Macroeconomic Policy Frameworks of Small States

Macroeconomic Policy Frameworks of Small States

A Case Study of Malta You do not have access to this content

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GĂ©rard Adonis
23 Sep 2011
9781848591165 (PDF)

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Malta’s socio-economic successes have been remarkable. Key policy decisions have enabled this small island state to cope with its inherent vulnerabilities. This book reviews the implementation of macroeconomic policies in Malta, identifying the key issues, lessons learnt and best practices which could be adapted by other small states. It also sets out the country’s challenges for the future, which include managing a huge fiscal deficit, a high unemployment rate and attending to the conflicting demands of environmental conservation and economic development.

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  • Acronyms and abbreviations
  • Preface

    The implementation of macroeconomic policies in small states is affected by the inherent vulnerability of these countries. The inherent vulnerability of small states stems from their high dependence on a narrow range of exports and on strategic imports such as food and fuel. These features render small states disproportionately exposed to external economic shocks. Other characteristics which pose disadvantages for small states include their limited ability to exploit economies of scale, and their limited opportunities for diversification. These features have constrained policy implementation and success in small states and increased the importance and influence of external reserves, external financing, foreign investment and the international economic climate on domestic policy.

  • The Country Profile

    The Republic of Malta comprises 6 small islands covering an area of approximately 320 square km. It is situated in the Mediterranean Sea, 93 km south of Sicily and 290 km north of the African Continent. Only 3 of the 6 islands are permanently inhabited. The largest city is Valletta, which is also the nation’s capital. Malta is a bilingual state and both languages, Maltese and English, are official. Maltese is the most widely spoken language of the country with 90.2 per cent, followed by English with 6 per cent, multilingual 3 per cent and other 0.8 per cent.

  • Introduction

    The geographical location of Malta at the heart of the Mediterranean has given the island a natural strategic advantage as a major trading centre. This has contributed significantly towards Malta’s strong economic position. Today, Malta plays a key role in the region, as a strategic hub for trade, services and manufacturing. This has been possible thanks to the well-established public-private partnership. While the private sector provides the necessary entrepreneurial element and skills to drive the enterprise, the government ensures the enabling climate for business to prosper. Besides, the country’s liberal trade policies have given the private sector a pre-eminent role in the economy.

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  • Expand / Collapse Hide / Show all Abstracts Fiscal policy framework

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    • Key Issues and Lessons Learnt

      Malta has been a fully integrated member of the European Union since 2004 and in January 2008, adopted the euro as its currency. In the build-up to entry into the EU, Malta had to implement a string of reforms in line with EU standards and practices. As a result, most of its major economic policies are guided by EU principles and regulations. Malta has had much to gain from its entry into the EU, particularly from its entry into the eurozone in January 2008, when it adopted the euro.

    • Fiscal Policy Strategies in Small States

      The Maltese government over the years has pursued a policy of gradual economic liberalisation and privatisation. The economic liberalisation/privatisation programme was carried out with the aim of changing the focus of orientation of trade and financial policies towards a market mechanism principle. As a result, this has shifted policy orientation from reliance on direct government intervention and control towards a pro-market mechanism.

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  • Expand / Collapse Hide / Show all Abstracts Monetary policy framework

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    • Key Issues And Lessons Learnt

      Adopting the euro as its national currency would imply that the Central Bank of Malta had relinquished control of its monetary policy. This was not so; the bank was mandated to contribute towards the formulation of monetary policy for the euro area. Monetary policy in Malta is dictated by the Governing Council of the European Central Bank and implemented by the CBM.

    • Monetary Policy Strategies, Targets, Instruments, Transmission Mechanism, For Addressing The Most Common Shocks Facing The Small States

      The Central Bank of Malta is an independent institution and a fully-functioning member of the Eurosystem. It has as its major functions the regulation and supervision of banks and financial institutions, and the conduct of monetary policy. These powers are vested in the bank under the Banking Act 1994 and the Financial Institutions Act 1994. It also has, as mandated by the Malta Stock Exchange Act 1990, the responsibility of supervision of the exchange to protect investors and promote a sound securities market.

    • Country Case Studies

      The case study below has been taken directly from the IMF Country Report 2007.

    • Conclusion and References

      Despite being largely dependent on the rest of the world, Malta was partially immune to the global financial crisis. EU accession, a healthy financial system and the adoption of euro as the national currency were the main factors that have cushioned the economy from the full impact of the external shocks. Malta has benefited a lot as a result of EU accession, despite having to relinquish control over domestic policies. Unlike other small island states, proximity to major markets and its favourable geographical location have brought further benefits to the Maltese economy...

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