A dark cloud floats over the island; it is to be hoped that it will quickly pass to let in the sunshine. Realistically, we know that living in hope is a chancy habit so let us collectively take the bull by the horns and start analysing the media reports that stole the headlines last year.
In particular, the assassination in 2017 of journalist Daphne Caruana Galizia, masterminded by a property magnate with close links to Castille, has belatedly led to the resignation of a Prime Minister, a Chief of Staff and a Tourism Minister. It is to be hoped that the new Cabinet, headed by Robert Abela, will be bold enough to clean the Aegean Stables.
For some time - since the Pilatus, Nemea, Satabank and De Santos sagas - we have read about critics pointing to the tolerant attitude taken by the FIAU and the MFSA. For example, while he was testifying under oath, the ex-MFSA chairman, Prof. Bannister, was asked about the licensing of Pilatus Bank. He expressed full faith in the integrity of his staff, also saying that he had spoken to Juanita Bencini of KPMG (the auditors of Pilatus) who told him that the FIAU had sent a letter advising that everything was in order and he was not told of any deficiencies. He said: "I was not privy to anything the supervisory council did". To which Judge Michael Mallia replied: "I'm sorry, but I don't believe you". The Pilatus circus continues...
It is true that EU countries have not escaped a fair share of financial scandals but practitioners in Malta pride themselves on the fact that we were told by the MFSA that the regulatory net has always been effective in keeping out the big, bad wolf. Recent reports - such as those from Greco, Moneyval, the IMF and the Venice Commission - have tightened the noose around the administration to reform the system and, in the medium term, try to stem the leaks. While, as a small country, our misdemeanours are spotted and sometimes over-amplified in Brussels, it must be admitted that the closure of three local banks last year has taken its toll on public opinion.
Practitioners who tour the world promoting the island are now feeling the cold blast of negative publicity. The passport scheme has been criticised at European level, with media sources reporting the adverse comments by the Chairman of the PANA Committee, who claimed that the IIP should be stopped. Alex Muscat - the Parliamentary Secretary responsible for MIIP - disagrees. He applauds the millions collected since 2014 (about €835million), of which Henley & Partners - the exclusive concessionaire - earned €36.8 million and about €515 million has been deposited in the National Development and Social Fund.
Such contributions have created a feel-good factor and the government wasted no time in increasing the minimum wage and welfare payments. Bulgaria, Cyprus and Malta were singled out by the EU in a recent report that, inter alia, complained that passport buyers do not manifest a clear and permanent link to host countries. Yet, the outgoing Prime Minister, Joseph Muscat, had always showered positive comments on the IIP scheme. For some surreptitious reason, he offered his time and presence - free of charge - to address all international events organised by the sole concessionaire, Henley & Partners.
Muscat proudly announced the "four stage" due-diligence structure administered by Identity Malta which, in his opinion, classifies the gold standard. More grey clouds loom over our horizon when one reads the publication of the IMF report. Among many recommendations, one finds advice urging the government to improve support for start-ups. These are finding access to credit being hindered by red tape and the perennial demand by banks for tangible collateral.
Equally important is the need to upgrade training of the labour force to be able to attract international companies such as the much-hyped Blockchain, Fintech, DLT and ICOs to Malta.
The mantra of "Blockchain Island" was heralded by the government, which has sponsored mega conferences since September 2018 but, alas, the vigour seems to have petered out. The fact that no bank dares to open an account for such a crypto business has resulted in entrepreneurs seeking other shelters such as Estonia - which offers a friendly touch to the sector.
An ideal way to attract talent to sustain such disruptive sectors is to establish an innovation hub of international repute supported by venture capital. Many party apologists laud the meteoric rise in the construction and luxury property sectors. This sector has flourished, helped by a pro-business approach on the part of the Planning Authority and attempts by government to offer prime sites to certain developers at fire-sale prices. Such frenzy has created a rapid gentrification, with a 24 per cent rise in property prices.
Top estate agents have never had it so good, with some employing over 400 full-time property negotiators on a generous commission basis. Naturally, if and when the tide turns (as most likely it will) then a property mismatch is expected. To mitigate the fallout from this potential calamity, the IMF report recommends that local banks are more prudent in lending and is calling for a programmed reduction in non-performing loans.
So far under the Muscat baton a Keynesian policy has reigned, focusing on the adulation of mega business which created an unprecedented boom in the domestic economy. All the while, the IMF report has warned about the need for more social housing. There is a waiting list of 3,500 families seeking decent accommodation, although two years ago an allocation of €50 million from the Development and Social Fund was made towards building more affordable houses. Some say this is only a token gesture.
For vulnerable households, the IMF recommends more rent subsidies granted by the state to deserving families. Sadly, it does not rain, it pours - and last year saw the publication of the Council of Europe's Group of States against Corruption (GRECO). This is an evaluation based on an expert assessment of local institutions and the measurement of their effectiveness and some comments are not entirely salubrious. While progress was made on the reform of a number of institutions, the experts did not mince their words saying, inter alia, that Malta "clearly lacks an overall strategy and coherent risk-based approach when it comes to integrity standards for government officials".
Furthermore, the Greco report stated that "a system of sanctions is also clearly lacking", adding that, in their opinion, the criminal justice system was at risk of paralysis and that a redistribution of responsibilities between the office of the Attorney General, the Police and the inquiring magistrates was required to avoid this situation. The recommendation to separate the office of the AGM from the public prosecutor has now been enacted.
On a positive note, it reported that for a country of its size, Malta had an "impressive arsenal of public institutions involved in checks and balances". Another smart move was the appointment of Dr George Hyzler as a Commissioner responsible for Standards in Public Office.
George Mangion is a partner in PKF, an audit and business advisory firm.