The Central Bank of Malta last week published its Annual Report for the year 2000, highlighting a significant widening of the current account deficit. This was, said the Governor, largely attributable to exogenous factors, including the hike in international oil prices, a substantial rise in imports of capital goods, and a surge in investment income outflows as foreign firms located in Malta recorded a large increase in profits.
A large balance of payments deficit invariably led to questions about the exchange rate, the Governor said, but he ruled out the adoption of a flexible exchange rate regime, or devaluation. Experience had shown that in a local context the competitive advantage gained by devaluation tends to be short lived. Instead, he favoured a more investment-friendly business climate, with prices being allowed to fully reflect the production costs of goods and services.
The Governor listed a number of areas susceptible to the achievement
of efficiency gains, including: the labour market, where wages should
reflect productivity more closely and a culture of safeguarding jobs through
efficient work practices should be promoted; the educational system, which
should increasingly provide the skills most in demand in a modern economy;
the public sector, where the excessive absorption of human resources imposes
a tax burden on other sectors; the financial markets, where uncertainty
about Malta’s commitment to EU membership is adversely affecting
inflows of foreign direct investment the real estate market, where rent
controls have contributed to artificially inflate prices; the provision
of public goods and services by the State free of charge; subsidies to
public enterprises; the payment of contributions from the receipt of benefits;
and monopolistic practices in the markets for goods and services.
The Governor stressed that with the economy’s competitiveness increasingly
under threat, the restructuring process currently underway needed to be
extended across a broader front.
Turning to the short-term prospects for the Maltese economy, the Governor
quoted Central Bank forecasts which suggest that the growth rate should
rise to 4-4.5% in 2001, while inflation should moderate to 1.5-2%. Growth
in domestic demand should be contained, as the fiscal deficit is to be
reined in further.
In its review of domestic economic developments, the Report estimates
that the economy grew by around 4% in 2000. Export-oriented manufacturing,
particularly in the electronics sub-sector, contributed strongly to GDP
growth, compensating for a modest performance in the tourist industry
and in the locally oriented manufacturing and services sectors.
Investment grew strongly in 2000. The rate of job creation also accelerated,
particularly in the directly productive sectors. As a result, unemployment
fell to 4.5 per cent, but underlying inflation continued to decline; however,
at around one per cent, it remained somewhat higher than imported inflation.
Commenting on the movements of the Maltese lira, the Report observes that
the currency generally appreciated against the euro and weakened against
the US dollar through most of the year, reflecting the persistent depreciation
of the euro against the US currency. Against sterling,
meanwhile, the Maltese lira was relatively stable.
Turning to fiscal developments the Report notes that the improvement in
public finances during 2000 was greater than anticipated, with the fiscal
deficit being provisionally estimated at Lm95 million, or six per cent
of GDP. Furthermore, projections for 2001 show that fiscal consolidation
should continue, and that the government’s objective of bringing
the deficit down to 3-4 per cent of GDP by 2004 is within reach. This,
the Report observes, should dampen pressures on prices and on the balance
of payments.
Summarising the economic situation, the Governor observes in his statement
that the year 2000 was characterised by divergent trends in Malta’s
internal and external accounts. On the one hand, the government’s
macroeconomic stabilisation programme produced positive results and, in
spite of the fiscal tightening and higher oil prices, a steady pace of
economic activity was maintained. On the other hand, developments in the
balance of payments deserved close attention as they clouded the economy’s
medium term prospects, particularly as capital is increasingly mobile
and sensitive to domestic economic conditions.
On the other hand, the deficit in the external account is expected to
persist, although should narrow as the exceptional factors observed in
2000 are unlikely to be repeated, while the export sector should record
an improved performance.
The Annual Report is available on the website of the Central Bank of Malta
at www.centralbankmalta.com.
Network Tweets
Network BlogsContent
provided by
|
Archive | Resources | Partners | Site Map | Links | Newsletter Archive | Contact | RSS Feeds | About | Syndication | Advertising & Marketing | Recruitment | Terms & Conditions | Privacy & Cookies
Copyright © 2012 - All Rights Reserved - Tax-News.com
IMPORTANT NOTICE: Tax-News.com has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.
Write a comment