The COVID-19 pandemic continues to drastically affect most aspects of our daily life, and these unsettling changes that initially were thought to last only a few months have prevailed for over a year and without a demarcated end. Large important sectors of the Maltese economy were effectively brought to a standstill by the health and travel restrictions, bringing years of high levels of growth to an abrupt halt. In the face of such unprecedented circumstances, no level of preparedness can ever be deemed sufficient.
However, this experience confirmed the true importance of fiscal soundness recorded prior to the pandemic, putting Malta in a resilient position to withstand shocks. Complementing the fiscal manoeuvring space, it was also important to have the institutional capacity to deliver the required support measures effectively while protecting the interest of public finances.
In this regard, the establishment of the Malta Development Bank (MDB) was indeed propitious. Having set up the necessary foundations and gained experience in implementing financial instruments, which were originally intended to support SMEs, while promoting social inclusion, climate protection and sustainable infrastructure development, the MDB was able to respond to the COVID-19 economic crisis with agility and impact.
The Malta Development Bank is looking forward to continue supporting the economy in a post-COVID-19 recovery period
Acting as a go-between the public sector, commercial banks and the business community, the bank quickly transformed itself as the key channel for the delivery of economic and financial support measures, by creating a tri-party risk-sharing mechanism to mobilise millions of euro to businesses, unlocking commercial banks’ liquidity in the process.
This is an excellent example of how the MDB effectively enables the government to obtain the benefits of financial leverage by crowding-in commercial banks as their role is critical, both in terms of the large amount of liquidity they can mobilise as well as their operational capacity and expertise in reaching out to the ultimate beneficiaries. The MDB’s role in the anti-crisis response demonstrates the benefits of having an institution being able to attain such optimal outcomes.
By the end of March 2021, the MDB was facilitating over €440 million in working capital loans under the COVID-19 Guarantee Scheme, through nine commercial banks, supporting 560 businesses that employ more than 30,000 employees. In addition, the SME Invest scheme had reached over €34 million in loans to SMEs for new investment, and close to 200 students were supported through soft loans under the Further Studies Made Affordable Scheme.
The MDB also continued to be active in the infrastructure- financing space by offering forms of intermediation that cannot be provided by the market alone. The bank engaged the market by acting as a catalyst for loan syndications by helping to pool-in diverse suppliers of credit in order to accommodate the financing needs of larger projects which are likely to be difficult to finance through one single financial intermediary.
Malta’s business community has shown remarkable resilience to endure this phase, and the MDB can be proud of the role it has played.
But the MDB’s job does not stop here. There is more to do, and the bank is now looking forward to ensuring that it can continue supporting the economy in a post-COVID-19 recovery period.
As the crisis abates, policy- makers need to balance the risks from large and growing debt loads with those from slowing the economy through premature fiscal tightening. As much of the fiscal support provided in 2020 and 2021 is expected to be withdrawn gradually as the pandemic tails off, possibly weighing on growth, the MDB is ready to continue playing an important countercyclical role in the recovery phase and assist local businesses in revitalising the economy. To this end, we intend to launch a financial product where the MDB would be making available a portfolio of €100 million through co-lending with commercial banks on a 50-50 basis, as well as providing a partial guarantee on the commercial banks’ share of the loan.
I strongly believe that the MDB can be a main player in offsetting the pandemic’s effects and lay the fundamentals for higher long-run growth. Investment in green infrastructure projects, innovation and digitalisation can provide further support to sustainable growth, and this is an area in which we will be pushing forward in the coming months.
Josef Bonnici, Chairman, Malta Development Bank