Following the European Commission’s decision to revise upwards their forecast for Malta’s economic growth in 2021, it was the turn of the International Monetary Fund to do the same. This foremost economic institution now expects Malta’s economy to grow by 5.8% this year. While in the forecast made last April, it anticipated GDP to grow by 4.7% this year, the IMF now expects growth to reach 5.8%. This growth is two percentage points higher than the estimate made by the Finance Minister, implying that our economy will grow one and a half times what was originally expected.
Every year Malta, like other developed economics, is subject to a very extensive economic surveillance programme by the International Monetary Fund. This programme culminates with an annual visit by a team of economists, financial and legal experts. These then report their findings to the IMF management and discuss them with the Executive Board of the institution that then authorises the issue of an Article IV report.
These assessments are no walk in the park. For instance, in the 2009 report, the IMF experts had harangued the Maltese government that its fiscal position had “deteriorated sharply in 2008, owing to one-offs and spending slippages”. They had said the fragile state of public finances meant that government was limited in how to help firms and households deal with the global crisis. They criticised the operations of state-run enterprises and remarked that inflation had failed to moderate. They called for labour market reforms and for supervision of the financial sector to be beefed up in view of its considerable risks.
While in the forecast made last April, it anticipated GDP to grow by 4.7% this year, the IMF now expects growth to reach 5.8%.
The initial feedback from this year’s IMF mission was much more positive, especially in view of the considerable economic shock of the pandemic. But whereas in past years, IMF experts were wary of Malta’s ability to properly manage its finances, this time round they showed no such qualms.
The IMF report is clear on the reasons behind our country’s rapid recovery following the severe impact of the pandemic. In fact, it remarks that “the authorities’ swift and bold policy response helped mitigate the impact, preventing large-scale layoffs, bankruptcies, and credit disintermediation”. These support measures have been a fruit of the administration’s wisdom to build up fiscal buffers.
The IMF report also answers the question raised by the Opposition, as to where the surplus is. In fact, IMF experts urge the Government to rebuild the country’s fiscal buffers as soon as the pandemic is over.
Confident of the recovery, the international experts have urged the Government to start tapering some support measures, turning them into programmes that help the future growth and transformation of the Maltese economy. The report urges the Government not to hesitate to help businesses where necessary. This is the opposite of the Opposition’s arguments that this administration is intent on wasting money. Similarly, while the Opposition spokespersons harp that Government does not have a fiscal and economic plan, IMF experts say they agree with the Government’s strategies, especially in the area of infrastructure.
While Dr Bernard Grech states that the Government has lost control of the situation, at the end of their extensive analysis of our economy, IMF experts overwhelmingly revised upwards their forecasts for our country’s economic expansion from 4.7% to 5.8%. This upward revision of more than one percentage point is even greater than that carried out by European Commission experts recently.
In fact, IMF economists are more confident than those of the European Commission, both for this year and for the next. So much so that they are forecasting an economic growth rate of 6% for 2021. Even in this case this marks an upward revision in the growth rate for our country, this time by almost half a percentage point. The IMF praises Malta’s vaccination programme and noted how confidence among families and businesses has already reached pre-pandemic levels.
On the country’s greylisting the IMF report notes how “over the past two years, the authorities have made good progress in strengthening the AML/CFT framework, including by addressing technical deficiencies”. It urgesGovernment to implement the action plan agreed with the FATF and argue that we should continue to strengthen governance. These are fair comments and reflect the path that our country is committed to pursue.
More importantly, these international experts had a good look at and welcomed the various strategies the Government has been launching recently for our country. They argue that if it implements these plans Malta should remain “among Europe’s digital frontrunners”. They also note the ambitious plan for our country to reduce emissions. Crucially, they argue that digitalisation and decarbonisation are the best guarantee of continued high and more sustainable growth.