‘Strong increases in housing prices may raise financial stability risks’
● IMF report cautions against an over-reliance of the IIP
A report by the International Monetary Fund (IMF) staff cautions that strong increases in Malta’s housing prices may “raise financial stability risks” and stem the influx of foreign workers.
It even went as far as saying that “introducing periodic reviews” for the controversial Individual Investor Programme (IIP) programme, “including the minimum real estate investment or leasing values could help curb the housing demand pressure and may improve the predictability of fiscal values”.
In recent months, the Malta Developers Association released a study it commissioned where it was said that Malta is not in a housing bubble and in terms of purchasing a home, real estate has become more affordable. It did concede however that supply of budget-rental properties is not plentiful.
The IMF report praised the nation’s sustained economic growth however cautioned against an over-reliance of the IIP as a source of revenue. The IMF also described the need for infrastructure to keep up with the fast growing economy and for improving the country’s labour supply to close the current skills gap as Malta’s main challenges to date.
The report comes from concluding remarks based on preliminary findings by the IMF staff at the end of a state-approved staff visit.
Praise was also awarded, with the IMF’s opening remarks as follows: “Malta’s economic growth remains of the strongest in Europe, reflected by rapid income convergence towards the EU average. Prudent policies advanced structural reforms and contributed to the strengthening of private and public-sector balance sheets, while steady job creation drove unemployment to historically low levels”.
It did however provide an objective snap-shot at possible areas of concern for the future. It described how domestic banks remain-well capitalised but also face several challenges such as bank profitability being “subject to headwinds from subdued lending to the nonfinancial corporate sector” as well as low interest rates and regulatory changes.
In addition, it also drew attention to the declining legacy corporate non-performing loans and the high concentration of property-related loans as possible challenges.
‘Sustained efforts needed to safeguard the financial system’s integrity’
The report called on effective enforcement on anti-money laundering laws, describing it as “critical given the fast-growing remote gaming activity and high demand for the IIP”.
Malta will be implementing the EU’s 4th directive on anti-money laundering laws in roughly two years’ time, with government stating that the idea is to give companies time to adapt accordingly.
The Malta Financial Services Authority (MFSA) was given special mention where the report called for “ensuring that the MFSA has adequate resources” in order to “preserve its operational independence, improve its capacity to retain experienced staff and maintain effective supervision”.
An increasing number of financial firms under supervision and the “rapid development of new products” are both listed as reasons why the MFSA has been put under great strain. Government has pushed for Malta to be at the forefront of financial technologies such as blockchain and cryptocurrency which poses a challenge to financial authorities all over the globe due to the sector’s relative infancy.
Partit Demokratiku statement
In a statement Partit Demokratiku (PD) urged the government to take note of the observations and words of caution issued in the above report.
“Such cautions were already relayed to government by the Democratic Opposition as well as representatives of non-governmental organisations and civil society.”