Quo vadis? The future of malta's economy
What lies ahead for Malta's financial services in the coming years? We now have a national strategy, but Vanessa Macdonald asked some of the country's influential stakeholders how they see things.
Why do financial services matter to the economy?
According to the National Statistics Office, between 2022 and 2023, the gross value added of the financial services sector in Malta increased by 27.60%. This is no mean feat, especially when you consider that the national GVA grew by less than half of that: 11.2%.
Financial services are clearly an important part of the Maltese economy. Apart from sustaining over 18,600 employees, it supports an entire cohort of indirect activity, from the ancillary services provided by the ecosystem to the money spent by its employees, whether local or foreign. Remember that these have the highest monthly salaries across the economic sectors.
However, the sector also attracts a variety of start-ups and investors to Malta, whose impact on the island's dynamism and innovation is also impressive.
The Malta Financial Services Advisory Council oversaw a thorough consultation process that resulted in developing a national strategy that now serves as the sector's guiding principle. The process identified areas of growth and bottlenecks that need to be eased. Work is steadily underway on the 175 action points identified.
However, this growth has to be seen in the context of the whole economy, which the Central Bank of Malta forecasts to grow by 4.3% in 2024.
Admittedly, the forecast is that GDP will ease to 3.5% in both 2025 and 2026, but that level is still enough to generate questions about how much growth the island actually needs—the population is already over 560,000—and what the cost of that growth is in terms of social and environmental impact.
HON. CLYDE CARUANA
Minister of Finance
Despite the many challenges encountered over the past years, Malta has gained global respect and leadership in various dimensions of the financial services industry. The country's approachable regulator and diverse workforce have contributed to its success. I anticipate that this success will continue as the industry grows in its focus on sustainability and digitalisation while being bolstered and supported by a solid regulatory environment and booming technological advancements.
Thanks also to a new strategy launched last year by the Malta Financial Services Advisory Council, the industry has a clear pathway for growing its services while ensuring that due diligence and compliance remain at the forefront, along with its commitment to innovation and agility of its processes. This new trajectory and the crucial legislative harmonisation required for Malta to be at par with its EU counterparts will continue to elevate its offer's quality, appeal, and robustness.
HON. GRAHAM BENCINI
Shadow Minister of Finance, PN
There is no doubt that the decisions taken by the government over 30 years ago, which led to the development of a long-term vision of focusing on the creation of a knowledge-based economy centred on the need to move into high-value-added economic sectors, proved to be critical to the successful development of our country.
Over the past years, the decision to focus on an economic model driven by unsustainable policies, which led to a population growth of 28% and is forecast to grow to 800,000 within the next 16 years, is taking its toll on a country with a limited territory like ours. We must, therefore, shift our strategy to creating new higher value-added economic sectors once again to reshape our economy to one based on excellence to improve the quality of life of the Maltese population rather than one based on quantity.
PHILIP VON BROCKDORFF
Professor of Economics, University of Malta
Following the pandemic years, Malta's financial sector has grown by just under 12%. This, too, reflects Malta's economic resilience in an uncertain global economic environment.
The sector's contribution to gross value added is 8.6%, and it employs over 18,000 people with an average monthly salary of €2,573. These figures amply demonstrate the sector's very important contribution to our economy and future economic prospects.
At the heart of the sector's contribution to our economy is financial stability, with the Central Bank and the Malta Financial Services Authority playing a pivotal role in maintaining and enhancing financial stability. This stability has helped the financial and insurance sectors support inbound and outbound foreign direct investment totalling billions of euro.
Looking ahead, stability in the financial sector will remain key to Malta's economic prospects, regardless of the economic growth model applied. However, the industry will need to brace itself for far-reaching developments at the EU level, such as the Capital Markets Union, which is critical to unlocking the private capital necessary to support the funding of climate action projects, transport, and other infrastructure initiatives across the EU. Malta's financial sector will need to prepare for the revised MiFID II framework as well as the proposal to modernise payment services and open financial services data.
KENNETH FARRUGIA
Chairman, Malta Bankers' Association; CEO, Bank of Valletta
Given their intrinsic and symbiotic relationship, it is imperative to concurrently consider the trajectory of the broader Maltese economy to envision the future of Malta's financial sector.
The past year's global challenges, characterised by elevated interest rates, high inflation, and regional conflicts – have undeniably impacted numerous economies. Nevertheless, the Maltese economy demonstrated resilience and continued to grow, with forecasts suggesting a cautiously optimistic outlook.
The financial sector will remain pivotal in sustaining this growth, supporting government fiscal initiatives, aiding the local business sector in achieving its medium- and long-term objectives, and assisting Maltese households in managing their finances and planning for their future.
The financial sector will continue to spearhead innovation, champion the fight against financial crime, and catalyse positive change within the communities it is entrusted to serve.
KENNETH FARRUGIA
CEO, Malta Financial Services Authority
Malta's financial sector is flourishing. To build on this momentum, we're embracing innovation. The MFSA is committed to shaping a dynamic financial landscape through forward-looking supervision and embracing cutting-edge technologies. By implementing a Supervisory Cycle Management System, we implement an outcomes-based supervisory approach that leverages data and process re-engineering to enhance our effectiveness.
This will make us more agile and data-driven, ensuring we're always one step ahead. As a leading hub for financial services, Malta has already leveraged frameworks such as that for Virtual Financial Assets (VFA), which is aligned with the E.U.'s Markets in Crypto-Assets (MiCA) regulation ahead of the latter's coming into force next year. We also embrace sustainable finance and work on new products that drive growth.
The MFSA is well-positioned to support the financial services industry in Malta, as we emphasise the importance of collaboration and good governance for the sector to continue to evolve and thrive.
BERNICE BUTTIGIEG
Chief Strategy Officer, FinanceMalta
In the future, one of the most important aspects of the economic model will be how changes to taxation will affect our competitive advantage. We see this not as a threat but as an opportunity to help us focus on high-value, technology-oriented development and other innovative niches, including FinTech, asset management, insurance, and aircraft leasing.
Many of these were already identified in the strategy for financial services drawn up by the Malta Financial Services Advisory Council, where I also serve in the Program Management Office. Much work is taking place behind the scenes, and half of the deliverables planned for 2024 are already in place.
Change can only happen if it is supported at the industry level, and we are encouraged to see more emphasis on sustainable investments, including green and blue bonds, sustainability-linked bonds, social bonds, and Real Estate Investment Trusts (REITs).
PIER MASSA
Malta Financial Services Advisory Council
Strategy is only as good as its implementation. On that front, as I'm staring down all the work being done by each of the workstreams, I must say that much is being done to make the financial services strategy announced in March 2023 real and tangible.
Much of it is foundational – not flashy or highly visible. However, it is essential to a solid and fully functioning sector on which the future success of financial services will depend. All stakeholders' sheer will and commitment to this effort have been palpable, and how we work together shows what can be achieved.
J.P. FABRI
Economist, Seed Consultancy
In shaping Malta's financial services future, we must cultivate an ecosystem that thrives on innovative regulation, a rich talent pool, and robust ancillary services. The Malta Financial Services Authority and the Malta Financial Services Strategy Advisory Council are making commendable strides in this direction. Their proactive approach to regulatory innovation ensures a dynamic and responsive environment, which is crucial for attracting and nurturing financial services firms.
Equally important is developing a highly skilled workforce to meet the industry's evolving demands. Supporting this ecosystem with top-tier legal, technological and consultancy services further strengthens our position. Integrating these elements creates a fertile ground for sustainable growth and international competitiveness. Today's concerted efforts will define Malta as a regional leader in financial services, driving economic prosperity and resilience.
What lies ahead for Malta's financial services in the coming years? We now have a national strategy, but Vanessa Macdonald asked some of the country's influential stakeholders how they see things.