It tends to happen every year of late when the International Monetary Fund publishes its yearly assessment on the Maltese economy.
The press and public are given one version of the IMF’s findings and recommendations by the government press releases and self-congratulatory statements, while the real statement itself, when one cares to look it up and sift through it, tells a slightly different story.
It is true that the IMF had words of praise for the government: that Malta’s economic growth remains one of the strongest in Europe, that the government’s prudent policies and advanced structural reforms contributed to the strengthening of private and public-sector balance sheets, and that steady job creation has driven unemployment to historically low levels.
But, at the end of the day, the IMF staff does not write government press statements, it gives a balanced assessment of the economy, and the government this year again failed to reflect that balance with its lofty statements on the report.
The IMF, one will not read from government statements, advised the government to wean itself off the IIP programme, to contain and prioritise public sector spending, to better supervise and regulate the financial services sector and to sort out its act when it comes to money laundering.
The IMF in fact warned the government that it must not become overly-reliant on the Individual Investor Programme. As is common knowledge, the much lauded budgetary surplus registered over this last year came as a result of IIP revenues.
And, it seems from the report of the IMF staff, which is given more insight into the government’s plans than what is revealed by press releases, the government has inadvisably hitched its medium term plans for economic success to the IIP wagon.
The IMF acknowledges that the government’s medium term plans to maintain a surplus of 0.5 per cent of gross domestic up to 2020 is ‘appropriate given the economy’s favourable cyclical position and remaining fiscal risks’.
But, the IMF warned in no uncertain terms, those targets are dependent partly on IIP revenues, which it correctly pointed out, ‘are temporary and hard to predict’.
As such, IMF staff urged the government to look elsewhere for revenue and to identify further structural measures would put the fiscal position on a stronger footing. In fact, it warned that ‘slow progress in addressing the remaining structural weaknesses could undermine growth prospects and erode competitiveness.
The IMF also advised Malta to sort out its spending on the public service, the size of which has mushroomed since 2013, saying that the government needs to increase public spending efficiency, including through an extension of the in-depth reviews to the broader public sector.
And it once again warned that the growing size and complexity of the financial sector represent a challenge for supervision, something the country has been familiar with in the wake of the Panama Papers and Financial Intelligence Analysis Unit scandals.
It called on the government - in light of the increasing number of financial firms under supervision, the rapid development of new products, and the evolving regulatory environment – ensure that the Malta Financial Services Authority is ‘adequately resourced to preserve its operational independence, to improve its capacity to retain experienced staff, and maintain effective supervision’.
In terms of money laundering, undoubtedly a sore point given the aforementioned scandals, the IMF called for a ‘robust implementation and effective enforcement’ of the Anti-Money Laundering (AML) framework, which it said is ‘critical given the fast-growing remote gaming activity and the high demand for the IIP’. Along similar lines, the IMF also called on the government to finalise the related National Risk Assessment and transpose the EU’s 4th AML Directive into national law.
We may have cherry-picked from the IMF statement, but after the government’s own cherry-picking exercise, this has been necessary and only fair. It is hoped that the government is, in fact, cognisant of the issues raised by the IMF and that it is not quite as delusional as it appears from its press releases and statements.