‘The black side of the Maltese black economy’ Central Bank chief on the recent money laundering scandals
The recent spate of high-profile money laundering arraignments involving financial practitioners, businessmen and politically-exposed persons have been described by the Central Bank of Malta governor as the “the black side of the Maltese black economy”. However, he did not subscribe to concerns that this was a sign of a rising black economy.
Prof. Edward Scicluna gave this assessment during a news conference marking the publication of the bank’s 2020 annual report. The former finance minister was replying to questions from Voice of the Workers Weekly when asked if these cases indicated that Malta’s black economy was bigger than estimated. Official EU documents estimate that Malta’s black economy accounts to around 25.3% of GDP.
In his reply, the Central Bank governor acknowledged that this was a “high rate” and spoke on measures to restrict and discourage large-cash transactions such as those involving property sales.
Last month, Keith Schembri the chief of staff of former Prime Minister Joseph Muscat, along with officials from Nexia BT and former Allied Newspapers Limited managing director Vince Buhagiar were accused of money laundering, kickbacks and false declarations. Meanwhile, the Maltese authorities are requesting the UK to extradite another former Allied Newspapers manging director, Adrian Hillman in connection with the same case. All of the accused pleaded not guilty. A court heard that Schembri paid around US$5.5 million in backhanders to for the sale of printing machines to Progress Press which was part of the Allied Group.
In its report, the Central Bank is estimating the Maltese economy to grow by 5.5% in 2021, following a record 7% contraction recorded last year due to the shock caused by the pandemic. However, the Maltese economy may take up to 2023 to return to the pre-pandemic levels registered in 2019.
Asked about concerns of a rise in unemployment when the wage supplement scheme is halted, Prof Scicluna told Voice of the Workers Weekly that the changes made at the turn of the year were meant to guard against such scenario. Under the revised system the amount of financial assistance received from the government, which is capped at €800 per month per worker, is not automatic but proportional to the drop in turnover with the previous year. He said this mechanism was meant to serve as a form of “tapering” or gradual reduction of the financial assistance in order to avoid a “cliff edge” situation which could trigger unemployment.
The Central Bank noted that public finances deteriorated sharply in 2020, partly reflecting the decline in economic activity, as well as the introduction of COVID-19 related fiscal support. The Bank estimates that the fiscal balance will show a deficit of close to 9.5% of GDP in 2020. The general government debt ratio rose to around 55.3% of GDP, while remaining well below the euro area average. The pandemic also left its mark on the current account balance, which is estimated to have registered a deficit for the first time in four years. Government debt is set to reach 60.3% of GDP by 2023.