Edward Scicluna

Interview – Money Magazine

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Malta’s banking system is sound, solvent and resilient, Finance Minister Edward Scicluna reassures me. But what makes Malta’s economy more resilient than say, Cyprus?

Professor Scicluna explains that although total assets of Maltese banks amount to what appears to be a very high percentage of the GDP – that’s approximately 800 per cent – the core domestic banks and systemically important banks represent only 218.2 per cent of GDP.

“That is below the EU average, while international banks amount to 493.7 per cent.” In addition, he notes how, unlike Cyprus, “The domestic banking sector debt has low exposure to the sovereign debt of peripheral crisis ridden European countries”.

This means that domestic core banks do not suffer from the systematic risks which have led to various downfalls in the banking sectors of various European countries. Furthermore, international banks operating in Malta conduct limited business with local residents as their main investors are overseas.

“Thus, the impact their actions could have on the Maltese economy is considerably limited.”

In fact, data published by the European Central Bank repeatedly places the Maltese banking system as the most solvent in the European Union. Furthermore, a recent World Economic Forum Report ranked Malta 13th worldwide for the soundness of the banks.

Similarly, credit rating agencies Fitch and Standard & Poor’s, Bloomberg News Service, Nomura Global Services, the European Commission, and more recently the IMF concluded that Malta’s risk of contagion from other ailing member states is low, and that Malta’s banking and financial sector has proven itself sound.

The Finance Minister has recently presented his prebudget document for 2014.

 

What will government’s priorities be for next year?

Government’s first priority will be to raise the output potential of the Maltese economy with the aim of enhancing Malta’s capacity to grow, says the Finance Minister.

“This will be done through further investment in Malta’s infrastructure as well as through the encouragement of lifelong learning alongside initiatives aimed at increasing the labour force activity rates.”
Other main priority areas include: attaining fiscal sustainability through strengthening the fiscal framework and addressing tax evasion; safeguarding the successes achieved by the Maltese financial sector; and promoting a diversified and balanced economy by embarking on new economic activities with the purpose of strengthening
Malta’s international competitiveness.

 

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What are Malta’s short and mid-term financial and economic targets?

Speaking about public finances, the Finance Minister points out how Malta’s goal is to permanently get Malta out of the excessive deficit procedure by reducing the deficit-to-GDP ratio below the three per cent, while also putting in place measures to decrease the general government debt.

In this light, government intends to focus on the elimination of inefficiencies and waste in the public sector, especially in some of the state-owned enterprises while at the same time preserving capital expenditure and strengthening revenue mechanisms.

“Furthermore, government will also address tax evasion, while also strengthening the fiscal framework through the adoption of fiscal rules, the establishment of a fiscal institution, and the establishment of the medium term budgetary framework.”

Other targets include:
boosting investment in the private sector and enhancing the competitiveness and transparency of the products and service markets to strengthen consumer protection.

“Another macroeconomic target is to increase the labour supply by raising female and older worker participation rates and reducing unemployment especially among the longterm unemployed. We will also invest in education and training to enhance the skills of the labour force.

“All this should lead to achieving higher standards of living for the betterment of the country and its citizens.”

 

With specific reference to the energy budget, what are government’s plans to generate energy at lower prices, and to procure fuel?

In order to be able to secure cheaper energy and a more diversified energy mix, government’s priorities include: securing a power purchase agreement and gas supply agreement with the private sector;
concluding the conversion of the Delimara plant to gas, as well as the conclusion of the interconnector project which will link Malta to the European grid.

“This will allow government to pass on the benefits of a more efficient energy sector to the final consumers. Government will also be focusing on improving the operation of ARMS Limited, and also launching schemes that will facilitate the uptake of renewable energy technologies.”

Another area of concern is Malta’s female labour participation, which is the lowest among other small European member states. In its electoral manifesto, the Labour Party committed itself to creating an economic environment which would encourage more women to join the workforce. What has government done so far to implement this plan?

“As was promised in the run up to the 2013 election, government intends to provide free childcare centres to enable more parents to work,” says Prof. Scicluna.

Government also plans to expand existing childcare facilities – such as the Klabb 3-16 and other similar after school care services – to afford working families much-needed flexibility in their working hours. Towards this goal, government also intends to strengthen nonformal education after school activities such as Hilti, Klabb Pepprina and Malta Writing Programme.

Government is also planning to enhance the employability and human resource potential of unemployed women by equipping them with the necessary skills and training
to meet the requirements of job seekers. Additionally, government intends to further incentivise female participation in the work force through income tax breaks for those women entering the work force.

 

moneypage3In a recent statement, Central Bank Governor Prof. Josef Bonnici said that, “If our economy is diversified Malta will increase its resilience”. What is government doing to diversify our economy?

Prof. Scicluna points out how over past weeks, government has been exploring various avenues to further diversify the economy.

“With regards to the maritime sector, in which government is confident that Malta can become a centre of excellence, government has tabled various projects such as the transformation of the Marsa ex-ship building site to a Maritime Park, which will generate greater economic growth and further diversify the economy.”

Malta Enterprise will continue to support investment in essential sectors including the aviation services, the film industry, life sciences and digital games by helping them access the required finance and develop the capacity to expand and innovate, the Finance Minister explains.

“Additionally, government will increase investment that goes into research and technology and in other sectors in which Malta had a strong track record, such as the engineering industries.

“Government has also opted to extend the Micro Invest and the Micro Guarantee Schemes as well as the High Energy User Scheme which are intended to encourage new businesses.”

 

 

 

– Wednesday, 18th September, 2013

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