Central Bank Governor Josef Bonnici said that if our economy is diversified Malta will increase its resilience
Qouting the International Monetary Fund’s concluding mission statement where it was highlighted that Malta showed “remarkable resilience” in face of major crisis in Europe, Prof Bonnici said that the statement is an executive summary of the IMF’s conclusions of a report that has not yet been issued.
He was addressing the first meeting of the newly set up Economic and Financial Affairs Committee.
Through its statement, the IMF confirmed that Malta has a sound financial sector, further dispelling speculation regarding alleged similarities between Malta’s banking sector and those of ailing EU member states like Cyprus or Greece.
The committee was set up with the aim of scrutinising and discussing economic and financial reports in the face of economic and financial unrest which has heightened the need for greater awareness of developments in this area while also scrutinising the government’s work in this regard.
It is chaired by Labour MP Silvio Schembri, who also forms part of an EU subcommittee, and is composed of Finance Minister Edward Scicluna, and Labour MPs Charles Buhagiar and Michael Falzon, and Opposition MPs Robert Arrigo, Kristy Debono, and Tonio Fenech.
Prof Bonnici said that Malta outpaced the euro area in economic growth while exports were growing faster than imports.
“Malta’s economic resilience led to the gap between exports and imports,” Prof Bonnici said.
He pointed out that the growth in employment continued but at a slightly slower rate while adding that unemployment rate remained well below the euro area average.
On the banking sector, Prof Bonnici said that the IMF highlights that the risk resulting from the issue of a large banking sector in a small economy is contained because the large international banking segment has limited balance sheet exposures to Malta’s economy and negligible claims on the deposit compensation scheme.
He said that the average of non-performing loans by provisions were relatively low, meaning that many loans become non-performing after being in default for a number of days.
“To tackle the situation, Maltese banks should strengthen their provisioning rules to cover potential losses on loans,” Prof Bonnici said.
He said that despite a slowdown in the rate of the gross domestic product (GDP), employment increased.
Prof. Bonnici explained that “this situation normally arises because companies invest in workers hoping that the economy would at some point recover”.
He said that Malta’s current account balance witnessed a surplus.
Mr Fenech said that he could not recall Malta ever having a positive account balance.
“This is the first time I am encountering a positive current account balance,” he said.
Mr Fenech questioned if the government was looking into innovative ways to enhance the economy.
Ms Debono said that the previous administration discovered a number of niche markets including the gaming sector, among others. She asked how and if the present administration intends developing niche markets.
Prof. Bonnici said that Malta was on a positive trend while the eurozone was on an negative trend, referring to real GDP growth recovery.
Prof Scicluna highlighted that now that a new government has been confirmed in office, this was a sign of stability since there’s a government with a plan in hand, while adding that he hoped Malta would not re-enter the excessive deficit procedure.
Mr Fenech said it was highly likely that Malta would re-enter the excessive deficit procedure since it based its arguments on official figures.
Prof Scicluna said the fact that there was a fiscal slippage on the country’s deficit and debts, the EU was no longer trusting Malta.
Mr Fenech said that this government had to stop blaming the previous administration over Malta re-entering the excessive deficit procedure because nine months of this year would have been led by a Labour government.