Malta has navigated the COVID-19 pandemic well but uncertainty over a possible resurgence of the virus and Malta’s “prolonged” financial greylisting remain issues of concern, the IMF has concluded.
In an announcement on its website, the International Monetary Fund this week said it had concluded a lengthy review of Malta.
The IMF is a United Nations body that seeks to foster global financial security, issuing balance-of-payments financing, as well as making forecasts and publishing outlooks on its members.
Last month, Times of Malta reported how a team from the IMF met with government officials and heads of local regulators this week as part of a scheduled review of the island’s finances.
Publishing the findings of its review, the IMF said the COVID-19 pandemic has hit the Maltese economy hard. Tourist arrivals fell sharply, and contact-intensive services were severely affected due to domestic mobility restrictions.
“As a result, real GDP contracted by 7¾ per cent in 2020, the worst recession in decades,” the IMF said.
Nonetheless, the authorities’ swift and bold policy response helped mitigate the impact, preventing large-scale layoffs, bankruptcies, and credit disintermediation, the IMF said.
Stronger economy, but ‘very high’ uncertainty
As vaccination proceeds and containment measures ease, economic activity is strengthening.
As a result, consumer and business confidence have recovered to pre-COVID-19 levels, and signs of labour markets tightening are already emerging.
However, uncertainty is still “very high”, with risks to the outlook tilted to the downside, including from a global resurgence of the COVID-19 pandemic and “a prolonged placement in the Financial Action Task Force (FATF) grey-list”.
On the upside, recovery from the pandemic could be faster than expected due to swift global vaccination boosting confidence and economic activity.
The IMF commended Malta’s authorities for “swift and bold response to the COVID-19 pandemic”.
In a statement on Saturday, the government noted how the IMF had words of praise for Malta’s efforts.
Focus on infrastructure investment
Meanwhile, the IMF said that once the recovery is fully entrenched, efforts should focus on fostering infrastructure investment and economic transformation.
The IMF encouraged strengthening tax administration, managing contingent liabilities, and ensuring pension system sustainability.
They also recommended a holistic review of the overall tax system, taking into consideration the global minimum corporate tax proposal.
The organisation also noted that Malta plans on reviewing its infrastructure investment and management framework. This it said was critical to boosting Malta’s capacity to absorb EU funds.
While the banking system has proved resilient, the IMF encouraged the authorities to closely monitor banks’ financial positions and risk management.
While noting recent progress in strengthening the island’s anti-money laundering framework, the IMF called for urgent action to address the remaining deficiencies and exit the FATF’s grey list as soon as possible.
The IMF also advised the authorities to continuously assess high-risk activities and their impact on correspondent banking relationships.
Ultimately, the organisation welcomed the authorities’ commitment to reducing greenhouse gas emissions in line with EU targets.
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