IMF calls for more reforms

The International Monetary Fund yesterday warned Malta not to take its economic resilience for granted, saying it required “sound governance” as the island enters what is likely to be a tough year.

This should be coupled with further reforms, particularly in relation to pensions, the restructuring of Air Malta and Enemalta Corporation, as well as better alignment of wages to productivity and improved rules for the financial sector, the IMF said.

The global authority on economy and public finances raised these issues while underling the island’s progress over the last few years, following an annual routine mission by its experts who met Maltese authorities, including the Central Bank and the Opposition.

Acknowledging the government’s “prudent macroeconomic policies” the IMF said the island had managed to rein in the deficit and put its financial house in order.

“Confidence in Malta’s public finances has been shored up by the European Commission assessment that Malta has taken effective action to correct its excessive deficit,” it said.

At the same time, it called for further consolidation over the coming years as the com-position of the adjustment “remains suboptimal, relying excessively on one-off and revenue measures”.

On the economy, the IMF concluded that after a strong recovery in 2010, Malta continued to perform relatively well in 2011 amid considerable turbulence across the euro area.

However, this year is seen presenting a real test as the threat of recession looms over the eurozone.

While Malta’s economic growth in 2011 was expected to be around 2.25 per cent of GDP, the IMF projected a downward revision to just one per cent, particularly due to the spillovers from the eurozone crisis.

“The primary challenge in 2012 will be the ability to navigate a highly uncertain macroeconomic environment with a deteriorating economic outlook, and ongoing banking and sovereign crises in Europe,”it said.

“Malta’s resilience to date cannot be taken for gran-ted; continued vigilance is required.”

In the current circumstances, Malta had to balance concerns over a slowing economy, which call for accommodative policies, against increased risks that require more prudent fiscal management.

Reiterating policy recommendations already mentioned in previous missions, the IMF said priority should be given to moving towards a balanced budget with a deficit correction of 0.5 per cent of GDP annually.