Beyond the praise
We publish in one issue, exceptionally, three assessments of the Maltese economy which were all published in the space of a week. All from reliable institutions like Fitch, the IMF and the European Commission.
All sang high praise for the Maltese economy. Fitch expects the Maltese economy will continue to outperform eurozone peers. Malta is one of fastest-growing economies in Europe, said the IMF, while the Commission said: Real GDP growth was among the highest in the EU in 2014-15, reaching 7.9%, driven by strong net service exports, robust private consumption and a surge in investment, partly due to one-off factors.
This is then echoed by the ratings in the case of Fitch: Fitch Ratings has affirmed Malta's Long-term foreign and local currency Issuer Default Rating at ' A' with Stable Outlooks.
Common to these three reports there is praise for the resilience of the Maltese economy and its sectors and also praise for the way the government has been managing the economy.
But there are also some understated warnings and the government, and the country, would be very much mistaken if they were to disregard them.
Let us take the last report, that by the European Commission, which states in clear terms: “Overall, limited progress has been made in addressing the 2016 countryspecific recommendations. Measures have been taken to improve the sustainability of public finances, particularly regarding age-related budgetary costs. The full impact of these measures on public expenditure, however, is not yet certain.
“Some progress has also been made in strengthening labour supply by improving access to and participation in lifelong learning, with a focus on the low-skilled. Regarding the progress in reaching the national targets under the Europe 2020 strategy, Malta has made progress towards its target on employment.
“However, there appears to remain a gap with respect to the targets for reducing greenhouse gases, raising R&D expenditure, increasing renewable energy provision, improving energy efficiency, reducing early school leaving, increasing the tertiary education attainment, and reducing poverty. “
IMF said: “Directors noted that the banking system is well capitalized and liquid, with profitability well above levels seen in peers. However, they observed that protracted low interest rates, weak credit growth, legacy corporate nonperforming loans, and an uncertain external environment pose challenges.
“In addition, banks’ high and increasing exposure to the property market alongside persistent house price appreciation could also lead to imbalances. They encouraged the authorities to deploy targeted macro-prudential tools to enhance the resilience of banks and households to property market swings, close data gaps, and review the fiscal incentives related to the property market.
“While there has been progress in reducing nonfinancial corporate sector’s legacy NPLs, Directors noted that a faster resolution of remaining distressed loans would help unlock resources for growth. They welcomed the authorities’ plans in this area, including their intent to streamline the insolvency and bankruptcy frameworks. Directors underscored that maintaining a robust implementation of the AML/CFT framework in line with international standards would also help continue safeguarding the integrity of the financial system.”
And finally, Fitch said: “Future developments that could individually or collectively, result in negative rating action include:
“-Significant slippage from fiscal targets leading to deteriorating public debt dynamics.
“-Crystallisation of material contingent liabilities or a shock to the banking sector that requires fiscal support.”
We the people and the government would do well to heed such advice and act accordingly. Malta, it is often remarked, is a small and open market and the slightest change of deterioration in our trading partners must not find us unprepared.