The International Monetary Fund, like other international institutions, has projected strong but moderating economic growth for Malta, while repeating previous calls for Malta to phase out its energy subsidies.

The Fund said in its annual country report that the Maltese economy is projected to grow by 5% in 2024 and 4% in 2025, largely in line with projections made by the European Commission last week. That will be among the highest in the EU.

But with the energy subsidies accounting for a fifth of Malta's financial deficit, the IMF says fixed energy price policies should be phased out and the funds allocated for investment (including green) and productivity-enhancing policies.

"In line with last year’s staff recommendations, the authorities should gradually but decisively exit the current fixed energy price policy by shifting to more targeted subsidies and strengthening market pricing mechanisms. This will reduce fiscal risks associated with energy price shocks, enhance incentives for energy conservation, and help accelerate the green transition. The resulting fiscal space should be allocated to public investment (including green), services (e.g., education), and innovation support," the fund said.

That recommendation is at variance with declarations by the finance minister last month that the energy subsidies will stay, because they support investment, and their cost as a percentage of GDP and in real terms is well below what it was when they were introduced at the peak of the COVID crisis.

The Fund also repeated a warning it has been making for years, that Malta should safeguard financial stability by maintaining close monitoring of risks that can arise from banks’ concentrated lending to the real estate sector.

Malta was also urged to further develop and implement a productivity-driven growth strategy that emphasises innovation, digitalisation, education, training, and environmental sustainability. 

The fund said developing a long-term fiscal framework is essential for strengthening Malta's policy decision-making and aligning fiscal planning with strategic priorities.  

"The authorities should develop a roadmap for corporate income tax (CIT) reform that aligns with the EU’s Minimum Tax Directive (Pillar II) to guide taxpayers and investors. While Malta’s wait-and-see approach—by deferring the implementation of Pillar II—allows for adaptation to international developments, it risks ceding revenue to other jurisdictions that adopt the directive sooner," it warned.

"The authorities should develop a roadmap that addresses CIT (for both foreign and domestic companies) and personal income tax due to their interaction. The roadmap should be developed and disseminated promptly, pending clarification of rules regarding Qualified Refundable Tax Credits (QRTCs) from the European Commission," it said. 

In other parts of its report, the IMF said Malta's tourism sector "requires more effective management."

With numerous hotel projects underway and a rise in other types of accommodation, tourism may continue to grow significantly, potentially exacerbating labour shortages, infrastructure bottlenecks, and social and environmental concerns. Attention should be given to steadily implementing the Malta Tourism Strategy 2021–2030, which aims to promote sustainable and high-quality tourism," it said.

Read the full report here.