The International Monetary Fund (IMF) has delivered a robust assessment of Malta’s economic outlook while stressing the need for “structural reforms” to deliver continued growth.
In a report published on Wednesday, the IMF said that while Malta’s “remarkable growth” seen over the past decade was expected to moderate, it is expected to remain among Europe’s highest in the near term.
However, the organisation warned that higher-than-expected wage growth could drive up inflation, while recommending revising energy subsidies to only cover a minimum level of consumption, with tariffs rising for high usage.
The resulting available money should be spent on investment, including green projects, innovation and services such as health, it said.
The organisation had previously repeatedly called on Malta to phase out its energy subsidies altogether.
Identifying the real estate sector as an area of risk for the economy – which it said was “substantially exposed” to the market – the IMF said authorities should consider increasing banks’ financial safety net for the sector.
“Given banks’ increasing and significant exposures to real estate, the authorities should consider raising the sectoral systemic risk buffer rate and broadening its scope beyond residential mortgages,” the report said.
The IMF called on authorities to “close the remaining data gaps” in the commercial real estate sector while stressing the need for continued “vigilant monitoring” of the real estate market overall.
Highlighting the government' recent 'Malta Vision 2050' economic strategy, the organisation said it was “essential” to develop a long-term plan that addressed the country’s ageing population, infrastructure and climate change needs.
On climate, it said “concerted efforts” from both the private and public sectors were “essential to achieving Malta’s ambitious climate goals” while calling for “additional mitigation measures and changes in public behaviour” to reduce emissions by 19 per cent by 2030.
While welcoming the government’s actions to strengthen anti-money laundering (AML) and countering the financing of terrorism (CFT) measures, the IMF said it should remain vigilant against trade-based money laundering and continue enhancing the risk-based approach of financial institutions.
Improve justice system
The organisation also recommended improving the efficiency of the justice system and “strengthening the appointment process of the chief justice”.
Calling the establishment of a €10m venture capital fund for tech start-ups a “step in the right direction,” the IMF said it was “essential” the country improve grades, increase the take-up of STEM (science, technology, engineering and mathematics) courses, improve digital skills and boost adult learning.
While noting that a European innovation metric had indicated Malta excels in digitalisation, ICT usage, and intellectual assets, it said the country “lags EU peers in R&D expenditure, financing, and human capital, which have deteriorated since 2017.”
Reflecting on the country’s current economic situation, the IMF said that while strong growth had been supported by tourism and foreign workers, these were now placing pressure on the country’s infrastructure.
It added Malta was facing “structural labour shortage and mismatches and the challenge of advancing the green transition.”
The report noted that “notable progress” had been made to boost female participation while emphasising the need to continue efforts to further reduce gender gaps.
Turning to matters beyond Malta’s borders, the IMF said regional conflicts could disrupt trade and supply chains, potentially leading to a spike in food prices and higher import fees.
Slowing growth in major European economies could also affect the country, while cyberattacks and “misuse of AI” [artificial intelligence] could also pose risks, the organisation said.
Reacting to the report, Prime Minister Robert Abela said in a statement on X on Thursday his government's 'Malta Vision 2050' plan would "propel us towards a new prosperity."