Malta: IMF calls for tapering of business support measures

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Most of the Covid-19 support measures are set to expire by the end of 2021, and according to a report by the International Monetary Fund, as economic growth gains momentum, the authorities should prepare a plan for tapering support measures, including adjusting their size and eligibility criteria. Unwinding of support measures will need to be carefully managed and well-coordinated between fiscal and financial sector policies to avoid “cliff effects” that could derail the recovery, the IMF said. “If health risks reemerge or the recovery falters, some support measures may need to be extended, refocusing on sectors and people that are still significantly affected by the pandemic.”

In the Concluding Statement of the 2021 Article IV Mission, the Fund noted that the fallout from the COVID-19 crisis has hit the Maltese economy hard, particularly its tourism sector. With the rapid rollout of the COVID-19 vaccine, the economy has reopened for the summer tourism season, and growth is projected to rebound this year. Uncertainty remains high, however. The Fund said that the near-term policy imperative is to gradually unwind pandemic-related support measures and shift to policies targeted at facilitating resource reallocation to productive and high-growth potential activities.

However, the IMF called on authorities to address deficiencies in the anti-money laundering and combatting the financing of terrorism (AML/CFT) framework, and pursuing structural reforms to strengthen the economy’s resilience and sustainability. In this context, the Fund said that promoting digital transformation, innovation, and decarbonization will also be key to achieving higher and sustainable growth. EU funds, including the EU Recovery and Resilience Facility, will support investment in these areas. Ongoing work to update the National Digital Strategy should provide a good opportunity to take stock of Malta’s past experience and keep Malta among Europe’s digital frontrunners. Given that Malta is still trailing EU peers in R&D investment, there is room to boost public spending in R&D and strengthen the innovation ecosystem. On climate change policy, the mission welcomed the authorities’ commitment to reducing greenhouse gas emissions under the EU Effort Sharing Regulation by 19 percent (compared to 2005 levels) by 2030.

In conclusion, the IMF also insisted that an improvement of the governance framework was critical to attract investors to the island.