The government will be turning to local banks to finance the hundreds of millions in new aid measures pledged to businesses struggling to survive the COVID-19 outbreak. 

A senior government source told Times of Malta that the government would issue bonds targeted at local banks.  

“Local banks have excess liquidity and we will once again, as has happened in the past, be turning to them to help us finance social and economic mechanisms that are needed in this crisis,” he said.  

On Tuesday, Prime Minister Robert Abela announced paycheck subsidies to private companies in the hardest-hit sectors, to the tune of €800 per month per employee. Employers agreed to fork out a further €400 per worker.

The measure is meant to stave off layoffs in “critical sectors” of the economy. It will cover 60,000 workers and cost the government €44 million a month.  

Banks have been prudent over the years and are in a strong position today

In other sectors, such as manufacturing and warehousing, the government will pay for one day of work based on €800 per employee, with the possibility of two days further down the line. This measure will benefit around 50,000 workers and cost €17 million more per month.  

This is the second major financial aid mechanism rolled out by the government and builds upon a €1.8 billion package announced by Abela last week, which includes hefty tax deferrals.  

Borrowing from banks, as well as possibly businesses and households, was the preferred financing option at the moment, the official said. 

It is expected to raise Malta’s debt-to-GDP ratio by some 8% to just under 50%.

Sources said this may increase in future.

“Back in 2013, national debt was in the 70% range, so we can afford to see this going higher over the coming months, as we move to help businesses and employees,” one source said.  

This was possible because local banks had been prudent over the years and were in a strong position today, he added. Another option was to borrow from the European Central Bank but this would have come with “political strings attached”.

“We do not want to be in a position further down the line where Brussels is putting pressure on us to plan our budgets one way or another because of debt,” another source said.  

And as for the government’s so called ‘war chest’ – the money saved away – this would be used to finance the loss of revenue expected over the coming months and further aid measures.

 

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