Scale back COVID-19 aid, Malta urged by the IMF

17th August 2021 • News

Malta needs to start scaling back measures aimed at easing the economic impact of COVID-19 but must avoid “cliff effects” and plan for the future, assessors from the IMF have told the government.

A team from the International Monetary Fund met with government officials and heads of local regulators this week as part of a scheduled review of the island’s finances.

The IMF is a United Nations body that seeks to foster global financial security, issuing balance-of-payments financing, as well as making forecasts and publishing outlooks on its members.

It is understood that, during the meeting, the IMF weighed in on Malta’s heavy public spending during the pandemic.

The government has already announced that it will scale back its main support measure, the COVID-19 wage supplement.

The wage supplement was first introduced by the government in March 2020 in a bid to stop mass lay-offs from businesses that ground to a halt at the height of the pandemic.

Rolled out when non-essential businesses were ordered shut,  the scheme is estimated to have cost around €44 million every month, with the government saying it has saved tens of thousands of jobs across most economic sectors.

The IMF, sources said, had commended the government’s policy on saving jobs but says it is now time to plan for the next phase.

Other measures, such as tax deferrals, have also had a heavy impact on public finances.

Last month, the IMF prepared a working document on Malta laying out the next steps in recovering from the pandemic.

It said that unwinding of support measures will need to be carefully managed and well-coordinated through fiscal and financial sector policies to avoid “cliff effects” that could derail the recovery.

If health risks re-emerge 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, the document reads.

Furthermore, the pandemic’s impact on the corporate sector should continue to be carefully monitored.

While support measures have prevented large-scale bankruptcies, the pandemic may have caused lasting damage to businesses’ balance sheets, undermining their capacity to invest for a strong post-pandemic recovery, the IMF says.

It is important, therefore, to assess the extent of the deterioration of corporate sector balance sheets and consider whether additional measures to support firms are needed, including investment tax credits, subsidised loans as well as solvency support to viable small and medium-sized enterprises.

Other key challenges include addressing deficiencies in the country’s anti-money laundering framework and pursuing structural reforms to strengthen the economy’s resilience and sustainability.

 

Source:  Times of Malta

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