Malta

   

Economic Policies

#14
Key Findings
Showing significant gains in recent years, Malta falls into the upper-middle ranks (rank 14) with regard to economic policies. Its overall score in this area has improved by 1.0 point relative to 2014.

Growth rates have been very strong, and the overall unemployment rate has fallen to a low of around 3.4%. The shift toward the provision of internationally focused services has contributed to the country’s boom. However, domestic demand has replaced net exports as the principal driver of economic growth.

Overall labor-market activity rates are the EU’s highest among 25- to 54-year-olds. Policies have helped improve employment rates among women, but absolute levels remain low by EU standards. Fully 30% of companies report skills shortages, a skills mismatch and a growing reliance on foreign labor. Many companies are granted tax incentives, but tax evasion is a serious problem.

The budget has posted small surpluses for several years. Debt levels are moderately high, at a bit more than 40% of GDP. However, healthcare and pension-system costs may pose future fiscal-sustainability risks. Weak financial-sector enforcement has led to money-laundering concerns.

Economy

#2

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
9
Economic planning is at the forefront of Malta’s policymaking process and a clear-cut assignment of tasks to government institutions is its strength. Strong ties between public institutions, the economic planning ministry, and social partners exist through the Malta Council for Economic and Social Development (MCESD). This system has provided the ideal foundation for strong economic performance. Indeed, provisional GDP estimates for the second quarter of 2019 indicate an increase of 6.6% over the same period in 2018, and a 4.4% increase in volume terms. Moving forward, momentum is set to remain solid but moderate throughout 2019 and 2020. The European Commission’s 2019 autumn economic forecast continues to place Malta’s economic growth among the highest in the EU, with GDP growth expected to be 4.2 % in 2020 and 3.8 % in 2021. Malta’s received a score of 68.6 on the Heritage Foundation’s 2019 Index of Economic Freedom, giving it an overall rank of 41st place. In Europe, Malta is ranked 20th out of 44 countries, a score which corresponds to the regional average.

The shift toward the provision of internationally focused services has undoubtedly contributed to the country’s economic prosperity. Malta’s labor market remains resilient, and the country’s unemployment rate is currently among the European Union’s lowest. Indeed, increased employment rates have led to higher levels of disposable income. Public consumption and investment in the first half of 2019 were also substantial. As a result, domestic demand replaced net exports as the principal driver of economic growth. Industrial legislation provides protection against dismissals and allows for open bargaining between employers and their unions, but with few codetermination structures. Unit labor costs have increased moderately, but are projected to accelerate at a faster rate in the coming period.

Moody’s credit-rating agency upgraded Malta’s rating from A3 to A2 for the first time in 11 years in view of the positive economic performance. However, the country’s ranking fell from 36th to 38th. Nonetheless, the country was ranked first globally in terms of macroeconomic stability, and 25th in the context of ICT adoption.

The country continues to work to improve its ease of doing business. In a bid to ensure a more efficient and responsive business climate, and to reduce the administrative burden for investors setting up businesses in Malta, the government has created the position of commissioner for simplification and reduction of bureaucracy. Furthermore, it has established five one-stop-shops to assist businesses in the acquisition of information and services. This has been coupled with the creation of the Start-Up Malta Foundation (SUM) to assist nascent and established startups. The government is also working to diversify the economy and attract investment in leading technologies. For example, Malta’s parliament has officially approved the Production of Cannabis for Medicinal Use Act in order to provide the necessary regulations for the production and prescription of this substance, and is seeking to transform the island into a center of excellence for blockchain technology, which experts believe will be a leading growth engine in the future. Significantly, in July 2018, Malta became the first country in the world to implement a regulatory framework for stakeholders in the blockchain, cryptocurrency and distributed ledger technology sectors. Nonetheless, no licenses have been issued to date. Malta ranked 10th in the EU Commission digital economy index.

Rapid economic growth has brought several challenges to the fore. First is the continued dependence on financial services and property development. Second, this growth has sparked a massive building program and consequent import of labor, while also increasing demands on infrastructure and social services to a degree that may prove unsustainable for an island country measuring just 316 square kilometers. An IMF review mission cautioned against the risks associated with the country’s fast-paced growth. This is coupled with increasing concerns among the general public regarding the prospect of overdevelopment. Finally, Malta ranked only 20th among EU member states on the U.N. Sustainability Index, registering no improvement on key indicators such as the quality of overall infrastructure and sea cleanliness.

Citations:
National Statistics Office (NSO) News Release 145/2019
European Economic Forecast Summer 2019 (Interim) p.20
TVM 30/08/2019 Malta with Fourth-Lowest Unemployment Rate Among EU Countries
Commission Staff Working Document – Country Report Malta 2019 SWD (2019) 1017 final p. 7
Times of Malta 20/07/2019 Moody’s Upgrades Malta’s rating for First Time in 11 Years
World Economic Forum Global Competitiveness Report 2019
Doing Business 2019 – Training for Reform p.5
https://simplification.gov.mt/en/Pages/home.aspx
Pre-Budget Document 2020 p. 49
The Malta Independent 01/08/2019 Exporting Cannabis for Beauty and Medical Markets
Forbes 05/07/2018 Maltese Parliament Passes Laws That Set Regulatory Framework for Blockchain, Cryptocurrency And DLT
https://decrypt.co/9246/the-future-of-crypto-banking-switzerland
The Malta Chamber of Commerce 09/09/2019 Trade Deficit Widens by €675M in First Seven Months of 2019
Malta Today 16/01/2019 Malta’s Strong Economy Faces Infrastructure, Housing and Labour Challenges – IMF
Times of Malta 07/09/2019 Protesters March Against the Beat of Developers’ Drum in Valletta
Times of Malta 02/07/2019 Malta Ranks 20th in EU on Sustainable Development Goals
Business Malta 13/06/19 Malta ranks 10th on EU Digital and Sociey Index
https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/malta/economic-forecast-malta_en
2019 index of economic freedom https://www.heritage.org/index/country/malta

Labor Markets

#4

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
9
Unemployment rates are at historically low levels in Malta. Eurostat figures for August 2019 indicated that Malta had the fourth-lowest unemployment rate in the EU, at 3.4%, and one of the lowest youth-unemployment rates in Europe, at 5.1% as compared to the EU-28 average of 6.3%. The overall labor-market activity rate was estimated at 75.7% during the second quarter of 2019, which is the EU’s highest recorded rate among persons 25 to 54 years old. This is largely attributable to a broad range of measures undertaken by the government to reduce unemployment, including a Strategy for Active Aging, the Youth Employment Guarantee Scheme, extended training programs, a reduction in income tax, tapering of social benefits and an in-work benefit scheme. While Malta possesses a consolidated support system for the unemployed consisting of social benefits and retraining opportunities, schemes to help low-skilled individuals find employment were introduced only relatively recently. Though the minimum wage remains relatively low at €169.76 a week, and has seen one of the lowest rate of increase in the EU, Malta’s strong labor market has lifted wages, and the official median salary in 2019 was €19,390.

Various measures have also been introduced to increase labor-market participation rates among women. In the last five years, 30,000 women have joined or rejoined the work force. Policies worth noting include the introduction of free child-care centers in 2014, along with the strengthening of breakfast and after-school clubs. Paid leave maternity, adoption and assisted procreation policies are all now well established. The government has also established a collective maternity fund financed by the private sector, with the goal of reducing discrimination. The in-work benefit scheme has also been extended for single-earner households with children. Nonetheless, Malta still has the widest labor-market gender gap in the EU (24.1%), a fact directly related to women’s traditionally lower labor-market participation rate. Women are also statistically more present in lower-paid occupations, even though their average educational levels are higher than those among men. The gender pay gap has also increased, with women currently earning an average of 12% less than men.

This critical gender gap is further exacerbated by an increasingly aging workforce (the number of persons aged 65+ is expected to increase by 44% by 2035). Moreover, fully 30% of companies report skills shortages, a skills mismatch and a growing reliance on foreign labor. A labor shortage is also being felt in various governmental areas of operation. For instance, the Ministry of Education recently announced plans for the engagement of foreign teachers to address shortages in key areas. At the end of 2018, there were 55,000 foreign workers in Malta (a considerable increase from the previous year’s total of 43,000). A policy note published by the Central Bank of Malta found that about 25% of foreign workers leave after a single year while about 45% leave after two years. This leads to constant labor-force turnover.

Malta does not have a unified labor market, but is split into a number of sectors. Nevertheless, tensions have risen in all of them due to recruitment problems. The strongest level of demand has come in the digital and financial sectors, where wages continue to climb. However, other sectors can be characterized by low pay and precarious work conditions. The influx of foreign workers and the higher rate of labor-force participation among women contributed to a moderation of unit labor costs during 2017. However, the tightening labor market is set to lead to an increase of 1.2% in labor costs in 2020. Moreover, concerns related to working conditions remain present, as some employers continue to exploit gaps in the law and employ workers at less than the minimum wage. The U.S. state department identified Malta as a source and destination country for human trafficking, and in 2019 the Malta government launched an awareness campaign and allocated more resources to identify and assist victims.

Citations:
TVM 30/08/2019 Malta With Fourth-Lowest Unemployment Rate Among EU Countries
https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics
National Statistics Office (NSO) News Release 157/2019
Times of Malta 08/03/2019 Malta With Highest Gender Employment Gap
2019 Report on Equality between Women and Men in the EU p. 18
Formosa Marvin (2014) Socioeconomic implications of Population Aging in Malta: Risks and Opportunities
Times of Malta 07/03/2018 Third of Companies in Malta Reporting Skills Shortage
Times of Malta 11/09/2019 Malta May Need to ‘Temporarily’ Hire Foreign Teachers – Faculty of Education
Times of Malta 20/01/2019 ‘The Economy Cannot Do Without Foreign Workers’
Central Bank of Malta ‘The Length of Stay of Foreign Workers in Malta’ January 2019 p. 5
Spring Economic Forecast 2019 p.122
Malta Today 20/07/19 Malta steps up anti trafficking awareness
Malta Independent 18/11/19 Gender pay gap in Malta lower than EU average but is increasing
Malta Independent 21/01/19 Labour Markets

Taxes

#26

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
Malta’s income-tax system ensures that a portion of income is nontaxable for all three tax categories (€9,100 for single individuals, €12,700 for married individuals and €10,500 for parents). Parents also receive a tax rebate on school fees, cultural activities and creative education. No sales or inheritance tax is levied on a person’s primary residence. Moreover, first-time property buyers have been benefiting from a capped duty waiver since 2014, while similar benefits were also extended to second-time buyers at the beginning of 2018. Other measures contributing to greater equity were introduced in the 2020 budget, including a one-time supplementary allowance for all households, reduced tax rates on overtime income, income-tax refunds for all employees, higher pensions and higher tax-free pension ceilings. Like the 2019 budget, the 2020 budget will not be introducing any new taxes. In 2018 Malta’s tax burden as a ratio of GDP was the sixth lowest in the EU.

However, the burden of taxation falls mainly on people in fixed and registered employment. Malta’s shadow economy is officially equivalent to nearly 25% of GDP, though economists contend that the actual percentage is much higher. Figures published by the European Central Bank in 2018 indicate that Malta is among the countries with the highest number of cash transactions in the EU, a fact that strongly suggests tax evasion. Tax-evasion controls have become more consolidated, but remain relatively ineffective. A number of mitigating measures have recently been introduced to consolidate previously introduced actions in this area. This includes measures in the 2020 budget prohibiting cash transactions exceeding €10,000 for high-value goods such as property. A joint task force that encompasses the Inland Revenue, VAT and Customs departments as well as the Tax Compliance Unit has been established with the aim of facilitating the fight against tax evasion. The recently announced Financial Organized Crime Agency is also intended to help reduce the number of crimes of a financial nature. A recent EU Commission report stated that the offshore holdings of the Maltese stood at €5.2 billion, or nearly 48% of annual GDP, among the highest such rates in the EU. In 2016, Malta lost an estimated €260 million to tax evasion, principally in VAT and income taxes. A 2019 European Commission report stated that the country’s VAT gap continues to decrease, and is now well below the EU average of 12.3%.

With a corporate taxation rate of 35%, Malta has one of the highest tax rates applicable to companies in the EU. However, as a result of the full imputation system and the tax incentives provided to companies registered in Malta, the actual tax rate is estimated to be as low as 5%. Moreover, the Maltese tax policy does not include additional taxes on dividends paid to shareholders, apart from the fact that they are entitled to tax credits. Special tax incentives are also available for industrial research and development projects and innovation activities conducted by SMEs. Professionals in the gaming, financial services and aviation sectors can pay a flat tax rate of 15% on personal income up to €5 million. The island’s global residency program allows individuals with a certain income to benefit from a flat 15% tax rate. Fiscal incentives enhance the competitiveness of various economic sectors and attract foreign direct investment. Indeed, corporate taxation is regarded as an important source of revenue for the island. However, this has raised concerns about exploitation by companies conducting aggressive tax planning. The Maltese government has transposed the provisions of the EU’s Anti-Tax Avoidance Directives, which aim to prevent companies from aggressively exploiting differential tax rates across EU states.

Citations:
https://cfr.gov.mt/en/inlandrevenue/personaltax/Pages/Tax-Rates-2019.aspx
Budget Speech 2013 p. 14
Budget Speech 2020 (Maltese) p. 13, p.14, 17
Times of Malta 04/11/2013 Tax exemption for first-time property buyers announced
Times of Malta 03/02/2018 Second-time home-buyer scheme is rolled out
Times of Malta 22/10/2018 Budget 2019 at a glance
Times of Malta 13/10/2015 Changes in income tax
Budget Speech 2018 (English) p.17, 20, 61
https://ird.gov.mt/faq/rentalfaq.aspx
European Semester Thematic Factsheet – Undeclared Work (Updated 2017) p. 3
European Central Bank The use of cash by households in the euro area p.4
https://mfin.gov.mt/en/tcu-home/Pages/default.aspx
Tax Reforms in EU Member States 2012 Report p.75
http://ifsp.org.mt/tag/financial-organised-crime-agency/
Commission Staff Working Document – Country Report Malta 2019 SWD (2019) 1017 final p. 18
https://www.financemalta.org/sections/tax/corporate-tax-in-malta/
https://www.maltaenterprise.com/support?field_supportm_categories_tid_1=25
https://www.internationaltaxreview.com/article/b1flt620g4dwgs/malta-implements-the-eus-anti-tax-avoidance-directives
Timesofmalta 29/10/19 Malta is a tax evader’s paradise
Malta Today 30/10/19 Malta’s tax burden is the 6th lowest in the EU
https://www.financemalta.org/sections/tax/income-tax-in-malta/

Budgets

#9

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
8
Budgetary developments since 2013 have demonstrated that Malta is set to meet most standards of financial sustainability. As of June 2015, Malta was no longer subject to the EU’s Excessive Deficit Procedure. Indeed, deficit levels have been decreasing steadily; the deficit fell to 2.0% of GDP in 2014 and to 1.5% of GDP in 2015. Significantly, a surplus equivalent to 1.0% of GDP was registered in 2016, and increased substantially to 3.9% of GDP in 2017, but decreased to 2.0% in 2018 (although it was larger than originally projected). It is expected that the surplus will decrease to 1.1% of GDP in 2019 in view of increased expenditures. The European Commission found Malta’s 2019 budget to be line with the euro area’s Stability and Growth Pact, and the country was one of only 10 EU members to have passed the fiscal test.

The government is expected to maintain a surplus between 2019 and 2022. The introduction of legislation to enhance the transparency of government finances represents an additional step forward. In the 2020 budget, social spending accounts for 35% of total spending. The government is expected to register a surplus of €114 million in 2020, and public debt as a percentage of GDP is expected to fall from 43.2% to 40.4%. However, the Malta Fiscal Advisory Council cautioned the government to remain vigilant when it came to 2019 fiscal targets. The 2019 European Commission Staff Working Document on Malta’s Country Specific Recommendations also notes the problem of sustainability with regards to the healthcare and pension systems, further stating that age-related expenditure is expected to increase at a rate faster than that experienced by other member states, thereby creating challenges to fiscal sustainability. The government has introduced a number of measures intended to contain these challenges (such as gradual increases to the age of pension eligibility and incentives to defer early retirement). The 2018 IMF Country Report stressed the importance of containing financial integrity risks particularly within the context of fast-growing sectors such as remote gaming, real estate and the heavy reliance of the fiscal surpluses on the Individual Investment Program (IIP), especially in the context of a series of tax-reduction measures in 2020.

Air Malta, a state-owned enterprise, continues to face difficulties after enjoying a brief profitable period in 2018. Meanwhile, the country’s energy provider, Enemalta, was given a positive review by the S&P Global Ratings agency in 2019 in view of its gradual reduction of long-standing government-guaranteed debts and cleaner energy plans.

Citations:
The Politics of Public Expenditure in Malta in Journal of Commonwealth & Comparative Politics, Vol. 46, No. 1, February 2008, Routledge, U.K. Maurice Mullard, University of Hull & Godfrey Pirotta.
European Economic Forecast Spring 2018 p.100, p.101
National Statistics Office (NSO) News Release 069/2017
European Economic Forecast Spring 2018 p.109
European Economic Forecast Spring 2019 p. 123
http://europa.eu/rapid/press-release_MEMO-15-4971_en.htm
Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Malta and delivering a Council opinion on the 2019 Stability Programme of Malta COM (2019) 518 final p.2
Times of Malta 20/09/2019 Malta Fiscal Advisory Council Publishes Assessment
Commission Staff Working Document – Country Report Malta 2019 SWD (2019) 1017 final p. 20
National Reform Programme Malta 2019 p.27
IMF Country Report No. 19/69 p.7
Times of Malta 29/08/2019 Air Malta ‘Back in the Red’ - Report
The Malta Independent 21/03/2019 Enemalta Says Its Financial Sustainability Re-Confirmed by Standard and Poor’s
https://www.enemalta.com.mt/news/enemaltas-financial-sustainability-re-confirmed-standard-poors/
https://corporatedispatch.com/european-commission-greenlights-malta-2020-budget/
Times of Malta 14/01/10 Budget 2020 as it happened

Research, Innovation and Infrastructure

#27

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
6
Given Malta’s very limited access to natural resources, the country’s business R&D sector continues to hold considerable potential. However, Malta has traditionally been one of the EU member states with one of the lowest investment levels in this area. In 2019, Malta was last in the EU in terms of government R&D spending. Eurostat data published in 2019 showed that in 2017, Malta had the third-lowest R&D expenditure level, at 0.55% of GDP.

The National Research and Innovation Strategy highlights the need to increase the R&D knowledge base, particularly by attracting more doctoral and post-doctoral graduates to the area. Nonetheless, there have been some relative improvements. The 2019 European Innovation Scoreboard classifies Malta as a moderate innovator whose performance has increased relative to that of the EU since 2011. Nonetheless, the 2019 European Commission Malta Working Document also highlights the fact that, “R&D intensity remained flat in recent years (0.55% of GDP in 2017 against 2.07% for the EU) and the country is likely to miss its target of 2% R&D intensity by 2020. The recent slight increase in public R&D intensity is partly explained by the significant inflow of structural funds. The low level of public R&D investment in the public science base limits the full usage of the country’s scientific and technological potential.”

A better innovation ecosystem would enhance the capacity of innovative companies to scale up their activities; thus, the government has devised a rolling research and innovation action plan that is intended to reduce fragmentation and overlap. The government has additionally engaged a panel of EU experts to provide advice on how to R&D levels can be boosted. This panel indicated that more leadership, public participation and transparency were needed, along with strategic changes as to how resources are allocated, better synergy between the public and private sectors, and more long-term investment from both. A full-fledged competitive funding system also needs to be created. A process of public consultation is currently underway, with the goal of devising the country’s R&I strategy in the post-2020 period. Furthermore, Esplora, Malta’s Interactive Science Center, is intended to instill a broader interest in science and innovation within the general public. Other significant actions include the FUSION program, which focuses on the analyses of companies’ or researchers’ ideas for commercial viability purposes, the introduction of research clusters (e.g., Malta Marittima), the applied research framework administered by the Malta College of Arts, Science and Technology (MCAST), the research trust, the Center for Entrepreneurship and Business Incubation (CEBI) within the University of Malta, the Malta Information Technology Agency (MITA) Innovation Hub, and the Malta Life Sciences Park, which provides high-end facilities for the chemistry, biology and digital-imaging sectors. The Malta Digital Innovation Authority has also been active since 2018 with the aim of promoting digital innovation activities. A new space fund has also been set up. Despite limited funding, Malta is contributing to cutting-edge R&D; two such cases include the development of a computer program that can help airplanes land safely by learning from data on thousands of flights contained in a NASA database, and the use of a new bioinformatics method for the creation of new drugs.

Citations:
Times of Malta 01/12/17 “Very little being spent on research despite surplus”
Malta Independent 02/12/17 Malta holds position as one of lowest spenders on R&D in the EU
Eurostat News Release 5/2019
National Research and Innovation Strategy 2020 p.18
European Innovation Scoreboard 2019 p.60
Commission Staff Working Document – Country Report Malta 2019 SWD (2019) 1017 final p.35
https://mcst.gov.mt/psi/ri-strategy-post-2020/
http://esplora.org.mt/
http://mcst.gov.mt/ri-programmes/fusion/
https://www.mcast.edu.mt/applied-research/
https://www.um.edu.mt/cebi
https://mih.mt/
National Reform Programme Malta 2018 p. 34
https://www.maltaenterprise.com/industries/life-sciences
Malta National Reform Programme 2019 p. 49
European Commission (2019) Peer Review Maltese Research and Innovation System Horizon 2020 Policy Support Facility https://rio.jrc.ec.europa.eu/en/file/12748/download?token=ZFZRzMnV

Global Financial System

#25

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
6
Malta is a small economy and as such is not a principal actor in the regulation of financial markets. However, it possesses consolidated links with regional and international organizations which help it through shared intelligence, to combat high-risk or criminal financial activities, ensuring fair cost- and risk-sharing among market actors when a market failure occurs or is likely to occur, and to enhance information transparency in international markets and financial movements. The Central Bank of Malta, the Malta Financial Services Authority (MFSA) and the Ministry of Finance collaborate closely with similar bodies abroad. Malta has a sound regulatory framework for the fight against terrorism financing. This ensures rapid implementation of targeted U.N. financial sanctions on terrorist financing and the financing of weapons of mass destruction.

The Central Bank of Malta operates within the European System of Central Banks. Malta is also a member of Moneyval, a European committee of experts evaluating anti-money-laundering measures. Supranational regulatory regimes have strong influence on Maltese banking regulations. For instance, the 2014 European Bank Recovery and Resolution Directive was transposed into Maltese law in 2015. In the same year, the Central Bank of Malta introduced the concept of a central credit register, which requires Maltese banks to report end-of-month balances of exposures exceeding €5,000.

The Financial Intelligence Analysis Unit (FIAU) helps to combat high-risk or criminal financial activities. The FIAU is responsible for the collection, collation, processing, analysis and dissemination of information related to combating money laundering and the funding of terrorism. The unit is also responsible for monitoring compliance with relevant legislative provisions and issuing guidelines aimed at curbing money laundering. Throughout its years of operation, the FIAU has signed memos of understanding with other national FIAUs, and spearheaded the transposition of the EU’s Fourth Anti-Money Laundering Directive (AMLD) into Maltese law in 2018. However the EU Commission is still awaiting the transposition of the Fifth AMLD. Among other elements, this directive makes provisions for the establishment of a national coordinating committee that brings together all key governmental stakeholders and authorities in the area. The Maltese police forces also include an Economic Crimes Unit and National Counterfeit Unit. However, these remain relatively weak, and there have been few convictions or sanctions for money laundering. The recently established Financial Organized Crime Agency aims to address prosecution bottlenecks in this area. However, this has also raised concerns about the overall ineffectiveness of the system. The 2020 budget also introduced a €10,000 ceiling on cash transactions for the acquisition of property, cars, yachts, precious stones and art in a bid to curtail abuses.

Policies within the Maltese financial sector have recently raised concerns at the European and international level, and the sector has been accused of being slow to react to problems in a number of cases. Concerns have been raised by the European Commission and European Banking Authority (EBA), which has asked the FIAU to step up its supervision of the Maltese banking sector. A report published by Moneyval in September 2019 noted recent progress insofar as the competent authorities have improved their understanding of the threats and vulnerabilities, and have undertaken certain actions to mitigate the risks. However, the report also stressed the fact that the Maltese anti-money laundering framework is not equipped to tackle offenses, particularly those of a more complex nature. Moneyval emphasizes that the FIAU is weak and too small in terms of the size of the island’s financial-services sector. Malta scores low with regard to the regulation and supervision of financial institutions, and the oversight of professionals who are not banks themselves but handle clients who launder money. Malta also scores low with regard to cooperation with international agencies that are trying to trace money launderers and freeze their assets. There have not yet been any prosecutions or convictions for financing of terrorism in Malta. Nonetheless, no new infringement notices were put forward by the European Commission against Malta in a January 2019 infringement round.

Citations:
https://www.mfsa.mt/about-us/
https://www.centralbankmalta.org/ relations-with-international-institutions
Times of Malta 26/10/2015 The impact of the European Bank Recovery & Resolution Directive
The Malta Independent 16/04/2015 Central Credit Register to become operational by October
https://www.centralbankmalta.org/ccr
https://www.coe.int/en/web/moneyval/moneyval-brief/members
http://www.fiumalta.org/about
https://www.financemalta.org/publications/articles-interviews/articles-and-int erviews-detail/prevention-of-money-laundering-and-funding-of-terrorism-regulatio ns-2 017/
http://www.fiumalta.org/library/PDF/misc/Bill_ENG.pdf
The 4th Anti-Money Laundering Directive, An Academic Analysis. A Policy paper by ELSA Malta’s Social Policy Organizing Committee
The Malta Independent 23/12/2017 Malta transposes EU’s Fourth Anti-Money Laundering Directive
https://pulizija.gov.mt/en/police-force/police-sections/Pages/Economic-Crimes-Unit.aspx
Malta Today 08/09/2019 Tackling Financial Crime
Budget Speech 2020 (Maltese) p. 91
European Commission Press Release 08/11/2018 Commission Requests Maltese Anti-Money Laundering Watchdog to Step Up Supervision of Banks
Malta Today 12/09/2019 Updated | Moneyval: Malta Must Step Up Investigation and Prosecution of Money Laundering
Malta Today 29/01/2019 Relief for FIAU as Malta is kept out of latest EU infringements round
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