Economy gaining traction - IMF

The Maltese economy seems to be "gaining traction" following a prolonged period of weak performance, the International Monetary Fund said yesterday.

An IMF report gives an overall positive outlook of the Maltese economy even though it also highlights the island's weak competitiveness as a minus point that needs to be addressed. In particular, the report stresses the need to lighten the public sector and maintain control over wage increases, echoing similar recommendations made by the European Central Bank.

The IMF's findings, based on a visit by a team of experts last February, come as the National Statistics Office published figures for the second quarter of this year putting real economic growth at 3.7 per cent over the previous year.

The upward economic turn was ignited by a public investment boom in 2005, which, in turn, was largely financed by EU grants, the IMF report points out. However, the economy is now gaining ground, even though the high trade deficit is singled out as worrying, particularly when laid against the background of a weak position in respect of the country's competitiveness.

Significantly, the report considers a downturn in the real estate market as a potential risk to keep in check, along with rising interest rates and oil prices.

The dominant role of real estate in the economy features elsewhere in the report, in fact, where the IMF comments on the "high concentration" of real estate-related loans in banks' portfolios.

Addressing a press conference shortly after the report was published, the Parliamentary Secretary at the Finance Ministry, Tonio Fenech said he was satisfied with the IMFs conclusions, pointing out that the report had acknowledged the government's fiscal consolidation efforts of the past years.

A simple comparison with the IMF's report two years ago is enough to show the change in tone and concern over the country's fiscal status then, Mr Fenech said.

"There's more to be done, there's always more to be done, but the IMF is acknowledging the work we've done," he said.

Speaking of the report's comments on the economy's competitiveness, Mr Fenech said it was no secret that the economy had lost its competitiveness in certain sectors, most notable of which, the textile industries. However, he insisted that the government was confident it could face the challenge through its reform programme.

Referring to the size of the public sector, an issue which has been underscored in various economic reports for decades, he pointed out that, over the past five years, the number of government employees had dropped by about 6,000, to 43,000.

It was partly due to privatisation, but the collective agreement the government had struck with the unions now allowed for a natural downsizing of the public service in areas where there is over-staffing.

The consolidation of the country's finances, Mr Fenech said, tying in with a point he made earlier in the day during a meeting with the Chamber of Commerce and Enterprise, now allows the government to go for the next step in the coming budget.

Yet, rather than go with what he called "carpet bombing" - used in reference to broad sweeping tax measures such as income tax band revisions - the government would focus its incentives on strategic niches.