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STANDARD AND POOR’S REPORT ON MALTESE ECONOMY
pr1188
08/08/2001
08/08/2001
| Standard and Poor’s have on 6th August | 2001 confirmed their ratings for Malta and have also given a stable outlook. In their statement, Standard and Poor’s commented on the positive indicators that are noticeable in the Maltese economy, especially the improvements registered in the budget balance. |
| This positive assessment follows the very positive | report issued by IMF last week. All this shows that government’s efforts to bring the deficit to sustainable levels, after its hike to nearly 12% of GDP after 20 months of labour government, is giving Malta credibility on the international front. |
| The IMF Report welcomes the positive outcome of Malta’s | post-1998 economic strategy and endorses the Government’s current macroeconomic policy stance, while calling for more ambitious reforms to defend competitiveness, particularly in the context of a possible slowdown in Malta’s export markets caused by the slowdown being experienced in global markets and in developed economies. |
| The Report notes that Malta’s macroeconomic | performance improved in 1999 and 2000, when real GDP growth was robust, driven by strong fixed investment and exports. Economic growth has been accompanied by rising employment and lower registered unemployment, and by a decline in inflation. These trends mainly reflected strengthened fiscal and structural policies. These included a significant reduction of the fiscal deficit, a reinforcement of the tax system – including the successful reintroduction of VAT, a bold privatisation programme, better financial regulation as well as the removal of controls on trade, interest rates and capital flows. The IMF Executive Board’s assessment, which is contained in a Public Information Notice (PIN) that has been released by the IMF on Friday 3rd August 2001, notes that "these achievements leave Malta well placed to pursue its application to join the European Union" |
| The Report does stress, however, that the policy | framework needs to remain firm, particularly in 2001 if external market conditions weaken. It notes the sharp deterioration in the current account last year, which resulted in a deficit equivalent to 14.5% of GDP. The Report acknowledges that this deterioration mainly reflected temporary factors, but the underlying external deficit remains high and may be affected by the weaker external environment. Thus the Executive Board in its assessment supports the intent of the Maltese Authorities to achieve further fiscal consolidation in order to secure a sustainable current account balance over the medium term. |
| The Report also mentions the importance of addressing | the fiscal deficit from the expenditure side. A number of measures are identified to rationalise public spending, namely the curbing of subsidies to public enterprises, pensions reform, stricter control over the Government wage bill and an impetus to the privatisation process. The medium-term fiscal programme should aim to lower the overall tax burden relative to GDP. |
| As regards the Maltese lira, the Report notes that | the present fixed exchange rate regime has served Malta well. The durability of the peg, the openness of the economy, the strength of the financial system and the flexibility of private sector labour markets all indicate that the pegged regime remains appropriate. Further action is, however, necessary to support the peg, in particular efforts to ensure continued appropriate flexibility of nominal and real wages. |
| In the context of an open capital account the Report | stresses the importance of a more flexible monetary policy to ensure an appropriate level of external reserves as foreign interest rates rise and fall. Here the Report remarks that the proposed amendments to the Central Bank of Malta Act, - the adoption of a clear mandate to maintain price stability, the prohibition of direct lending to the Government, and steps to strengthen the Bank’s independence -, should boost market confidence in the Bank’s monetary policy. The effectiveness of this policy would be further enhanced by the maintenance of a robust financial system. |
| Finally, commenting on statistical issues, the Report | says that Malta subscribes to the IMF’s General Data Dissemination Standard (GDDS) and its statistics are generally of good quality. Surveillance, however, would be enhanced by shortening the lags with which some of the key data are produced. |
| The Government welcomes the IMF’s endorsement of its | economic policies and strategic direction. It is also broadly in agreement with the IMF’s recommendations in so far as they are designed to strengthen Malta’s competitiveness. When implementing economic reform the social impact should be kept well in view. This is why, over the years, government has adopted a gradualist policy, the IMF recommendations, can be implemented more successfully if the Government receives the full support and co-operation of all the social partners. |
| In line with last year’s decision to publish the | IMF reports, the government is distributing the last report with this press release. |
(Further information can be viewed at www.imf.org)
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