IMF: Malta economy ‘cruising’ but MFSA’s oversight must be strengthened

The International Monetary Fund has called on Malta to improve its anti-money laundering rules in the wake of the COVID-19 pandemic’s adverse social and economic effects.

In a conclusion of its so called Article IV consultation, the IMF praised Malta’s overperforming economy, particularly its prudent fiscal policy and timely structural reforms that have boosted jobs and promoted social inclusion.

While growth remained strong in 2019 thanks to domestic demand, the risks to the economy’s ‘cruising speed’ have been skewed to the downside due to the pandemic, and a lot will depend on how long-lasting the effects of the coronavirus impact will be.

“Continued efforts are needed to mitigate financial integrity and stability risks… it is critically important to continue to address deficiencies identified with the AML/CFT system. The focus should be on improving and demonstrating effectiveness of the AML/CFT framework. In particular, the understanding of risks and the monitoring and supervision of banks and other higher-risk sectors and programmes, such as remote gaming, VFAs, and the IIP, should continue to be strengthened. It is also key to enhance AML/CFT enforcement actions, including through timely and adequate sanctions in case of breaches,” the IMF said.

The IMF also called for stronger supervision inside the Malta Financial Services Authority. “Despite commendable progress, the MFSA remains under strain due to the large number of financial institutions under supervision, the evolving regulatory environment, and challenges associated with new and complex products. The legal framework for bank insolvency should also be updated and streamlined. An administrative regime for the orderly closure and liquidation of a failing bank should be introduced to avoid that supervisory actions are unduly delayed through judicial appeal.”

As usual, the spending-averse IMF called on Malta to increase retirement age so as to address spending pressures from pensions, and further encourage enrollment in voluntary savings schemes.

It also said that Malta should reduce its vulnerability to international taxation regime changes, by diversifying revenues outside of its corporate income tax regime.

“Pursuing structural reforms will help sustain Malta’s growth performance while promoting social inclusion. The focus should continue to be on encouraging female and elderly participation in the labour market, upskilling the labor force and stimulating innovation.

“Moreover, to safeguard the business climate, remaining governance shortcomings should be addressed without delay, including by stepping up the fight against corruption and by increasing the efficiency of the judicial system while ensuring its independence. Improving access to affordable housing remains a key priority in support of greater inclusion.”