The government has a lot to answer for after Malta was greylisted by the Financial Action Task Force, but the solution requires a national effort, PN spokesperson for Finance Mario de Marco said.
The MP was answering a question about the Nationalist Party's proposal to set up a national task force to work on getting Malta back on the Financial Action Task Force’s whitelist.
The PN, he said in an interview with The Malta Independent on Sunday, has not received any feedback from the government, but “the social partners seem very willing”.
“They have been telling us they wish to see a national consensus when it comes to financial services.”
“Prior PN administrations made it a point to consult the opposition and, where possible, to have consensus when it comes to passing legislation in relation to financial services, and have consensus on the way forward when it comes to the growth of the financial services sector.”
This, he said, brought a sense of continuity irrespective of who is in government, while showing businesses that it was a national matter and not a partisan one.
“Unfortunately, over the past few years we have seen very little, if not zero consultation by the government with the opposition on matters related to financial services.”
He remarked that there was also a lack of consultation by the government with operators themselves.
“When we announced that we were in favour of creating a task force, they (the social partners) were very much on board. We met up with a number of stakeholders who are very much in favour of it."
"We wanted this national task force as ultimately this is a national problem. It would be silly of us to say that this is the government's problem, that this was government's mess and that government has to solve it on its own. The government has a lot to answer for having had us greylisted, but we need to be politically mature enough to realise that this is of consequence not only to the government, but to the whole industry. So if we are going to address this problem, it requires a national effort and national solutions.”
Asked when he thinks, realistically, Malta can get off the grey list, he said that a lot depends on the government and its ability to convince the FATF that it has the political will to effectively implement all the anti-money laundering provisions in place.
“There are two pillars in the FATF assessment. The first regards technical compliance and I believe that we passed this… Where we seem to have failed was in relation to effective implementation."
"Issues of effective implementation very much depend on the authorities' will to really implement what they have put in place. So we can have the best laws in the world combatting money laundering, but if one does not have the will to implement those laws by really taking action where there is suspicion of money laundering, or having the will to confiscate the assets of the people involved in money laundering activities, then that effectively is where one would fail.”
“So, coming back to your question, it is all a matter of what this country is ready to do and what this government is able to do to convince the FATF that, insofar as concerns effective implementation, we are ready to bite the proverbial bullet…”
“Realistically, we probably need at least a year (to get off the grey list). I hope for the economy's sake and for the sake of the financial services sector, that it will be less than that.”
A great deal of concern
He was asked whether he has already begun seeing any effects on the financial services and gaming sectors due to Malta's greylisting and, if not, when he thinks the effects would start being felt.
“I think it's too soon to start talking about effects. There is a lot of concern out there. So when we talk about financial services sector operators, gaming operators and operators in the banking sector, there is the concern of the unknown.”
“Has there been an immediate effect? I think it would be too hazardous to say yes there has been. But if you look at the survey issued by the Malta Employers Association, it showed that 88% of the businesses surveyed believe that greylisting could impact their business.”
He quoted from a study published by the International Monetary Fund on the impact of greylisting. Generally speaking, he said, there seem to be three major consequences which greylisting brings about for a country.
The first revolves around banks de-risking. “International banks obviously do not like taking more risks than they need to take and if they see that among their clients there are companies that are in some way linked to a greylisted country, they would want to de-risk. De-risking would either mean putting additional due diligence on those companies or going to the extreme and saying that they would not want them as a client as they are linked to a country that is greylisted.”
The second impact on greylisted countries generally is a drop in investor confidence among existing investors and the third is a drop in foreign direct investment, he said.
A separate impact de Marco believes could be experienced is the political impact.
“We are the first EU member state to have been greylisted. That would have an impact on the political weight that we carry within the EU, when talking about issues like tax sovereignty. So that may not be an immediate economic consequence, but it will be a close to immediate political consequence - that our voice will be marginalised or trivialised.”
Asked about the letter Bernard Grech had sent to the FATF prior to the greylisting, and criticism regarding its contents, he said that Grech was appealing for a national effort “and was basically saying that all sides of the political fence are willing to play their part to combat money laundering and to safeguard the financial services sector. In no way was he trying to create a foul for the government. If anything he was trying to assist the government in that moment of need.”
Covid-19's impact on finance
Turning to Covid-19, the PN MP was asked about its impact on the country’s finances and if Malta has the funds to deal with another wave of closures should they eventually be needed.
He said that the government needs to be more effective in its take-up and implementation of EU funds. He mentioned the Recovery and Resilience Fund, worth close to around 350 million euros worth of funds, questioning why it took Malta so long to finalise its plan for the funds.
He also expressed concern that the government has been underestimating the effect of an increase in recurrent expenditure and "it had also underestimated the impact that Covid was going to have on public finances."
“For a number of years the government ran on a surplus. But over the past few years we noticed that the government's recurrent expenditure has been consistently rising upwards. From something like €2.7bn in 2012 - 2013, to around €4.7bn in 2019.”
The MP said that the PN’s critique to the government was to be careful as, even though it was managing to register a surplus, “it had more or less doubled its recurrent expenditure and the moment the economy would hit a crisis, the revenue would go down. But if the revenue goes down and recurrent expenditure is up, you cannot rectify that recurrent expenditure in a way as to mirror the drop in revenue."
Last year, he said, Malta had a €1.3bn deficit. In the budget for the year 2021, the government estimated that Malta would register a €750 million deficit this year, he said. “We told the government that it was being unduly optimistic… When the government was predicting a €750 million deficit for this year, it estimated that it would collect in revenue as much tax, VAT, social security contributions as it had collected in 2019, which was a pre-Covid year. We had said that these figures did not make sense. The government tried to ridicule us, saying we don't understand finance or the economy.”
A couple of weeks ago, he said, the government revised the budgetary estimates, “where they are now predicting that the deficit is going to be €1.6bn this year.”
In order for the government to sustain this, he said, “they are going to have to increase the level of borrowing from €1.1bn to €2.1bn… This is going to take back our level of debt as a percentage of GDP to over 60%. The only way to tackle this is to have our economy start growing as soon as possible.”
Malta being greylisted does not help, he said. “Now that we are getting out of Covid, we have been put on the grey list, for which I think the government has a lot to answer for, and which is going to impact financial services and gaming, which were the two Covid resilient sectors.”
A dual emphasis in the upcoming budget
As for what the budget for 2022 should focus on, he said that it needs to have a dual emphasis, to help struggling businesses while looking at the businesses of today, the businesses of tomorrow and stimulating investment.
“The government needs to focus on helping the ailing industries. We know that tourism is suffering. There is still a lot of uncertainty as to who may travel, who can accompany people who are entitled to travel and we are seeing different regulations come into force. We have seen English language schools impacted significantly. But we also know that there are a number of sectors which are resilient and need to be encouraged to grow.”
“It also needs to very much be a digital related budget, but also a green budget.”
There have been arguments made over the years that the benefits of Malta's economic growth are not trickling down to the man in the street. He was asked what the PN would do to make the benefits from the growth be felt?
De Marco said that a lot of the country’s growth was due to a rapid increase in population. “Our critique of the government was not that we are against having foreigners coming to work in our country, in many cases we need them. But you cannot increase the foreign working population for the sake of growth. It has to be as a consequence of growth, not to stimulate growth. Which are two related but distinct arguments.”
“One of the consequences that we had with an artificial growth in our population was that we were outpricing ourselves in terms of real estate, and that was impacting many people across the board.”
“Secondly, we need to ensure that work pays.” The MP said that having a large imported labour base was keeping salaries artificially low. “That may, for certain companies, give them a competitive advantage, but the reality is that salaries were being kept artificially low, so the trickle effect was not being felt. I think a lot of these things need to be addressed.”
He said that the real thing that will allow for the trickle-down effect is not to have an artificial growth of the economy, but rather a real growth of the economy in sectors that really pay.
Recent political surveys
Recent political surveys show the PN trailing far behind the PL. “Do you think the PN can close the gap? If yes, do you see a possibility of the PN winning the election or is it more a case of closing the gap at this stage?”
“A week is a long time in politics and we need to believe in change, that change is possible. We are all in politics to make a difference. If you don't believe that things can change, then we are beyond our time in politics.”
“I firmly believe that the PN can still bridge the gap and the news this week that a person like Christian Peregin, who openly admitted that in 2013 he had voted Labour, who is a very successful person in his own right, who has been critical when he needed to be and is blatantly honest when he has to be honest, walked away from the business he created to help the PN in this moment of need, to help the country in this moment of need, I think was most noble. I hope and believe that what Chris did can help stimulate other people to realise that it is useless lamenting and complaining about the need to change if we are not prepared to change ourselves.”
“Hopefully Chris can help create a new wave of people who realise that the PN can be a tool for change in this country. Every individual counts and every individual can make a difference. I believe there are many Chris Peregin's out there who can make a difference.”
He was asked whether, realistically speaking with the gap the way it is now, the PN can be an effective alternative government.
"You show that you are an effective alternative government based on the policies you propose and the stands you take. Even though we may not be bridging the gap to the extent we believe we should be, I think we have shown over time that the stands we took in respect of good governance, against corruption, in respect of the rule of law, were all right."
He said that the PN has also issued various policies in recent months, such as on the energy sector and on the court system, "showing that the PN is full of ideas."
"So we need to take the next step, for people to say that yes, the PN comes up with good ideas and believe that if in government, the PN can implement those ideas."
Some criticise the party for not having changed as much as it should have from the pre-2013 era in terms of mentality as well as people within the party. Asked if this is part of the problem, he said: “I think it’s a combination of many different things. To be realistic, when you've been in government for a long time then you need to give some time. Politics worldwide is a matter of cycles. You see that very clearly in the UK - the Conservative Party cycle, the Labour Party cycle. The Conservatives after Margaret Thatcher trying to find its feet again. The Labour Party after Tony Blair. We are going through that cycle. Let's not forget that we were effectively in power from 1987 to 2013, bar for two years, and people may have had a bit too much of seeing us.”