongoing work to address the shortcomings of insolvency and bankruptcy frameworks would improve contract enforcement and allow a faster resolution of balance sheets problems.