PERICLES
13thApril2005, 18:25
Central Bank of Malta annual report 2004: Malta’s economy expected to grow faster in 2005
Malta’s economy is expected to grow at a faster rate this year when compared to the rate of growth achieved last year, according to Central Bank governor Michael Bonello. Even though this is positive, the rate of growth will remain below its potential, he added.
In his statement in the bank’s annual report for 2004, Mr Bonello argued that the country’s economy has been growing at well below its potential rate for several years. This, he said, is characterised by imbalances which are not sustainable in the medium term. He identifies the high fiscal and current account deficits and uncompetitive cost structures as the major obstacles to the attainment of a higher growth rate.
The governor went on to observe that there are many issues which could be attributed to the real reasons behind the country’s minimal economic growth in the last year. He said that European Union membership, the challenges of wider access to export markets and a greater availability of external financial resources are factors which weighed heavily on the performance of the Maltese economy in 2004.
Although real GDP grew by 1.5 per cent, this was lower than the rates achieved by the other new European Union member states.
“The persistence of sluggish growth in the Maltese economy cannot be explained exclusively in terms of a cyclical downturn. There is evidence that the delay in implementing effective competitiveness-enhancing reforms is also an important factor. This, together with the fact that the relationship between productivity and costs has tended to deteriorate compared to that in competitor countries, partly explains why Malta does not appear to be capitalising on the new opportunities to the same extent as most of the new EU member states,” Mr Bonello added.
Another important factor underlying the economy’s poor growth record is the relatively large fiscal deficit, which averaged 6.8 per cent of GDP over the past five years. The governor welcomed the reduction in deficit to 5.2 per cent of GDP in 2004 but emphasised that to realise the government’s plan to narrow the deficit to 1.4 per cent of GDP by 2007, cuts in recurrent expenditure in real terms will be required. This should involve measures aimed at reforming the health and pension systems, reducing the size of the public sector as well as eliminating waste and tax evasion, he said.
Mr Bonello also spoke about the discussions aimed at reaching a compromise on a social pact. He said the “inability of the social partners to reach agreement, however, suggests that there is as yet an insufficient understanding of global economic realities and of the threat they represent for Malta’s small economy,
and more specifically for employment levels”.
The governor warned that in today’s highly competitive environment, there are no painless options which will, at once, produce more rapid growth, enhanced welfare benefits and higher living standards. “The quest for greater competitiveness should, therefore, be pursued as a collective effort and be perceived as being in the mutual interest of all the social partners. Consequently, in the labour market there is need for more flexible work practices and for wage increases to be matched by productivity improvements, while in the area of public health and welfare the extensive range of services and benefits offered should be critically assessed with a view to ensuring their financial sustainability,” he said.
The governor concluded his statement with the reminder that sound public finances and macroeconomic fundamentals are critical to the role played by the bank in the economy, as excessive fiscal deficits and uncompetitive cost structures thwart the attainment of price stability.
Failure to undertake the necessary fiscal and supply-side adjustments would, therefore, require a tighter monetary policy stance. Sustainable and coherent fiscal and monetary policies, moreover, also impinge crucially on the medium-term objective of adopting the euro. The prospect of securing the benefits of full participation in the Economic and Monetary Union (EMU) should in the governor’s view, therefore, serve to motivate a common effort in support of policies aimed at ensuring a rapid and smooth transition to the euro.
The bank’s net operating profits in 2004 amounted to Lm14.9 million as against Lm18.2 million the previous year. The report attributes the decline to lower income on the bank’s external reserve portfolio.
http://217.145.4.56/ind/news.asp?newsitemid=14316
Malta’s economy is expected to grow at a faster rate this year when compared to the rate of growth achieved last year, according to Central Bank governor Michael Bonello. Even though this is positive, the rate of growth will remain below its potential, he added.
In his statement in the bank’s annual report for 2004, Mr Bonello argued that the country’s economy has been growing at well below its potential rate for several years. This, he said, is characterised by imbalances which are not sustainable in the medium term. He identifies the high fiscal and current account deficits and uncompetitive cost structures as the major obstacles to the attainment of a higher growth rate.
The governor went on to observe that there are many issues which could be attributed to the real reasons behind the country’s minimal economic growth in the last year. He said that European Union membership, the challenges of wider access to export markets and a greater availability of external financial resources are factors which weighed heavily on the performance of the Maltese economy in 2004.
Although real GDP grew by 1.5 per cent, this was lower than the rates achieved by the other new European Union member states.
“The persistence of sluggish growth in the Maltese economy cannot be explained exclusively in terms of a cyclical downturn. There is evidence that the delay in implementing effective competitiveness-enhancing reforms is also an important factor. This, together with the fact that the relationship between productivity and costs has tended to deteriorate compared to that in competitor countries, partly explains why Malta does not appear to be capitalising on the new opportunities to the same extent as most of the new EU member states,” Mr Bonello added.
Another important factor underlying the economy’s poor growth record is the relatively large fiscal deficit, which averaged 6.8 per cent of GDP over the past five years. The governor welcomed the reduction in deficit to 5.2 per cent of GDP in 2004 but emphasised that to realise the government’s plan to narrow the deficit to 1.4 per cent of GDP by 2007, cuts in recurrent expenditure in real terms will be required. This should involve measures aimed at reforming the health and pension systems, reducing the size of the public sector as well as eliminating waste and tax evasion, he said.
Mr Bonello also spoke about the discussions aimed at reaching a compromise on a social pact. He said the “inability of the social partners to reach agreement, however, suggests that there is as yet an insufficient understanding of global economic realities and of the threat they represent for Malta’s small economy,
and more specifically for employment levels”.
The governor warned that in today’s highly competitive environment, there are no painless options which will, at once, produce more rapid growth, enhanced welfare benefits and higher living standards. “The quest for greater competitiveness should, therefore, be pursued as a collective effort and be perceived as being in the mutual interest of all the social partners. Consequently, in the labour market there is need for more flexible work practices and for wage increases to be matched by productivity improvements, while in the area of public health and welfare the extensive range of services and benefits offered should be critically assessed with a view to ensuring their financial sustainability,” he said.
The governor concluded his statement with the reminder that sound public finances and macroeconomic fundamentals are critical to the role played by the bank in the economy, as excessive fiscal deficits and uncompetitive cost structures thwart the attainment of price stability.
Failure to undertake the necessary fiscal and supply-side adjustments would, therefore, require a tighter monetary policy stance. Sustainable and coherent fiscal and monetary policies, moreover, also impinge crucially on the medium-term objective of adopting the euro. The prospect of securing the benefits of full participation in the Economic and Monetary Union (EMU) should in the governor’s view, therefore, serve to motivate a common effort in support of policies aimed at ensuring a rapid and smooth transition to the euro.
The bank’s net operating profits in 2004 amounted to Lm14.9 million as against Lm18.2 million the previous year. The report attributes the decline to lower income on the bank’s external reserve portfolio.
http://217.145.4.56/ind/news.asp?newsitemid=14316