Our éminence grise Joseph Zammit Tabona last month co-organised with Finance Malta a successful business promotional event at the impressive Guildhall London. This attracted top investors.
His conviction is that Malta has the professional skills, the political will and resources to re-invent itself. The motivation for such a gathering is not hard to identify and harness - a well-executed promotion with over 750 attendees gave an export boost and secures the future well-being of each one of us, our families and extended communities; thereby guaranteeing environmental sustainability, meritocracy and good governance.
The City of London gathering was a success due to the active participation of the Ministry of Finance and speakers from Finance Malta, respectively addressing pivotal segments within the financial services industry - fintech, funds and insurance. Members from Finance Malta were also given the opportunity to participate at the European Captive Forum held in Luxembourg, an important event for the many local captive insurance companies, and a chance for the island to explain its competitive advantage to many others.
PKF attended the Guildhall event with five of its directors and was impressed by the impeccable organisation and the interactive business contacts exchanged with top-notch participants. It goes without saying that Malta has to pluck up the courage and face the challenges on how to develop new foreign contacts and attract trusted international business.
It is encouraging to note that in view of current circumstances in the global economy, one reflects on a sensitive macroeconomic outlook this year. Economists are keen on saying that generating new inflows are critical to attain a balanced fiscal result. An innovative new scheme is a framework for Notified Professional Investor Funds (NPIFs), a new fund structure that benefits from a streamlined onboarding process.
These funds are a special type of non-retail collective investment schemes, which are notified to the regulator and solely available to professional and/or qualifying investors. They are governed by a set of proportionate and risk-based criteria. The establishment of this framework is one of a number of key regulatory and policy initiatives being undertaken by the state to further promote asset management.
A smarter solution is for a drive towards a government policy more focused on export-driven promotion rather than based on increased private consumption and government expenditure. Many observers note how exports have plateaued with a higher volume of tourists albeit rendering a lower return per capita. Many times we lament how difficult it is to upgrade arrivals (mostly paying low-cost airline packages and booking Airbnb) and prepare a better future for KM Airlines.
The bankruptcy of the national airline has been a shock to many flyers but MTA's ego is to go for numbers not quality. This contributed partially for the demise of AirMalta (also due to other issues such as political interference when appointing its top management).
During the past three years, the Malta Film Authority granted a £143m subsidy to producers of Hollywood films shot locally and this is expected to feature again this year. Hope springs eternal that the screening of Gladiator 2 will contribute towards quality visitors. New initiatives are lacking in the expansion of incentive legislation for remote gaming, manufacturing and financial services. Certainly, now that the pangs of the pandemic are over, practitioners need to pack their bags and venture forth in a quest to attract multi-nationals and the growing influence of high-tech business. The improvement in the standard of living is slowed down specifically due to core inflation.
Some may have forgotten the policy of furlough wage schemes and other components in direct assistance to firms which was justified but left a €2bn in state coffers. We need to ratchet up our recovery. Yet, it is consoling that this year the public debt ratio is expected to remain below the 60% threshold as dictated by the Maastricht rule.
Obviously, as ECB hiked up interest rates to subdue inflation, so as can be expected, one expects a higher cost of servicing our elevated debt level. This interest is estimated to hover around €500,000 daily.
The large deficits in 2020 and 2021 led to a steep increase in the debt ratio, contrary to the consistent declines which were experienced previously. The Auditor General's report on the government's finances detailed how the bulk of the €4.6bn in VAT arrears can never be collected, while of the remaining €300m, €135m was under contestation pending court action.
One cannot omit to mention the haemorrhage of funds to buttress the struggling AirMalta airline. Losses are causing the Treasury a heavy drain as the airline badly needs fresh capital to buy modern aircraft to its arsenal of leased planes yet the Commission twice refused its permission to approve state-aid. Upgrading of hardware has caused many flight delays this season. On a positive side, we appreciate how economy grew at a significantly higher rate of 3.9% last year, which compares favourably with growth rates experienced by other EU states.
Good to notice that the MFAC projects that the debt-to-GDP ratio is to fall just below 40% in 2025. The Finance Ministry is exerting prudence for 2023/4 with respect to mitigating the sharp increase in public funding schemes run during the two years of pandemic. The media revealed that in 2023, the Finance minister instructed big spender departments and government agencies to cut back expenditure - collectively by €200m. Above all, projections for 2024 are subject to changes in exogenous factors such as the intensity of the Russian war in Ukraine, the hostilities in the Middle East and the attacks by Houthi rebels on merchandise ships sailing via the Red Sea. Another critical factor is a local shortage of skilled labour.
A similar situation prevails in Britain, which faces shortage of workers, widespread strikes with constant demands for higher pay. Quoting, the UK Opposition leader, Sir Keir Starmer, he insists that if elected, his top UK priority should be to up-skill low-skilled workers on a national scale and not continue to rely excessively on imported workers so as to take advantage of lower wage costs. In summary, apart from the question of whether it is ethically and morally justifiable to maximise the exploitation of our manpower facilities and our quest to drive up standards of living while protecting the environment and respecting ESG rules.
gmm@pkfmalta.com
George M. Mangion is a senior partner at PKF Malta