Issue link: https://maltatoday.uberflip.com/i/1440009
3 maltatoday | SUNDAY • 2 JANUARY 2022 NEWS NICOLE MEILAK MALTA has the fourth-high- est amount of corporate debt in relation to its GDP, behind its small state counterparts Lux- embourg, Ireland, and Cyprus, a study has revealed. Corporate debt in Malta to- tals almost 215% of GDP, ac- cording to statistics published by British consultancy Utility Bidder and based on IMF cor- porate debt data. Here, corporate debt includes all debt instruments, ranging from loans and bonds to oth- er securities. When limiting the figure to just loan and debt securities, Malta's corporate debt-to-GDP ratio stands at 137%, the 11th highest in the world. Covering data from 1995, the IMF data suggests a long-term upward trend in corporate debt, more so when the figure covers all debt securities. The sharpest rise in corporate debt took place between 2004 and 2011. Malta entered the European Union with a 150% corporate debt-to-GDP ratio and GDP at €4.8 billion, according to his- torical figures from the Central Bank of Malta. This estimates that corporate debt totalled €7.2 billion at the time. As could be expected, loans to the private sector also began to increase. In 2004, private sector loans stood at roughly €2,500 million. By 2013, these loans increased to well over €4,000 million. But the 2008 financial crisis and the years after it saw GDP and corporate debt waver. Cor- porate debt peaked in 2011 at 230% of GDP and remained at over double GDP during the 2010s. As to be expected, the figures are in line with the up- ward trend in GDP. Utility Bidder suggests that Malta's low GDP level at least compared to other economies, Due due to Malta's small size and large number of compa- nies, means that it's easy for corporate debt to outweigh GDP. This helps explain how the four countries with most corporate debt are small states. Economist Gordon Cordina added that Malta's high corpo- rate debt be the result of firms turning to local banks, as op- posed to bonds and stock mar- kets, to obtain financing. "This is partly due to inherent advan- tages of banks in serving mar- kets of relatively small size," he said. "I should also add that Maltese firms tend to make more use of internally generat- ed profits." The European Commission had warned Malta on its high corporate debt levels back in 2013. In an in-depth review of Malta's macroeconomic situa- tion, the Commission said that Malta's high corporate and government debt warrant close attention, as did Malta's large financial sector, given the link between domestic banks and the local housing and construc- tion market. Yet even through the COV- ID-19 pandemic, Maltese busi- nesses remain somewhat resil- ience, although this is owed to government support measures that helped cushion the pan- demic's impact. To alleviate liquidity chal- lenges, government had launched the MDB COVID-19 Guarantee Scheme, through which the Malta Development Bank guaranteed new loans granted by commercial banks to businesses facing liquidity shortfalls resulting from the pandemic. In addition to this the Central Bank of Malta had issued a six-month moratori- um on loan repayments to tem- porarily suspend borrowers' repayment obligations. nmeilak@mediatoday.com.mt Malta's corporate debt the fourth-highest in the world