The International Monetary Fund has issued a generally positive assessment on Malta, while warning that the global crisis had started to affect the manufacturing and tourism sectors, weakening growth prospects and jeopardizing the hard-won gains achieved ahead of euro adoption.

In its country report, the IMF noted that fiscal consolidation came to a halt in 2008, with the deficit widening to over 4.5 percent of GDP, both as a result of restructuring measures in the shipyards and of spending slippages, most notably in energy subsidies and the health care sector. With the economy deteriorating, the authorities were letting the automatic stabilisers play and were implementing a stimulus package, focused on infrastructure projects and support to the manufacturing and tourism sector.

The IMF directors urged the government to improve the composition of the fiscal stimulus by winding down measures to support enterprises as the implementation of planned investment projects gathers pace.

"While recognizing the need to avoid premature withdrawal of fiscal support, directors considered it important that consolidation efforts start as soon as feasible, with a number suggesting frontloaded measures in order to reach the Maastricht deficit target by 2010."

They welcomed recent steps to privatize the shipyards industry and eliminate utility subsidies.

The banking sector was praised for the way it has weathered the global crisis.

"However, rising non-performing loans and credit concentration in the context of the downward correction in property prices and the economic slowdown have increased vulnerabilities. Directors recommended that banks build additional capital buffers and set provisioning more proactively."

The IMF directors also looked forward to cost adjustments and productivity improvements, in particular a move toward productivity-linked wage increases and a restructuring of public enterprises. They welcomed progress in utility tariff reform, and recommended that the new price-setting formula be applied fully and transparently.

The report can be found at

http://www.imf.org/external/np/sec/pn/2009/pn09116.htm

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