Earlier this year, I published a series of articles in which I articulated my views on the state of the Maltese equity market and a number of initiatives that the authorities ought to consider to help improve investor sentiment following a number of years of very weak trading activity across the equity market.

Following these articles, the Malta Stock Exchange organised the MSE Capital Markets Roundtable on June 19 to discuss measures to increase trading participation and market liquidity. During this important event, Finance Minister Clyde Caruana indicated that some initiatives for the capital markets will feature in the forthcoming budget to stimulate further equity participation. It was particularly comforting to hear the minister state a few months ago that the government is counting on the financial community to help stimulate the market.

I was therefore eagerly awaiting the finance minister’s budget speech on October 28 to understand what initiatives were being proposed for the capital market. However, as the minister began his lengthy speech, I obtained access to the budget speech, and rather than wait for all the measures to be read out, I quickly searched the entire document to find any reference to the government’s plans for the capital market.

Unfortunately, there was no mention across the entire budget speech of any such measures for the capital market. While not downplaying the importance of certain measures, including the amendments to the tax bands as well as the increase in the children’s allowance, the lack of any initiatives for the capital market following the finance minister’s intervention at the MSE Capital Markets Roundtable a few months ago is indeed very disappointing.

On the other hand, there were other measures announced that in my view are surely less important than any initiatives that could have been contemplated to assist the Maltese capital market. It was very painful to see that taxpayer funds were also used to widely advertise some of these less noteworthy measures in the media while ignoring a very important economic sector that urgently requires the highest authorities’ attention.

The lack of any initiatives for the capital market following the finance minister’s intervention at the MSE Capital Markets Roundtable a few months ago is indeed very disappointing

Since the government proposed no new measures or initiatives for the capital market, which truthfully has been the case for several years now, the local investing community’s main area of interest in the budget speech was that related to an update on government’s finances. The Budget 2025 document provides detailed forecasts for the government’s fiscal position up to 2027 as well as its funding requirements.

The government’s financial performance in 2024 is expected to be better than originally projected in last year’s budget. A deficit of just over €900 million is still anticipated for 2024, but since the economy grew at a faster pace, the budget deficit will be equivalent to 4.0% of GDP, rather than 4.5%. The government is then anticipating a deficit of just under €850 million in 2025, and it is envisaged this will fall to €700 million in 2027.

The overall borrowing requirements for this year were reduced slightly from €1.73 billion to €1.68 billion. However, since the expected MGS issuance for 2024 was left unchanged at €1.7 billion, a further €440 million in MGS issuance is expected to be issued by the end of the year. The Treasury has not yet indicated whether retail investors will also be eligible to participate in the next MGS offerings planned till the end of the year.

In view of the ongoing annual budget deficit as well as the MGSs being redeemed annually, which need to be refinanced from fresh government bond issues, the total amount of MGSs in issue are expected to increase from the current levels of just over €9 billion to €11.8 billion by the end of 2027. By then, the overall amount of MGS in issue will account for 87% of the government’s forecasted debt of €13.5 billion.

Next year, new MGS issues are forecasted at €1.5 billion, of which around €0.6 billion is required to refinance existing debt being matured, while €0.9 billion represents new borrowings to finance the projected deficit. Moreover, in 2026, MGS issuance is set to reach a new record of €1.8 billion as the government already has €1 billion in debt maturing in 2026 that will need refinancing.

In 2024, interest payments on Malta’s government debt are estimated to increase to €263 million, up from €214 million in 2023. In 2025, interest costs are set to rise further to €312 million, equivalent to 1.3% of GDP. Interest costs are expected to continue rising, reaching €390 million by 2027. This would imply that the annual debt servicing requirements would have risen by just over 80% between 2023 and 2027.

Turning back to the lack of initiatives to invigorate investor enthusiasm for Maltese equities, the government needs to explain to all stakeholders its vision, if any, for the Maltese capital market.

The capital market cannot continue to experience such lacklustre activity (with the exception of activity in Bank of Valletta plc, which has improved remarkably following the strong upturn in profits and dividend distributions). As I warned in my media interventions in the past, we need various reforms to revive the equity risk culture in Malta that was prevalent in the 1990s and the years immediately prior to the pandemic.

Currently, we are now hearing about Vision 2050 for Malta. It is yet to be seen if the capital market will feature at all in this long-term planning exercise that the country needs to embark upon.

However, the reforms that are required for the capital market are truly immediate and cannot wait much longer if we wish investors to support both existing issuers as well as prospective issuers seeking an equity listing.

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