Half of state-backed loans are in the energy sector – central bank

Nearly half of all outstanding government-guaranteed loans are concentrated in the energy sector, according to a debt sustainability analysis by the Central Bank of Malta.

In its annual report, the central bank said that, while the risk of guarantees being called in is low, 45% of all government-guaranteed loans are concentrated in the energy sector. This is the single largest source of risk within that portfolio.

In a footnote, the bank referred to a review by the National Audit Office (NAO) of the government’s accounts for 2024. This showed that letters of comfort, a less legally binding form of government backing, and bank guarantees issued in favour of Enemalta stood at about €345 million in 2024.

A further €200 million in outstanding guarantees is held by Vault Finance Limited, a company set up by Enemalta in 2012 specifically to refinance its debts. Combined, the two entities account for nearly half of all outstanding government guarantees.

However, the central bank said this is not a concern for debt sustainability. Government-guaranteed debt, as a share of GDP, fell in 2024 and reached 4.3%. This is well below the euro area average and is the lowest ratio recorded since 2003.

In its assessment of government debt, the central bank found that the median debt-to-GDP ratio is expected to remain relatively stable in the short term before declining after 2026.

Government debt is unlikely to exceed the EU’s 60% threshold over the next decade. Until 2028, the chance of debt exceeding this threshold is zero.

One of the main risks to debt sustainability identified by the central bank is the elevated share of non-performing loans in total loans issued by core domestic banks.

Ageing costs as share of GDP another risk 

However, the share has fallen over the years and is at historic lows. The central bank said the risk declined from a high-risk threat to medium risk in 2024.

Another sustainability risk is ageing costs as a share of GDP. The central bank referred to the European Commission’s 2024 ageing report, which projected that Malta will experience the second-largest increase in age-related expenditure, as a share of GDP, in the euro area.

But by 2070, age-related costs are expected to remain below the euro area average. The central bank clarified that these projections assume that migrant workers will live in Malta long enough to qualify for pension benefits.

Unit labour costs, which measure how much workers are paid relative to their output, are colour-coded in the report as a high threat to debt sustainability but the central bank did not elaborate.