The Maltese economy will face some challenges from a weakening global economy, higher food and fuel prices, and possible risks in the financial sector, the executive board of the International Monetary Fund stated in a report.
The report was drawn up by the IMF executive directors after a staff team from the IMF recently held a bilateral meeting with the Maltese authorities.
The report said that the decline in "traditional sectors" could "accelerate and outpace the emergence of new export activities".
The IMF directors underlined the importance of Malta continuing to pursue sound fiscal policies, increasing the flexibility of the economy, bolstering productivity growth, and monitoring developments in the financial sector closely.
The directors praised the Maltese authorities' fiscal performance, and welcomed measures to contain public spending ths year as necessary for continued progress in reducing the budget deficit.
"In particular, directors viewed the increase in retail electricity tariffs as instrumental in limiting expenditure overruns, and encouraged the authorities to follow through with further steps toward full cost recovery while supporting efforts to protect low-income households. The announced elimination of certain subsidies - notably those to public shipyards - in 2009 are also important steps in putting the public finances on a sound footing," the report states.
The IMF directors supported the authorities' objective of a budget structural balance by 2010, and reiterated the desirability of targeting a surplus thereafter, "given the vulnerabilities inherent in the economy's small size and prospective demographic pressures on spending".
The report observed that Malta's banking system appears well-positioned to weather the global financial turmoil, "as banks have healthy liquidity and a good funding profile". At the same time, the directors noted that the banks' still-high level of nonperforming loans, relatively thin provisioning, and concentrated exposures in the cooling housing sector called for "increased supervisory vigilance aimed inter alia at augmenting provisioning buffers".
The report welcomed the upgrading of the supervisory and crisis management frameworks, and recommended more frequent public reporting by the main banks. "It would also be useful to review the existing legal authority and institutional mechanisms to act expeditiously in a crisis situation in light of recent international experiences," it said.
The report stressed the importance of strengthening labour and product market flexibility, and further streamlining the public sector, "to realise Malta's growth potential and maintain competitiveness within the EMU".
The IMF directors recommended Malta's implementation of the EU services directive to foster competition in sheltered markets, and reinforcing the competition and statistics authorities. They encouraged the authorities to consider means to relax the price indexation of wages "which could entrench inflationary dynamics and hinder alignment between wage and productivity increases".
The report pointed out that further privatisation in the banking sector would help to strengthen economic resiliency and seize new growth opportunities.
The IMF directors congratulated the authorities for Malta's successful EMU entry last January 1.
"The authorities' strategy of boosting growth and external competitiveness through closer regional and global integration, supported by fiscal adjustment and liberalising reforms, has catalysed foreign direct investment, the emergence of dynamic new export sectors, and attendant productivity gains. Malta's three-year-long expansion in employment and activity largely reflects economic opening and public sector rationalisation," the report said.
The report was drawn up by the IMF executive directors after a staff team from the IMF recently held a bilateral meeting with the Maltese authorities.
The report said that the decline in "traditional sectors" could "accelerate and outpace the emergence of new export activities".
The IMF directors underlined the importance of Malta continuing to pursue sound fiscal policies, increasing the flexibility of the economy, bolstering productivity growth, and monitoring developments in the financial sector closely.
The directors praised the Maltese authorities' fiscal performance, and welcomed measures to contain public spending ths year as necessary for continued progress in reducing the budget deficit.
"In particular, directors viewed the increase in retail electricity tariffs as instrumental in limiting expenditure overruns, and encouraged the authorities to follow through with further steps toward full cost recovery while supporting efforts to protect low-income households. The announced elimination of certain subsidies - notably those to public shipyards - in 2009 are also important steps in putting the public finances on a sound footing," the report states.
The IMF directors supported the authorities' objective of a budget structural balance by 2010, and reiterated the desirability of targeting a surplus thereafter, "given the vulnerabilities inherent in the economy's small size and prospective demographic pressures on spending".
The report observed that Malta's banking system appears well-positioned to weather the global financial turmoil, "as banks have healthy liquidity and a good funding profile". At the same time, the directors noted that the banks' still-high level of nonperforming loans, relatively thin provisioning, and concentrated exposures in the cooling housing sector called for "increased supervisory vigilance aimed inter alia at augmenting provisioning buffers".
The report welcomed the upgrading of the supervisory and crisis management frameworks, and recommended more frequent public reporting by the main banks. "It would also be useful to review the existing legal authority and institutional mechanisms to act expeditiously in a crisis situation in light of recent international experiences," it said.
The report stressed the importance of strengthening labour and product market flexibility, and further streamlining the public sector, "to realise Malta's growth potential and maintain competitiveness within the EMU".
The IMF directors recommended Malta's implementation of the EU services directive to foster competition in sheltered markets, and reinforcing the competition and statistics authorities. They encouraged the authorities to consider means to relax the price indexation of wages "which could entrench inflationary dynamics and hinder alignment between wage and productivity increases".
The report pointed out that further privatisation in the banking sector would help to strengthen economic resiliency and seize new growth opportunities.
The IMF directors congratulated the authorities for Malta's successful EMU entry last January 1.
"The authorities' strategy of boosting growth and external competitiveness through closer regional and global integration, supported by fiscal adjustment and liberalising reforms, has catalysed foreign direct investment, the emergence of dynamic new export sectors, and attendant productivity gains. Malta's three-year-long expansion in employment and activity largely reflects economic opening and public sector rationalisation," the report said.