News - News Releases 2021


CBM Annual Report for 2020 released

The Central Bank of Malta has released its Annual Report for 2020, including its detailed financial statements, an opening statement by the Governor, an analysis of economic and financial developments in Malta and abroad, and a review of the Bank's policies and operations.

The Report also includes articles on the financing conditions affecting firms in Malta, public debt sustainability and the balance sheet of different institutional sectors. It also includes - for the first time - an analysis of sectoral developments in labour productivity and unit labour costs using new official statistics.

The Report notes that the global economy was hit by a severe economic shock as result of the COVID-19 pandemic. In most countries, activity contracted at an unprecedented pace, predominantly affecting the services sector. Other sectors, though less severely impacted, were also negatively affected by border restrictions, quarantine requirements and disruptions to global value chains. The slump in activity also created some financial market volatility. This was, however, mitigated partly by regulatory changes that occurred in the post-global financial crisis period, but also as a result of unprecedented liquidity support to the banking sector and temporary relief by the relevant authorities from certain regulatory requirements. Indeed, the banking sector was instrumental in supporting the private sector - through moratoria on loan repayments and the continued smooth flow of credit through the liquidity injected by central banks.

The pandemic interrupted the pattern of strong growth that had characterised the Maltese economy in recent years. In fact, gross domestic product (GDP) contracted by 7.0%, mostly on account of lower net exports. Domestic demand also declined but to a lesser extent, due to the unprecedented level of fiscal support, which prevented a sharper fall in private consumption.

Despite the drop in output, employment continued to increase - though at a slower rate than in previous years - with the Government's Wage Supplement Scheme effective at preventing large-scale layoffs. Even though the unemployment rate edged up to 4.3%, it remained well below its historical average and substantially lower than the average rate in the euro area.

The annual rate of inflation based on the Harmonised Index of Consumer Prices fell to 0.8% in 2020, from 1.5% in 2019, primarily reflecting slower growth in services prices and falling energy prices. Inflation based on the Retail Price Index showed a similar development, easing to 0.6% from 1.6% in 2019.

Public finances deteriorated sharply in 2020, partly reflecting the decline in economic activity, as well as the introduction of COVID-19 related fiscal support. The Bank estimates that the fiscal balance will show a deficit of close to 9.5% of GDP in 2020. The general government debt ratio rose to around 55.3% of GDP, while remaining well below the euro area average. The pandemic also left its mark on the current account balance, which is estimated to have registered a deficit for the first time in four years.

The report notes that - given that the country's productive capacity remained relatively unchanged - once foreign demand recovers and the lingering uncertainty surrounding the medical crisis dissipates, the Maltese economy can be expected to rebound from the COVID-19 shock. The Bank expects pre-pandemic GDP levels to be attained towards the end of 2022, conditional on the successful rollout of a vaccine in 2021. Inflationary pressures are expected to remain very subdued in 2021, but should start to pick up from 2022 as demand conditions improve. The general government deficit is projected to narrow over the projection horizon. Government debt is set to reach 60.3% of GDP by 2023.

The recent increase in the COVID-19 infection rates, both in Malta and its key trading partners, which led to tighter containment measures, presents a downside risk to activity in the near term and to public finances. Risks are assessed to be more balanced after 2021, as the implementation of vaccination programmes should allow a broader economic recovery in line with the Bank's expectations.

CBM Annual Report for 2020 released

During the year, the Bank continued to implement the Eurosystem's monetary policy decisions in Malta through standing facilities, liquidity-providing operations and asset purchases. Although credit institutions established in Malta participated only once in the main refinancing operations, they made more use of long-term refinancing operations compared to 2019, partly due to new pandemic related support provided by the Eurosystem. Use of the European Central Bank's (ECB) US dollar liquidity operations also increased. As in 2019, Maltese credit institutions did not use the marginal lending facility, while recourse to the deposit facility decreased.

The Bank purchased sovereign bonds under the public sector purchase programme (PSPP) and the pandemic emergency purchase programme (PEPP). It purchased €85.0 million worth of Maltese sovereign bonds under the PSPP and €235.9 million under the PEPP. The Bank also made additional purchases under the two programmes for the ECB's portfolios.

The Bank's balance sheet continued to expand, reaching €10,035.4 million at the end of 2020 from €9,288.2 million a year earlier. Operating profit before transfer to provisions decreased to €42.8 million from €49.5 million in 2019. Following the transfer of €9.8 million to provisions, the amount of €33.0 million is payable to the Government of Malta, up from €31.5 million a year earlier.

The Bank continued to advise government on legislative and regulatory developments related to financial stability and to monitor financial sector conditions. As in past years, it also remained active in local and international fora with responsibilities in these areas and continued to monitor developments in the area of anti-money laundering. The Bank was very active in terms of macroprudential policies aimed at ensuring that the local financial system could better support the economy during the pandemic. A new Directive No. 18 on Moratoria on Credit Facilities in Exceptional Circumstances was issued defining the eligibility for the moratorium and the prudential treatment of loans subject to moratoria. Certain requirements on borrower-based measures under Directive No. 16 were temporarily relaxed or suspended, and phasing-in arrangements were applied to certain institutions with respect to the applicable systemically important buffer rates. The stress-testing framework was enhanced with additional pandemic-related scenarios while Directive No. 11 on Macroprudential Policy was amended to transpose elements of the revised Capital Requirements Directive in the Bank's remit.

The Bank offered, on an online platform, public lectures in economics and finance, as well as its Annual Research Symposium, which focused on migration. It continued to work with the National Statistics Office on the fourth round of the Household Finance and Consumption Survey. The Bank remained active in economic policy discussions - for instance contributing to the work of the National Productivity Board - and increased its contacts with private and public institutions, to keep track of the economy's response to the pandemic.

The Bank continued to compile and disseminate statistics for official institutions and the general public. Considering the exceptional circumstances triggered by the pandemic, derogations were granted to certain categories of reporting financial sectors - while additional statistics were collected, such as on loan moratoria and participation in the Malta Development Bank COVID-19 Guarantee Scheme. Pension funds statistics were also collected for the first time. Meanwhile, a new Directive No. 15 on Supervision of Credit Reference Agencies was issued to affirm the role of the Bank as the supervisory authority of credit reference agencies.

The Bank also issued Directive No. 17 regarding business continuity measures concerning deposit and withdrawal of cash, deposit and encashment of paper-based instruments, and provision of services through alternative delivery channels to better support the public in their banking needs during the pandemic. It also implemented a new payments infrastructure and started offering agency services to credit and financial institutions for the settlement of euro retail payments. Meanwhile, the Bank monitored the local implementation of requirements on authentication laid out in the Payment Services Directive No. 2.

The Bank remained as active as possible in all spheres of corporate social responsibility, providing philanthropic support to several institutions and putting in place a number of measures towards a sustainable global economy, partly by means of increasing its exposure to green and social bonds in its portfolio of financial assets. The Bank also undertook substantial investment to ensure a healthy and safe environment for Bank staff and to ensure that it could continue to provide essential services.

Looking ahead, the Bank will keep on monitoring closely the economy and the financial system and to disseminate its analysis and research to the general public. In 2021, it will continue to participate in Eurosystem discussions on the review of the ECB's monetary policy strategy and to contribute towards price and financial stability.

The Annual Report 2020 is available on the Central Bank of Malta's website.

Back to Archive