The Malta Chamber of Commerce, Enterprise and Industry took note of the recently-published preliminary findings of the IMF mission to Malta.
The mission once again acknowledged the country’s economic resilience despite the situation in the region. The findings show that the country’s performance was underpinned by strong export growth and a sound banking system. The mission projected a moderate increase in real GDP growth between this year and 2015.
The Malta Chamber is confident that the projected growth rates are realistic, particularly in view of the several projects and initiatives that are expected over the coming years and which are at an ‘expression of interest’ stage.
Confidence is by no means a justification for complacency
The Chamber’s confidence, however, is by no means a justification for complacency. In fact, the mission noted certain short-term economic risks. These mainly related to external factors such as the projected sluggish growth rates in Europe, which are expected to prolong further.
The mission also noted that discussions at European and international level could lead to further fiscal harmonisation that could impact on Malta’s competitive edge.
The Malta Chamber noted this and similar messages coming from the European institutions and continues to maintain that fiscal harmonisation would affect the country in a disproportionate manner given its relatively higher degree of openness and overdependence on exports and FDI.
Given our innate insularity and lack of natural resources, our fiscal regime has served us well in maintaining a competitive edge over other countries.
Calls to change such a system would place the results achieved over the last decades in jeopardy.
The country needs to make its position clear with its European partners that such a move would not be acceptable.
The Malta Chamber welcomed the IMF mission’s clean bill of health for the local banking and financial markets.
As the European Commission, Fitch and Standard & Poors’ opined before it, the IMF made reference to Malta’s “relatively strong fundamentals”; the satisfactory recent performance of local banks; their adequate capitalisation; and their preparedness for the Basel III regime.
It also correctly highlighted the fact that banks’ deposits and credit flows to the private sector continued to increase as well as to the fact that “the large international banking segment has limited balance sheet exposures” to the rest of the economy.
The IMF mission further commented on the public finances situation insisting on a balanced Budget in the medium term as a matter of top priority. Similarly, this view was communicated by the European Commission from where it has since transpired that Malta is likely to face an excessive deficit procedure over the 2012 Budget.
In line with previous pronouncements, the Malta Chamber also calls on the new Administration to give this matter urgent priority not through higher tax burdens but through a fairer distribution of the burden.
The country must no longer allow the law abiding section of the economy to continue carrying an unfair share of the burden. This has direct implications on the country’s competitiveness.
The IMF also pointed out that public corporations’ profitability and viability is to be addressed due to the high level of government-guaranteed debt. The Malta Chamber has also flagged this preoccupation in the recent past but is happy to note the plans for both Enemalta and Air Malta to emerge from their current predicaments. The Chamber is hopeful that these plans are on track and that they will yield the desired results.
The IMF mission also noted that wage indexation continued to impinge on national competitiveness. It suggested that wages and productivity should be better aligned as the Chamber has been doing for several years. In fact, the Malta Chamber has long been calling for a review of the COLA mechanism to ensure its sustainability as an instrument to compensate workers for inflation.
The current mechanism is both basic and inflexible. A decision to include a measure of productivity in the COLA calculation is long overdue, particularly at a time when direct competitors and neighbouring countries are implementing bold reforms to boost their productivity and competitiveness.
Other structural reforms proposed by the IMF included the promotion of foreign investment, the efficiency of the judicial system, pension reform and female participation in the labour market. All these reforms are clearly identified as bottlenecks to growth, which continuously hinder our competitiveness as country.
The Malta Chamber has long identified them and has pronounced itself in the past on the need to effectively address them.
In conclusion, the Malta Chamber is largely in agreement with the suggestions laid out in the IMF report. In fact, these were aimed at increasing Malta’s competitiveness and bringing the country’s financial house in order. These economic objectives are much in line with those consistently promoted by the Malta Chamber over the years.
The Chamber is confident in the continued resilience and dynamism of the private sector in propelling the Maltese economy in the years to come but stresses on the need to reform and restructure where required and in a timely manner in order to ensure the right conditions for the generation of growth and prosperity in the country.
David Curmi is president of the Malta Chamber of Commerce, Enterprise and Industry.