Figuring the IMF report
The mission which came to Malta in February will probably have worked on the basis of provisional economic and financial data up to September 2006. They would have updated those data in between the visit and the finalisation of the report, although the outline of the report would have been prepared by the end of the consultation, and read out to the domestic authorities before the mission left to start working in much more detail on its analysis.
For quite some time, now, Malta has been among those countries which do not impose any exchange control on the current or capital account of the balance of payments, and whose economy is open. When controls still prevailed, and what were known as Article XIV consultations was carried out, a main objective of the Fund mission was to determine whether maintenance of restrictions on capital movements continued to be justified, and if so, for how long.
Under the Chapter Eight consultations regarding unfettered economies one of their objectives is to assess their strengths and weaknesses, and how that may be expected to impact on the world economy, and on the IMF itself should a country seem likely to require access to the Fund's resources.
To a considerable degree IMF consultations duplicate the assessments carried out regularly by the relevant organs of the European Commission. Nevertheless it remains useful to have two highly expert sources of scrutiny. That said, the fact that the two institutions cover different time frames keeps duplication to a minimum.
IMF consultations are carried out every two years. The EU assessment of its members' economy is ongoing, and updates come out every six months.
It is gratifying that both sources of analysis are currently concluding that the Maltese economy is making progress. Needless to say the government of the day highlights that part of the conclusions, for public consumption. Politics is all about headlines and punch lines. Political administration is something else again. The public bureaucracy - in this case the permanent Finance Ministry team and the Central Bank, as well as the Malta Financial Services Authority - will review the analysis in the round. Politicians live by the short term. Self-respecting and responsible public bureaucracies, while not ignoring the short term focus on the medium to long term.
Taking a medium term view the IMF analysis has confirmed a major weakness in the Maltese economy which has been persistent in its significance. It is that Malta has lost and continues to lose competitiveness. For an open economy heavily dependent on exports, competitiveness is crucial. That said, at first light there seems to be a contradiction.
The economy is growing and part of that growth is due to the export sector. How can exports grow if competitiveness is falling?
As with other aspects of the economy, it all has to do with segmentation. For politicians, growth is one dimensional: there is growth, therefore we are successful. For analysts and policy makers, growth has to be dissected. The old division between visible and invisible exports as important motors of growth is not enough. Within each sub-division one has to segmentise further.
There is much ado because two of the three main indicators of the tourist economy are growing. Arrivals and spending are steadily up, though stays are shorter, reflecting an international trend as well as the impact of low-cost carriers. The growth is obviously welcome, and one should not begrudge Tourism Minister Francis Zammit Dimech the satisfaction he must be feeling that his last months as a minister are turning out right and vindicating his optimism, even when the skies could not have been greyer.
One should not forget, however, the long period of decline suffered by the industry; nor can one become befuddled by short-term euphoria.
Still, the present going is good, and let all concerned enjoy the moment, even as they plan beyond it. Still, there is more to services than tourism.
(To be continued)