Given Malta’s strong economic outlook, now is an opportune time for broad-based reforms to raise its growth in a sustainable manner and reduce vulnerabilities, according to the International Monetary Fund.
The analysis notes that the country continues to weather the global crisis well. Real GDP growth has been one of the highest in the euro area since the crisis and is driven by domestic demand.
It also notes that despite a robust outlook, Malta faces important challenges.
Following a visit by its experts, the IMF pointed out that policy priorities are reducing public debt in a sustainable manner, developing a strategy for non-performing loans and containing fiscal pressures through reforms on pensions, healthcare and public corporations.
Efforts are also needed to further boost the resilience of Maltese banks and ensure robust supervisory and contingency arrangements
The IMF also considers it a priority for the government to advance reforms in the labour market and judicial system and reduce the cost of capital to maintain competitiveness.
The country needs to boost efforts to increase female labour force participation and vocational training, which are seen as important measures to sustain competitiveness and increase potential growth. A closer alignment of wages and productivity would support these efforts.
Efforts are also needed to further boost the resilience of Maltese banks and ensure robust supervisory and contingency arrangements.
A development bank – which is being considered by the government – could help stimulate nascent markets. However, it should not be in direct competition with commercial banks, should have a clear and periodically re-evaluated mandate, be effectively supervised and have strong governance, the IMF said.
“This report confirms Malta is moving in the right direction,” the government said in a statement.
The Nationalist Party said the IMF echoed the warnings the Opposition has been making on public expenditure, particularly the additional cost of the increase in government jobs.
In the first half of this year the country’s public debt increased by more than €0.5 billion, according to the Opposition, which said this was the highest rate of increase since the country joined the EU.
The PN urged the government to follow the IMF’s advice and change its focus from enlarging the public sector to introducing incentives to motivate industry and the owners of small to medium sized enterprises for them to increase productivity.