Updated at 4.15pm: Adds PD statement
A report by the International Monetary Fund (IMF) has sounded warnings on Malta’s reliance on the Individual Investor Programme (IIP), more commonly known as the cash-for-passports scheme, and on rising local property prices.
In its report, the IMF said that there was a need for sustained efforts to safeguard the financial system’s integrity, through robust and effective enforcement of anti-money-laundering laws.
Members of the European Parliament were highly critical of the passport scheme during a recent debate on the rule of law in Malta, and the European Commission is conducting a review of all such schemes in the EU.
The IMF said anti-money-laundering laws were critical given fast-growing remote-gaming activity and the high demand for the Individual Investor Programme.
Malta has yet to implement the EU’s latest anti-money-laundering rules, a point which was picked up on by the IMF.
It also said the increasing number of financial firms under supervision, the rapid development of new products and the evolving regulatory environment had put the MFSA under strain, despite its recent expansion.
Ensuring that the MFSA had adequate resources was critical to preserving its operational independence, improving its capacity to retain experienced staff and maintaining effective supervision, the IMF said.
The attainment of public debt targets depended partly on IIP revenues, which the IMF said were temporary and hard to predict.
Introducing periodic reviews of the scope and parameters of the IIP, including the minimum real estate investment or leasing values, could help curb the housing demand pressure and improve the predictability of fiscal revenues, the IMF said.
The IMF called on the government to tackle housing pressures, saying persistent strength in mortgage lending and demand for properties could lead to imbalances and potential repercussions. While the IMF said it did not see immediate financial stability risks, housing prices appeared to have entered a modest overvaluation territory by several metrics.
It recommended introducing targeted limits for mortgage lending to enhance the resilience of bank and household balance sheets to possible housing price corrections and increases in interest rates.
The government should ensure that fiscal incentives did not amplify the housing cycle by aligning the tax rate on rental income with tax rates on other sources of income, it said.
An accelerated delivery of social housing would mitigate the impact of rising housing prices on the poor, the IMF added.
It warned that international attempts to erode Malta’s tax advantages may affect Malta’s fiscal position unfavourably due to the high share of corporate tax revenues in total revenues, which called for broadening the tax base and strengthening revenue collection.
PD statement
In a statement this afternoon, Partit Demokratiku said it will be moving a motion in Parliament calling for a debate on the report.
It called on the government to consider well the observations and clear warnings it had been given, similar to warnings given repeatedly by the Democratic Opposition as well as by civil society.
It encouraged the government to take the necessary steps for the country's administration to take on the road to sustainability before it was too late.