Malta Country Update: Fourth Quarter 2002

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Malta Country Update Fourth Quarter 2002

ATRIUM
advisors
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Malta is undergoing the structural reforms
necessary to ensure its competitiveness as a
member of the European Union
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Contents

• Part I Intro Recent Economic Developments
• Part II Fiscal Update Budget, Privatization
• Part III Structural Reforms EU Accession
• Malta in the Medium Term

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Part I Introduction Recent Economic
Developments
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Malta A Competitive Hub in the Mediterranean

• Area 316 km (sq)
• Population 395,000
• GDP Per Capita 9,200
• Inflation 3.1
• Unemployment 5.1
• Foreign Reserves 2 bn
• EU Applicant Country

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A Diversified EconomyClosely integrated with
that of Europe
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Highlights GDP Forecast 3 for Year

• GDP 2.2 year-on-year in Q2 forecast for year
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• Domestic demand 3.6 year-on-year in Q2
• Exports electronics decline moderating, others
  hold ground, transshipment activity growing
• Construction in infrastructure Hospital, ferry
  terminals, port facilities, roads etc

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Global Downturn Moderate in Malta
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Inflation Falling Back in LineTemporary food
price hikes in 2001 abating
12-month moving average
Year-on-year
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Tourism Holds Its GroundSeptember 11 impact
modest compared with peers

• Arrivals steady overall, but cruise ship tourists
  gain ground
• Major tour operators Condor, FTI return
• Hotel Groups Intercontinental, Sol Melia invest
  in Malta
• Air Malta restructures upgrades entire fleet

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Part IIFiscal Update

• Fiscal Accounts, Debt Management, Privatization

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Fiscal Accounts

• 2002 Target on track -4.6 central government
  deficit/GDP
• Revenues as expected minimum tax level, increase
  in compliance, declaration of foreign assets
• Expenditures in line rising at a slower pace
  (associated w/past wage restructuring agreement).
  New talks underway.
• Privatization Proceeds MIA privatised other
  deals close
• No issuance of new long term domestic bonds this
  year, however 2 maturing issues were rolled over.
• Council of Europe Development Bank to lend Malta
  50 of costs of new hospital. 15 year maturity,
  costs inclusive.

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Maltas government is determined to bring down
fiscal spending
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Fiscal Deficit Shrinking
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Other Budget Items

• Privatisation Malta International Airport deal
  closed in 2002. Plans for MIA stock floatation
  later this year. Also pending Lotto, Maltaco
  oil terminal.
• Public Sector Employment Early retirement
  program for drydocks reduces workforce by 700 in
  2003 scheme to employ government workers under
  public private partnership scheme more incentive
  based compensation.
• Pensions Committee moving ahead but no major
  new plans likely before elections.

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PART III

• Structural Reforms
• European Union Accession

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Tackling Structural Reforms Legislative Drive
Underway in Finance

• Central Bank of Malta Act
• Malta Financial Services Authority Act
• Financial Markets Act
• Business Promotion Act
• Public Finance Management Act
• Special Funds (Regulation) Act
• Industrial Relations Act

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Other Public Sector Initiatives

• E-Government Initiative Malta has put many
  government services online -- www.gov.mt
• Education Reforms National Minimum Curriculum,
  Expand availability of computers to all primary
  school classrooms by 2003
• Malta Enterprise Board Consolidates 3 industry
  entities into one Metco, MDC, IPSE, enhancing
  efficiency and reducing costs.

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Europe Union Accession Update

• All chapters will be closed by end 2002.
• October 2002 Malta declared a candidate country
• Malta negotiated important concessions on real
  estate acquisition, free movement of persons,
  protection zone for fisheries,special status for
  Gozo

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Part IVMalta in the Medium Term

• Niche Manufacturer, Regional Hub, Added Value
  Tourist Resort

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Moving Up the Value Added ChainMalta now
successfully competes with Asia and Ireland as a
niche manufacturer

• Baxter (medical supplies) has chosen Malta for a
  new plant over Singapore employees up by 25.
• De La Rue (security printers) is moving key
  operations from Singapore to Malta.
• Menrad (spectacle frames) will close Irish
  operations and consolidate in Malta.
• ST Microelectronics has closed N. American,
  Singapore plants Malta seeing investment in 2002.

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Broad-based Direct Investment

• Dowty Automotive (O Rings) investing 11m, making
  Malta a center for European operations
• Toly Products (cosmetic packages) investing
  US1.2 million.
• Brandtstaetter(Playmobil moldings) investing
  US13 million in Malta factory
• Methode Electronics Malta (car switches) US10
  million expansion. Just won GM 2001 Supplier of
  the year 2000 Ford Excellence Awards. New orders
  with Fiat.
• Infratec Pro (scientific instruments) will invest
  US1.4 million in expanding its Maltese
  facilities.

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Malta as a Regional CenterMalta developing as a
hub for services and industry

• Bank of Valletta promotes Mediterranean banking
  alliance.
• Malta Stock Exchange is building capacity, and
  fostering Mediterranean Alliance of Stock
  Exchanges including Egypt and Tunisia.
• Malta Shipping Register now worlds 4th largest.
• Lufthansa establishes aircraft service base in
  Malta.
• UCIMco to distribute cars to North Africa from
  Malta.
• Corinthia Hotels expanding operations in the
  region Sandals of Mediterranean.

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Summary Conclusions

• Diversified economy softened 2000-2001 downturn
  and helps upturn now underway.
• Expect GDP recovery in 2002 close to 3 forecast
  with growing consumption, steady export orders
  and tourism , revival in construction.
• Fiscal accounts largely on track for 4.6
  deficit cost containment efforts continue and
  numerous structural reforms underway.
• EU application progresses, however national
  elections and referendum will remain a cause of
  uncertainty.
• Malta winning new business in several areas,
  creating positive signals for broad based
  investment benefits only beginning to be felt
  in economy.

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Thank you

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