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Maltese report Maltese report
by Euro Reporter
2012-01-27 07:40:21
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Gonzi faces confidence vote that may derail deficit cuts

Maltese Prime Minister Lawrence Gonzi faces a no-confidence vote in parliament that could bring down the government and undermine his efforts to trim the deficit and shield the country from fallout from the debt crisis. Gonzi, who holds a one-seat majority in the parliament, told the legislature in Valletta today before the noon vote that early elections would increase the risk to Malta’s economy.

The motion was presented by Joseph Muscat, leader of the opposition Labour Party, after Franco Debono, a member of Gonzi’s ruling coalition, threatened to withdraw his support for the government. The 38-year-old lawmaker has criticized Gonzi for failing to implement constitutional reforms, including an overhaul of party financing rules, and has called for Gonzi’s resignation. Debono may abstain in the vote, granting Gonzi’s government a lifeline, newspapers including the Times of Malta have reported.


Banking sector concerns IMF

With public finances being given a clean bill of health, the International Monetary Fund (IMF) in its latest assessment of Malta has warned that safeguards must be introduced to protect the Maltese banking sector. Following rapid budget consolidation in 2011, Malta's government has been commended for reducing its deficit to 3% of GDP. The IMF has said however that the government has relied excessively on one-off measures and recommended further cuts to expenditure. The IMF's report however said government should also focus its efforts on shoring up the nation's banking sector. The IMF reported that the financial sector has continued to perform strongly, but warned that - given the large external risks - it is important to further strengthen the sector’s resilience. "Banking and insurance companies appear healthy with relatively sound capital and liquidity ratios, but the sector’s sheer size (above 8 times GDP) and large foreign ownership represent a number of risks to financial stability and fiscal sustainability," the Fund warned.

Listing the risks, the IMF said there are concerns about the sector being "too large to save", with inadequate resources in the case of a major banking crisis, deposit run or bank default. The IMF further found the target size of the Deposit Compensation Scheme (DCS) to be unsatisfactory. The IMF reported that a shortfall could have knock-on effects on the entire banking system through confidence and reputation effects and on the government’s budget in case the DCS needs emergency funding. "As a small economy with a large financial sector, the authorities should give due recognition to the potentially high risks to financial stability, by erring on the conservative side and imposing buffers above the suggested minima," the IMF stated.

"Maintaining financial sector stability requires a multi-faceted approach, encompassing macro-prudential policies and surveillance, micro-prudential regulation and supervision, and lastly contingency planning, safety net, and crisis management," the IMF noted. "Further strengthening the analysis of risks posed by the financial sector, including the so-called international banks and insurers, is key to identifying and addressing systemic imbalances before they materialize. In this context, we commend the Central Bank of Malta (CBM) and the Malta Financial Services Authority (MFSA) for extending the EU-wide stress testing exercise to all domestic banks, and for participating in EU-wide insurance sector stress tests." The IMF went on to say: "Substantial credit concentration in the banking sector and rising credit risks warrant close supervisory scrutiny and strong financial buffers. Lending is highly concentrated in housing and construction, loan quality has deteriorated, and the number of restructured loans increased. Bank profitability may suffer if loan losses were to increase further, due to further declines in real estate prices or a fall in growth. Banks’ financial positions may also be affected by the forthcoming Basel III/CRD IV requirements."


Malta and Gibraltar sign tax information agreement

Malta and Gibraltar have signed a Tax Information Exchange Agreement (TIEA) which provides for a full exchange of information on tax matters. The High Commissioner in London, Joseph Zammit Tabona, who signed for the Maltese government, said the agreement reinforces links and strengthens bilateral relations, particularly in the fields of financial services and business.

Gibraltar’s Minister with responsibility for Financial Services, Gilbert Licudi, said Malta and Gibraltar share very important social, cultural and political links. “A significant part of Gibraltar’s population is descendants of Maltese nationals which mean that our heritage is intrinsically bound together. There is already an element of business activity that we share with Malta. We trust that this agreement will encourage the development of an even closer business relationship.”

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