Despite the slowing, however, the central bank describes the sentiment as strong and robust. Economic activity in Malta is foreseen “to remain robust over the projection horizon, supported by both demand and supply factors,” the CBM says in its Q4 2019 Economic Projections 2019-2022 (link to archive).

The central bank says the GDP growth will drop as it is gradually normalising from its “historical” highs. Furthermore, the CBM expects the currently weak international environment to limit export growth in 2019.

The central bank revised its GDP growth projection for 2019 marginally down from its forecast in August due to weaker than expected outturn in private consumption expenditure in the first half of the year.

The CBM also revised growth forecasts for the coming years downward, chiefly due to a weaker international environment affecting export growth and a weaker outlook for gross fixed capital formation. The net export contribution is thought to turn to positive in 2020.

In the coming years, domestic demand will act as the major driver of economic growth, with private consumption seen to remain robust due to favourable market conditions. Private consumption growth is set to decelerate from 2018’s 7.3% to 5.0% in 2019, slowing further to 4.1% in 2020, and to a respective 3.8% in 2021 and 2022.

The central bank expects government consumption to lift domestic demand by the government using some of its fiscal space. The central bank projects government consumption to be heavily influenced by the projected growth in intermediate consumption and compensation of employees, as well as the expected decline in inflows from the Individual Investor Programme (IIP), which are netted against consumption expenditure, according to the Q4 Economic Outlook.

Planned expenditure on infrastructure projects is expected to make investment rebound in 2019, however, growth will slow markedly in 2022 as a number of large projects will be winding up, the CBM foresees. The central bank expects residential investment to grow at a progressively slower pace after the strong expansion of the recent years.

The central bank also warns that the robust growth on the demand side should be supported by the supply side of the economy. “The labour supply is expected to increase further, reflecting continued positive but decelerating net migrant flows and an increase in the capital stock contribution,” the CBM says in its outlook.

The full outlook is available for download from the official webpage of the Central Bank of Malta.

The post CBM forecasts slowing GDP growth dropping to 3.5% by 2022 first appeared on The Malta Business Weekly.

The proportion of euro counterfeits remained “irrelevant”, the CBM says, when compared with the number of genuine euro banknotes in circulation in Malta, which was approximately above 12.16m for the first half of 2019. As compared to the proportion of the total number of counterfeits seized in the euro area as a whole over the same period, amounting to 251,000 pieces, forged notes in Malta only put up 0.33% of the ones in the eurozone.

The €20 and €50 notes continue to be the most counterfeited denominations found locally, in line with developments in the euro area. These two denominations together accounted for 89% of all counterfeits during the first half of 2019, in Malta. Moreover, the share of the €10 denomination experienced a slight decrease during the same period. 

Upgraded €100 and €200 banknotes with increased security features and better endurance for wear and tear have recently come into circulation. The European Central Bank (ECB) talked to Business Malta about the reason behind revamping the banknotes and explained the production and distribution processes.

The Central Bank of Malta advises also the public to remain alert regarding banknotes received in cash transactions. In fact, genuine banknotes can be recognised using the “feel-look-tilt” test.

EDITORIAL NOTE: The Central Bank of Malta operates the Counterfeit Surveillance Unit aimed at preventing the circulation of counterfeit money. It examines and stores counterfeit money of any currency seized in Malta or confiscated by the police. The Counterfeit Surveillance Unit may be contacted by telephone on 2550 6012 or 2550 6013, as well as by email.

The post Counterfeit euro notes increase in Malta in H1 2019 first appeared on The Malta Business Weekly.

The central bank believes that growth in private consumption and government expenditure is expected to “remain robust” while investment is expected to recover from the contraction recorded in 2018.

During the projection horizon, GDP growth will be supported by domestic demand, mainly reflecting “robust” growth in private consumption and investment. 

The net export contribution to growth is expected to be negative in 2019 and 2020, reflecting the weak international environment, and a pickup in import growth as a result of strong domestic demand. The contribution of net exports should turn positive in 2021, reflecting faster export growth, according to the press release.  

Furthermore, the pace of job creation is set to moderate while the labour market is expected to remain tight, with the unemployment rate projected at 3.8% by 2021. 

Annual inflation, based on the Harmonised Index of Consumer Prices (HICP), is projected to ease slightly in 2019, before edging up to 1.9% by 2021, reflecting a pick-up in services and non-energy industrial goods inflation (NEIG). 

Moreover, the government balance is expected to remain in surplus over the coming years, such that the debt-to-GDP ratio is projected to decline to below 40% by 2021. 

The external environment poses downside risks to the projections of economic activity and inflation while domestic risks remain largely on the upside in the medium-term.

The risks to public finances are broadly balanced due to a possible slowing down in the implementation of investment projects that could be offset by higher current expenditure.

The post CBM envisages 4.4% economic growth in 2019-2021 in Malta first appeared on The Malta Business Weekly.

Ms Macdonald has worked in journalism and communications for almost 25 years, most recently as the editor of a business newspaper. Her duty will be to lead various functions like publishing, public relations, event management, social outreach and media relations.

As such, the central bank expects her combination of experience with the media and economic affairs to play an important role as the CBM seeks to intensify its engagement with all stakeholders over the coming years.

The post CBM names new communications coordinator first appeared on The Malta Business Weekly.

The agreement was signed by CBM Governor Mario Vella and Colin Bailey, President and Principal of QMUL.

The programme follows a joint conference in London last year and a public lecture in Malta by Professor Sujoy Mukerji, Head of the School of Economics and Finance, at the Central Bank of Malta in March. 

In addition, the agreement is expected to result in a mutually beneficial deepening of collaboration between the Central Bank of Malta and QMUL.

The post CBM launches academic visitors programme with QMUL first appeared on The Malta Business Weekly.

The Central Bank of Malta (CBM) set up a public benefit foundation entitled the Central Bank of Malta Foundation on 5 July, according to a press statement the CBM published today.

The foundation falls under the Voluntary Organisations Act, Chapter 492 of the Laws of Malta, as provided for in Second Schedule to the Civil Code, Chapter 16 of the Laws of Malta.

“The Central Bank of Malta Foundation, having an autonomous Board of Administrators, will be administering funds intended to support projects of national stature with lasting visibility relating to education, culture, scientific research, preservation of Maltese national heritage, and social causes,” the press statement says.

The first administrators of the foundation are as follows:

• Chairperson: Marius J. Zerafa
• Yosanne Vella
• Marvin Formosa
• Pauline Lanzon
• Treasurer: Raymond Filletti

The post Central Bank of Malta establishes foundation first appeared on The Malta Business Weekly.

“Projections for economic activity have been revised upwards for 2019 reflecting stronger anticipated growth in private consumption, investment, and government expenditure,” the press statement says. Nevertheless, economic activity in 2020 has been revised marginally down, due to a downward revision in investment growth, the CBM adds.

The central bank expects GDP growth to be supported by domestic demand, reflecting robust growth in private consumption and investment, while the net export contribution to growth is expected to fall in the negative territory in 2019 and 2020. This latter reflects the weak international environment and a pick-up in import growth as a result of robust consumption and investment growth. However, the central bank expects this to return to the positive territory by 2021.

Strong but moderate job creation

“The pace of job creation is set to moderate, but remain strong. The labour market is expected to remain tight, with the unemployment rate projected at 3.8% by 2021. Annual inflation, based on the Harmonised Index of Consumer Prices (HICP), is projected to ease slightly this year, before edging up to 1.9% by 2021, reflecting a pick-up in services and non-energy industrial goods inflation (NEIG),” the press statement by the financial institution says.

The CBM expects government finances to remain in surplus over the coming years, such that the debt-to-GDP ratio is projected to decline to below 40%. Looking ahead, the external environment poses downside risks to the projections of economic activity and inflation, according to the press statement.

Domestic risks are seen to remain largely positive in the medium-term, with the risks to public finances being broadly balanced, as possible slippages in the implementation of investment projects could be offset by higher current expenditure, the central bank concludes.

The post Central bank forecasts ‘strong’ economic growth first appeared on The Malta Business Weekly.

Professor Narwold, who is also affiliated with the Energy Policy Initiatives Centre, has an expertise in market economics and consumer financial decisions. During his stay, he conducted advanced classes on statistical methods for the construction of quality-adjusted house price indices for the Central Bank of Malta’s Economic Analysis Department.

Mr Narwold also gave two in-depth seminars to the staff of CBM and the National Statistics Office (NSO) on statistical techniques and applied empirical research. The professor also reviewed research by bank economists aimed at publication in a specialist as well as general dissemination, according to the press statement by CBM.

In line with CBM’s strategic support to the University of Malta — aimed at strengthening the economics profession in Malta —, the professor also held lectures on game theory, available to postgraduate economics students, an essential part of the intermediate microeconomics curriculum. These lectures covered decision theory, strategic form games, extensive form games, Bayesian games, mechanism design, infinite horizon games, repeated games and evolutionary games.

“Professor Narwold’s visit contributed to developing a sounder understanding of issues such as house price measures, which issue is very relevant to these fields of activity,” the central bank says.

The bank says it is poised to launch other bilateral academic exchange programs with some important UK universities.

The central bank hosted a US Fulbright Scholar for the first time, and the visit was due to the assistance of the US Embassy in Malta, the bank says.

The Fulbright program is sponsored by the United States Department of State’s Bureau of Educational and Cultural Affairs and is one of the most prestigious and competitive academic exchange programs in the world.

The two seminar presentations are available on the Central Bank of Malta’s website.

The post CBM hosts Fulbright Scholar Professor Andrew Narwold first appeared on The Malta Business Weekly.

The IMF report summarises the findings of its assessment of Malta’s financial sector known as the Financial Sector Assessment Program (FSAP), according to a press statement issued by the Central Bank of Malta (CBM).

The IMF report says that the local financial sector is large as compared to the island’s economy, holding strong connections with the “rest of the world”. The banking system is thought to be in “good health”, with current challenges, the report adds.

“Banks’ total capital adequacy ratio is high (21.2% of risk-weighted assets (RWA) in 2017; Tier 1 Capital ratio at 19%), and liquidity is ample,” the CBM cites the IMF report.

The IMF says the local banking sector “remains resilient under a severe scenario”, saying that weaknesses are limited to few small banks only. “The system is sufficiently capitalised to absorb losses in the event of a severe macroeconomic shock, but risky exposures would lead to potential losses at a few small banks,” the IMF report says according to the CBM press release.

The IMF calls for continued enhancements in the macroprudential framework. Beyond the recent strengthening of systemic risk monitoring, the IMF further raises attention on enhancing the legal framework, closing data gaps and strengthening nonbank risk assessment. In its report, the IMF welcomes the planned introduction of borrower-based measures to address the build-up of vulnerabilities in the housing and household sector.

‘Urgent action’ needed in bank supervision and AML

The IMF report outlines suggestions for the Malta Financial Services Authority (MFSA) to preserve efficiency. The report says that providing adequate resources is vital in maintaining the effectiveness and operational independence of the MFSA. At the same time, the report says that shortcomings in bank supervision system should be dealt with urgency.

According to the IMF, the MFSA “should take timelier supervisory actions, increase the frequency of on-site inspections, make more use of monetary fines as part of the sanctioning regime, and ensure supervisory action is not delayed through judicial appeal,” the CBM press release reports.

The IMF calls for further actions for supporting the use of early intervention and resolution powers, as well as addressing weaknesses in the bank liquidation and insolvency framework. “Containing financial integrity risks is critical to financial stability,” the report says according to the press release.

“A multi-prong approach is needed to address anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies. Enhancing the AML/CFT system is required to protect the financial sector and the broader economy from the ML/TF threats,” the IMF report says, cited by the CBM.

Officials welcome the report

“The Maltese banking sector was found to be well capitalised, liquid and operating with healthy profitability levels. The banking system was also found to be resilient under rigorous stress scenarios, with vulnerabilities limited to a few small banks under very severe stressed conditions,” says Dr Mario Vella, the Governor of the Central Bank of Malta.

“With respect to the recommendations made by the IMF, the combined initiatives taken by the Maltese Authorities, some of which are already underway, should strengthen further the resilience of the country’s financial system. Within a broader perspective, these recommendations will strengthen further Malta’s credential as a jurisdiction of repute and the Bank stands ready to contribute towards their effective implementation,” Mr Vella says.

“The IMF Assessment confirms the importance of the financial services sector to the Maltese economy and its strong connections to the rest of the world. Banks continue to be key players in the financial sector which remains healthy and resilient despite the challenges,” says Professor John Mamo, Chairman of the Malta Financial Services Authority.

“The MFSA also takes note of the key recommendations made in the report, namely to strengthen supervisory and enforcement capacity through increased resources, investment in technology and a number of operational and technical initiatives intended to enhance sectoral risk-based supervision, enforcement and judicial processes. Going forward the report also provides valuable inputs into the ongoing improvement processes undertaken by the MFSA in conjunction with other national authorities and stakeholders to continue to safeguard stability and address the risks that may stem from different sectors of the financial market,” Mr Mamo says.

About the report

The International Monetary Fund Financial Sector Assessment Program (FSAP) encompasses an in-depth and comprehensive assessment of a country’s financial system, with the intentions of assisting countries to identify key sources of systemic risk in the financial sector and to propose the implementation of policies to enhance country resilience to shocks and contagion.

The Maltese authorities requested the IMF to undertake an FSAP for Malta in 2017 given that Malta had initiated its first FSAP in 2002. The Malta FSAP exercise formally commenced in March 2018. The IMF expert team conducted assessments by Principles for Effective Banking Supervision, Insurance Supervisory Principles, Objectives and Principles for Securities Regulation, and Financial Action Task Force’s (FATF’s) 40+8 Recommendations, and other relevant standards and codes, the CBM press release says.

“The results of the Malta assessment are published in the Financial System Stability Assessment (FSSA) which also focuses on issues of relevance to IMF surveillance. The FSSA was discussed at the IMF Executive Board together with the country’s Article IV report and was approved by the IMF’s Executive Board on 22 February 2019. It was published on 27 February 2019, and the report is available on the IMF website,” the Central Bank of Malta says.

The report is scheduled to be followed by the publication of Technical Notes by the IMF on specific topics covered in the FSAP.

The post Maltese bank system in ‘good health’ amid ‘challenges’, says IMF first appeared on The Malta Business Weekly.