The Voice of Industry

IMF Consultation Mission seeks FOI views on economy F.O.I. President Anton Borg led an FOI delegation last week that welcomed the International Monetary Fund (IMF) Article IV Consultation Mission to the FOI offices. The Consultation Mission visits Malta once every two years to monitor economic and financial developments in member countries to ensure stability in the international financial system.

During this meeting, the FOI officials outlined the main challenges ahead for the Maltese economy and industry in particular.

With the decision on EU membership behind it, Malta now had a clear direction for both existing and potential investors. The challenge for Government, economic operators and the unions was to make a success of this by managing the process intelligently and diligently.

For industry there was a competitiveness issue. The situation had to be kept under control with the necessary measures being taken so that the country would still represent an interesting destination for investment in both manufacturing and the service industry.

The FOI officials highlighted the benefits accruing to industry as a result of joining Economic and Monetary Union (EMU). In particular, the FOI found that the main factors were exchange rate stability and the discipline in public finance that had to be followed by Government.

There was also insistence by the FOI delegation about the continuing need for public sector restructuring, and a reining in of public finance spending. The two sides discussed the situation of the public debt and its heavy servicing; the predominance of welfare payments in public recurrent expenditure; subsidies to state corporations; and a high expenditure for salaries and wages in the ministries and corporations.

The FOI expressed its concern that the decline in the structural deficit over the past few years had been managed through an increase in taxation rather than by a reduction in government expenditure. The federation made it very clear that it would like to see public recurrent expenditure restricted to the inflation rate.

Current taxation levels in relation to GDP were over 40% - a figure that was considered to be extremely high for a developing country.

The FOI stated that it had advocated a policy of privatisation and of introducing competition to public corporations where possible (as in the case of telecommunications).

Referring to some public corporations, the FOI president stated: "Besides the continuous drain on public funds, these corporations are being operated inefficiently, and are depriving the private sector of human resources while they negotiate wage settlements that negatively influence the entire labour market."

The IMF delegation was informed about a joint initiative taken by the FOI with other stakeholders in the private sector to regularly benchmark Malta's competitiveness against other countries. The prohibitive loading/unloading and inland transport charges were also highlighted in the context of competitiveness.

Mr Borg stressed the need for the removal of monopolies and restrictive practices at the ports, which contributes to a decreased level of competitiveness for industry in terms of level of service and charges. The federation was advocating a total reform.

The FOI also commented on the importance of keeping Malta's incentives for investment in industry and services as attractive as those of competing countries, the need for continuing restructuring of SMEs and for optimising the country's human resources to guarantee future economic expansion in the right direction.

The IMF delegation was informed about the successful setting up of the Malta College of Arts, Science and Technology (MCAST), the large intake of students in vocational studies, and the number of University graduates. The FOI officials expressed their hope that the successes in strengthening human resources in the upper levels would now be complemented by a drive to lower illiteracy levels.

The federation laid great hopes on the new curricula that were being implemented at primary and secondary levels of the education system. The country could not afford mistakes in this respect.

At this meeting, the Consultation Mission delegation, from the IMF's European I Department, was composed of economist Gil Mehrez, economist Luis Felipe Cespedes and Alexander Hoffmaister.

Assisting the FOI president were deputy president Adrian Bajada, vice-president and leader of the FOI Economic and Financial Affairs Working Group Joseph Pace, council member Joseph Zammit Tabona, Economic and Financial Affairs Working Group member Nick Xuereb, and FOI director-general Edwin Calleja.