News - News Releases 2018


The Central Bank of Malta’s Annual Report 2017

The Central Bank of Malta has just released its Annual Report for 2017. The Report reviews the Bank's policies and operations during the year and includes detailed financial statements. An opening statement by the Governor is followed by an analysis of economic and financial developments in Malta and abroad and a review of the Bank's operations. The Report also carries articles on financing conditions in Malta, the implications of recent revisions in population projections for the economy's potential growth and public debt sustainability.

The Maltese economy continued to record very strong growth during 2017, with real GDP rising by 6.6%. Economic activity was mainly driven by net exports, while the contribution of domestic demand, though positive, was smaller. Sector data show that services activities remained the primary driver of economic growth, although the manufacturing and construction sectors also expanded.

The pace of GDP growth in Malta was almost three times that recorded in the euro area. The Bank's latest projections suggest that economic growth is expected to remain strong from a historical perspective, though lower than in 2017. Growth is estimated to average 5% over the period 2018 to 2020.

Against the backdrop of a buoyant economy, employment rose further and the unemployment rate fell to a historical low. Labour Force Survey (LFS) data show that employment expanded at an average annual rate of 2.8% in the first nine months of 2017. This rise was driven by a rise in full-time employment, which increased by 5,680 persons. The labour force expanded by 2.0%, primarily reflecting gains in female activity rates. The unemployment rate continued to fall, with the seasonally-adjusted unemployment rate averaging 4.0% in 2017. Data based on administrative records also show favourable labour market developments, as the number of registered unemployed fell by 1,073, to an average of 2,501 persons in 2017.

The average annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) averaged 1.3% during 2017, up from 0.9% in 2016. Even though inflation picked up, it remained contained from a historical perspective. Energy prices were the main driver behind the rise in HICP inflation. Inflation in Malta was marginally below the 1.5% inflation rate recorded in the euro area. According to the Bank's projections, the HICP inflation rate in Malta is set to pick up gradually to reach 1.6% in 2018 and 1.8% in 2019, before rising further to 2.0% by 2020.

Turning to monetary and financial developments, the Review notes that residents' deposits expanded further although the rate of growth slowed down compared with 2016. The shift away from longer term deposits towards overnight deposits persisted, in an environment of low interest rates and robust economic growth. Growth in credit to Maltese residents slowed down in 2017, driven by weaker growth in credit to general government. Growth in credit to other residents continued to grow, supported by mortgage lending. Meanwhile, interest rates on deposits and loans to Maltese residents continued to fall. On the other hand, yields on Treasury bills and government bonds rose.

In the first three quarters of 2017, the general government surplus increased compared with the same period in 2016, driven almost exclusively by higher current revenue. When measured on a four-quarter moving sum basis, the general government balance-to-GDP ratio recorded a surplus of 3.2%, up from 1.1% in 2016. Meanwhile, government debt as a share of GDP declined to 53.4%, from 56.2% in 2016. The decline in the debt ratio was mainly supported by the positive primary balance. Strong economic growth also contributed to reduce the debt, as the rate of GDP growth surpassed the effective rate of interest.

During 2017 the Bank continued to implement the Eurosystem's monetary policy stance in Malta, through standing facilities, regular liquidity-providing operations and the Public Sector Purchase Programme (PSPP). In the context of rising liquidity, Maltese credit institutions increased the level of excess funds placed in overnight facilities with the Bank. Ample liquidity led to limited participation in the Eurosystem's refinancing operations. Through the PSPP, the Bank bought €245.7 million worth of Maltese government bonds, bringing total purchases before amortisation since the start of the programme to €948.1 million by the end of 2017.

The Bank's total assets reached €8.6 billion at the end of 2017, up from €5.5 billion a year earlier. Net interest income increased driven by the substantial rise in the use of the deposit facility, which carries a negative interest rate in line with ECB policy. Nonetheless, the operating profit before transfers to reserves decreased to €51.6 million, from €76.4 million in 2016, mainly due to exceptional capital gains on the Bank's financial operations that had been realised towards the end of 2016. The Bank added €16.6 million to its provisions, leaving an amount of €35 million payable to the Government of Malta.

As regards financial stability, the Bank continued to monitor the soundness and resilience of the financial system, and actively participated in the Joint Financial Stability Board. The Bank also refined the framework for assessing vulnerabilities arising in the property market and developed a new stress test to assess the sensitivity of the banks' net interest income under alternative interest rate scenarios prescribed by the Basel Committee for Banking Supervision. Meanwhile, the Bank supported the work of the Maltese Presidency of the European Union, through membership on two working groups addressing matters related to financial services. It also began preparations for an assessment under the IMF's Financial Sector Assessment Program (FSAP), which is scheduled for 2018.

The Bank continued to meet business firms and public sector institutions in Malta, to obtain a better gauge of economic conditions and prospects. In 2017, it also began to publish a monthly business conditions index, while the information published on its economic forecasts was expanded and its research findings disseminated more widely. The Bank continued to meet with constituted bodies and academia to discuss economic policy issues of mutual interest.

The Bank also set up a Social Research Unit to enable it to add depth to its economic research with scientific investigation of the social dimension of issues within its remit.

Meanwhile, a new building with meeting and conference facilities as well as additional office space, a data centre, a new library and modern archiving facilities was inaugurated. In 2017, the Bank also upgraded the infrastructure within its banknote examination facilities and several systems used in ESCB-related operations. Moreover, its website was upgraded with extensive remote search capabilities.

The Annual Report 2017 is available on the Central Bank of Malta's website.

Presentation delivered at the Annual Report 2017 Press Conference

The Central Bank of Malta’s Annual Report 2017

The Central Bank of Malta’s Annual Report 2017

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