The government was ecstatic when the latest IMF country report on Malta was published earlier this week, and there was good reason to celebrate.
In short, the report said Malta’s economic growth remains one of the strongest in Europe, and this was the result of favourable economic conditions and sound government policies.
The report speaks of stronger public balance sheets, robust growth, dynamic job creation and record-low unemployment.
In a press release on the day the report was published, the government referred to the IMF’s comments on the IIP – Malta’s controversial passport sale scheme - which is set to be extended by a second round. The IMF, the government pointed out, said the “application process is subject to stringent due-diligence by Identity Malta, resulting in a rejection rate of around 20%” and “the cost of the IIP is relatively high compared to other citizenship programs.”
But there were other comments the IMF made on the IIP, and which did not feature in the government press release.
It noted that, while some €230 had been collected from the scheme in 2017, no funds had been “committed to specific projects by the end of the year.” It was perhaps unaware that more than €20 million had been used to buy BOV shares.
The figures also point towards an overreliance on the IIP as a revenue generator.
The revenue figure for 2017 (€230 million) is roughly equivalent to 2.1 percent of GDP and 5.4 percent of fiscal revenue. The government has been warned before that it is relying too much on the scheme – which is approved by the European Commission – and this could be unsustainable in the long term. This administration has also been warned about the consequences of not creating new sectors and diversifying the economy.
The report published this week, in fact, points out that fiscal challenges of the IIP “include achieving a prudent management of the inflows, which might be volatile and unsustainable.”
The report makes it clear that even projections for the coming year depend on the IIP’s performance. “The fiscal surplus is projected to stand at 0.8% of GDP in 2018 and then moderate slightly to 0.5% of GDP at the end of the forecast horizon. Nevertheless, the attainment of these targets partly depends on IIP proceeds, which are volatile and difficult to predict.”
It also warns that macro-financial risks could be triggered by a rapid influx of housing investment, leading to property market bubbles, adding that “reputational and money laundering risks may arise if the due-diligence procedure is not sufficiently rigorous.”
Indeed, several news reports published over the past few weeks seem to show that the due diligence being carried out by Identity Malta is not all that it is made out to be, and that the reputation of the country, which is not exactly a stranger to money laundering claims, has continued to suffer.
“Robust implementation and effective enforcement of the Anti-Money Laundering framework is critical given the size of Malta’s financial sector, the fast-growing remote gaming activity, and the high demand for the IIP,” the IMF stated this week.
If anything, this report has reconfirmed how over reliant Malta is on a controversial and unethical scheme, which goes part and parcel with the ‘quick buck’ mentality.
We believe that the government should now consider the IIP as a one-time experiment that was successful form a financial aspect but should refrain from extending the scheme.
Good money was made and the funds should be spent wisely, but we should now move away from the controversy that is the IIP and focus on bringing in new and more ethical economic sectors.
While it is true that millions were collected from the IIP, there were negative considerations as well, including the damage to our reputation abroad and the exploding rents.
We should start moving in a new direction now, for this cash cow will not and cannot last forever, especially if the EC wakes up to the real situation and changes its stance on Malta’s citizenship for sale scheme.