Giovanni Bartolotta, Chief Risk Officer at APS Bank, acknowledges that it is very difficult to forecast the speed and shape of Malta’s economic recovery following the end of the “Great Lockdown”, which he terms as one of the boldest and most radical socio-economic experiments in human history.

As the economic engine restarts – he likens the lockdown to a computer reboot – the ‘scarring’ of the economy will gradually become evident, he notes, adding that what is certain is that Malta, unlike many of its European partners, entered the recession from a position of strength.

He points out that consumers emerge from the lockdown with spare cash, concentrated among people with higher income, although spending sentiment remains weak due to the uncertainty surrounding the resolution of the COVID-19 health crisis and the fact that a certain amount of social distancing measures could remain in place for some time to come.

Mr Bartolotta asserts that, as a small, open, service-oriented economy, much of the recovery momentum will depend on the speed of recovery of Malta’s trading partners.

International tourist arrivals are key in supporting the recovery; however, he notes, the 500,000 expected in the second half of 2020 are a far cry from the 2.7 million arrivals of 2019 [notwithstanding the placing of Malta on many quarantine travel lists due to the emergence of a second wave].

As a result, hotel occupancy is expected at about 25 per cent of 2019 levels, with a gradual recovery in 2021 and 2022.

He sees five key aspects that will cushion the effects of the crisis and support the recovery momentum.

These are: the financial resilience and high savings rate of Maltese households; the available fiscal space of Government; an effective public health system; a strong labour market; and a well-capitalised and liquid banking system.

He remarks that, as some economic operators will be forced out of the market, banks might be faced with potential credit losses, the magnitude of which remains uncertain.

On the flipside, he mentions five features that might act as a drag on recovery: low skill levels of domestic workforce, limiting growth potential in high-added value; the low level of research and innovation spending; pressure on land and water resources, creating a sustainability issue in relation to economic growth; renewed focus at EU level on tax harmonisation as Malta derives 15 per cent of its budget revenue from corporate income tax; and the uncertainty related to the outcome of the Moneyval evaluation, expected in October this year.

Concluding, he says: “weaknesses in our governance system, for example, shortcomings in the anti-corruption framework and inefficiencies in the judiciary system, necessarily weigh on the business environment and need to be effectively addressed – on paper and in practice – as they represent necessary conditions for the recovery to take hold. This is the anti-virus which will protect the Maltese ‘economic computer’ in the post-COVID world.”

This is an extract of a feature first carried in the July/August edition of the Commercial Courier