A time of change: Malta must maintain a high level of growth, reduce the national debt, and prepare for the arrival of the euro
| Financial services, the fastest growing sector in the economy, represent 12% of the country’s GDP. |
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trategically considered to be a portal between Europe and North Africa, Malta has a long tradition of international trade and finance. In 1992, when the political decision was taken to apply for EU membership, Malta abandoned its position as an offshore tax haven to become an active onshore banking and finance centre. Extensive fiscal reforms under which the country’s laws have been aligned to EU directives and a spate of new regulatory laws have since opened the gateway for a new era of financial services.
Today, Malta’s financial sector is small but highly competitive. The country has been able to benefit from the experiences of other financial services centres in the creation of its legislative and administrative frameworks, which are conceivably among the best in Europe. Maltese finance laws, for the most part, are based on the British-American philosophy, and international accounting standards are adopted as soon as they are issued, explains Tonio Fenech, Parliamentary Secretary in the Ministry of Finance and acting Finance Minister. While there are tax benefits on offer, one of the island nation’s strongest points is a highly qualified and technical human resource base with English as an official language. Malta, in fact, has all the necessary ingredients to become a leading centre for financial services in the EU.
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The key to expanding the country’s success in this area, according to Mr Fenech, is the consistent application of high standards. “We have never believed that financial services are just a product to sell. We are not here to get just any business: we want reliable business because we can offer a reliable service,” says the secretary.
“There are many growth areas we can offer in this sector,” adds Mr Fenech, stressing that the only limiting factor is the provision of professionals for the industry. “If we can provide more people, we can give more services,” he states. Financial services currently representing 12 per cent of the country’s GDP comprise the fastest growing sector of the Maltese economy and are one of the most important providers of employment for trained professionals.
In 2002, the Malta Financial Services Authority (MFSA) was established to take over the regulatory and supervisory functions of the country’s financial sector. The central bank, which used to regulate the finance industry, is now responsible for promoting price stability and creating an independent monetary policy. “Stable prices are essential for business, for planning ahead and for predictability,” says Michael Bonello, the bank’s governor. Other objectives include promoting economic development by keeping interest rates as low as possible, and acting as advisor to the government on economic issues. However, the most pressing item on the agenda is preparing Malta for accession to the single European currency.
Having joined the EU in 2004, the government is determined to ensure that the country will meet the Maastricht convergence criteria required in order for Malta to be in a position to adopt the euro on January 1, 2008. The country’s public deficit for 2006 is estimated at Lm55 million (£89 million), or 2.8 per cent of the GDP, which is below the 3 per cent threshold needed. Mr Fenech notes that this has been achieved without sacrificing economic growth. “Our GDP growth last year was 2.5 per cent which, compared to the previous years and to the rest of Europe, is good.” The completion of various privatization projects this year is expected to help reduce the national debt, and this would satisfy the second criterion. Inflation, the third criterion, is within the EU average and is being closely monitored.
Malta has already joined the Exchange Rate Mechanism II, committing to keeping its currency fixed in terms of the euro. The finance ministry has stated that the country will continue to align its economy closely with that of its European partners, applying strict fiscal discipline. “Joining the EU has brought about a more determined approach towards fiscal consolidation,” says Mr Fenech.
Maltese financial laws are based on the British-American philosophy
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