These are indeed interesting times. Government has recently announced a package of measures which will provide up to €1.8 billion in liquidity to the economy in what probably is the first of its kind in Maltese history. Funds for this guarantee will come from government’s piggy-bank, the National Development-Social Fund which has been funded by passport sales, and originally meant for investments, capital and social projects.
€1.6 billion will be provided to commercial companies in the form of €700 million tax deferrals and €900 million in bank guarantees over commercial loans guaranteeing a total of €4.5 billion in commercial credit. A further €210 million will be spent directly into the economy in the form of unemployment benefits, quarantine leave and further funding for the health-care system amongst other items.
It is yet unclear how the government is structuring this funding, but it seems that we will be borrowing to 1) sustain government’s recurrent revenue to offset tax deferrals and 2) and borrowing to fund commercial debt-payments in case companies default. It is unclear how many companies are currently at risk of missing their debt payments and also unclear who will be eligible for these guarantees. Government would have to borrow against capital from the NDSF to fund these guarantees. By 2019, government claimed that the Fund had acquired up to €544 million from passport sales of which €91 had been spent on capital and social projects while up to €200 million were spent on foreign securities and local shares such as BOV and Lombard Bank.
The package looks just a fraction of our total GDP which totaled around €13 billion last year, while government debt (mostly in bonds) amounts to €5.6 billion. It is unclear how much potential debt we will incur, but the bigger problem, even if we exclude this rescue package, is that we were previously sustaining debt-levels with significant economic growth, and it is of course not clear at what levels economic growth will come back. There are also many questions which the journalists at the press conference failed to ask, yet credit to Times of Malta and MaltaToday for asking the right questions on debt and interest rates. For example, will building companies who are already highly leveraged get these guarantees as well? Last thing we want in this country is for building magnates getting a bail-out.
The Minister of Health was then on national television explaining the pandemic and the measures being taken to contain it. Unsurprisingly he then got a little bit cocky and said that when in January Trump was still saying the situation was not serious, we in Malta were stocking up on ventilators. Trust the Maltese with survival and health-care. We have been surviving epidemics, famine and wars for most of our history now, so it may be no coincidence we appreciate some good health-care. Probably we have survivor genes too.
Now, some news from where I come from. Publishers have postponed the launch of their new books so basically they have stopped printing books. Book-shop sales have completely dried up and they are running on thin ice just with online orders. For the publishing industry the situation was already bad in the best of times, but now it’s a disaster. Over-all the situation seems and feels worse than 2008.