Malta’s worst recession in decades

With his trademark smirk and mocking insolence, Joseph Muscat bragged that PN couldn’t find Malta’s surplus because it was in the pockets of Maltese people: “When people ask where the surplus is going, remember the cheque you have received.” That was April 2019.

We soon found out where the surplus was.  In the pockets of a select few – Yorgen Fenech allegedly made €4.6 million out of the Mozura wind farm. Another $200,000 were also reported to be transferred into Fenech’s 17-Black from Mario Pullicino, the local agent for the LNG tanker supplying the power station.

Another $1.4 million were deposited in 17-Black’s account from the Azerbaijani laundromat, according to The Times of Malta. Muscat travelled secretly to Azerbaijan where it is suspected the dodgy SOCAR gas deal was sealed. The millions funnelled into 17-Black were probably never intended for the sole benefit of the owner of that company.

Over 700 persons of trust are draining millions of euros in salaries, far more than what they deserve and often contributing nothing to the public service.

Muscat’s surplus was the result of successful economic niches painstakingly developed in the previous decades. His sole contribution to Malta’s revenue was passports sales, a move which earned Malta infringement procedures and a very public rebuke by European Commission President Ursula von der Leyen.

How things change. The International Monetary Fund published a statement on Malta.  It received no publicity locally.  There were no hastily arranged press conferences, no propaganda news items on ONE.

The IMF was conveniently ignored.  The government hoped nobody would notice.  With a general election looming, the IMF press release was the last thing Labour needed to burst its bubble of fiscal responsibility.

The IMF concluded that Malta is going through the worst recession in decades. Real GDP contracted by 7.75%.  The surplus Labour boasted about is no more.

The current account balance has turned into a deficit of 3.5% in 2020. That’s a €753.2 million deficit. Nobody was telling the Maltese public, least of all Labour’s mouthpieces: DOI, TVM and ONE. Why are the IMF being so negative, especially during an election year?  Surely the PN must be controlling them.

That downturn was triggered by the pandemic. But Malta’s financial situation was deteriorating before COVID hit.  The IMF acknowledged the success of the local vaccination programme which has been far more effective than most other European countries.

That is a feather in the cap of those responsible. It should help the economic recovery. But Malta would recover much faster had Labour not messed up so badly.

While the Maltese economy may recover from the “worst recession in decades”, the IMF noted the high uncertainty with risks tilted to the downside.   There might be a resurgence of the pandemic with new strains but the IMF’s main concern is Malta’s “prolonged placement in the FATF greylist”.

Malta’s greylisting will adversely affect correspondent banking relationships and foreign direct investment inflows. In simple terms, our banks will have problems with foreign transactions, those transactions will cost more – we will all suffer.  Foreign investors will be scared away. Companies based here will be driven out.

The IMF insists that urgent action is required “to address remaining deficiencies in anti-money laundering and combating funding terrorism frameworks”. It expressed concern over the effectiveness of the implementation of the AML/CFT framework – ultimate beneficial owner transparency, applying appropriate sanctions for non-compliance by companies and gatekeepers, use of financial intelligence to support money laundering cases and FIAU’s failure to tackle criminal tax offences.

The IMF advised that authorities should address the reputational risks posed by high risk sectors and activities.  The IMF is too polite. What it’s saying is you’d better sort out your terrible reputation because nobody wants to deal with you.

And guess which those “high risk sectors and activities” are.  Yes, the sale of passports and Malta’s gaming industry. Why? Because those two contribute to the problem of correspondent banking relationships.

Labour has destroyed the gaming industry reputation.  Putting Joseph Cuschieri, close friend of Yorgen Fenech and Joseph Muscat, at its helm was a disaster.  Cuschieri’s appointee, Edwina Licari who advised Fenech on his casino licence and who travelled with both to Las Vegas, is still General Counsel at the Malta Financial Services Authority.

No action has been taken against Cuschieri or Licari.  How are we meant to convince the IMF that we are serious about addressing our reputational disaster?

The IMF had more advice.  Malta hasn’t done enough to meet the Venice Commission and GRECO recommendations.  It must beef up the office of the Attorney General and the efficiency of the judiciary.

There was more.  There are huge risks from “contingent liabilities”.  That’s Air Malta and the money the State is pouring into this weak State-owned enterprise. Putting unnecessary people on the payroll, such as Karl Stagno Navarra, is hardly going to cut it.

The IMF encouraged Malta to advance Labour market reforms.  Instead, Labour stuffed as many people as it possibly could on the public payroll. It’s draining people from the private sector. The number of government employees is at an all-time high – the burden borne by the taxpayer increased by over €183 million in one year.

Malta’s debt burden was 48.5% of GDP in 2017.  In 2021, it will reach 64.6%.

It will remain around 67% until 2026.  Yet Labour continues to squander taxpayers’ money.  Over the last year alone the government’s recurrent expenditure increased by half a billion euros (€509.2 million). Where did all that money go?

It went to the hospital concessions agreement, the St Vincent de Paul service contract, it went to pay €123.1 million in interest on the debt accumulated.  At the same time, an additional €68.8 million went to personal emoluments.

Labour’s key priority is to maintain power.  If that means letting public debt explode, so be it. No IMF is going to change that.  You know the situation is dire when even Alfred Sant highlights “the query regarding how the growth in public debt is going to be reined in”.