International Finance

Covid-19 pandemic has taken the whole world hostage. The pandemic has spread across the world like wild fire, with countries like Italy and USA being the worst hit than China, the origin of the pandemic. Leadership has been on scale, with different leaders taking different paths towards managing the crisis. Additionally, leaders are under evaluation for the infrastructure they have developed under their leadership to mitigate such crisis. Religion on the other hand has not been spared, with worship places, where people would run to remaining closed across the world to control the spread of the pandemic. However, the health sector and the economies in all countries has been hit hard. Health infrastructure has been overstretched to the limits while closure of businesses is crumbling the economies extremely. This paper aims at digging into the economic effects of the pandemic on the Maltese economy and the strategies put in place to cushion the economy.

Expected GDP

            Malta has the smallest and most dynamic economy in Eurozone. The main economic activities in Malta are tourism representing about 27% of the GDP and the industrialization, which represents approximately 12.1% of the GDP.  According to IMF, the 2019 GDP was $ 14.86 billion while the estimated 2020 GPD is $ 15.79 (Nordea, 2019). However, the GDP projection in 2020 is expected to fall drastically because of Covid-19 effects on the economy. The pandemic has forced closure of businesses and the main economic activities of the country. Malta is one of the best tourist destinations in Europe, with over an annual record of 2.5 million tourists. Tourism accounts for the largest chunk of Malta GDP, 27% (Nordea, 2019). Thus, the country does not reap anything from tourism currently, causing the drastic drop in the GDP. Secondly, industry sector is the highest employer in the country, accounting 12.1% of the country’s GDP. Most industries have not been operation since the first case of Covid-19 was reported in the country and most employees in the industries losing their jobs. For these reasons, Malta GDP is expected to decline by a wider margin with the IMF estimates.

Export and Imports

            Malta does not have minerals and energy and thus it relies on imports. Petroleum is the main commodity the country imports (Nordea, 2019). Although the country has closed its borders from other countries, borders remain open for importation of petroleum and other essential products. However, the prices of petroleum around the world have plunged because of the effects of Covid-19 in Middle East although the demand of fuel is low because of the limited movements in the country. On the other hand, Malta cannot maintain its export capacity because of the reduced production and manufacturing. The main exports are pharmaceuticals and machinery.

Currency

            The supply of money in the economy will decrease because all economic activities have come to a standstill. Additionally, the supply of essential goods in the country will decrease because of the fall in production and importation of goods. Conversely, demand for the goods will increase, causing the prices of the products to increase proportionately risking the inflation to increase. Inflation will further weaken the currency of the country. Use of foreign currency especially the USD will increase since it is getting stronger than other currencies in the world (Eugenio, 2020). Supply of foreign currency will increase because of the reduced exports compared to the imports of essential products such as petroleum.

 

Measures taken

            Governments have reacted swiftly to mitigate the economic effects of Covid-19. Maltese government rolled out set of policies to help cushion the economy and support small and large businesses in the country. The first economic package was financial measures to help worst hit enterprises and businesses. The first measure was income tax and VAT tax deferrals for employed and self-employed persons for the month of March and April. Secondly, a 45% refund of up to €500.00 per worker was granted to firms with employees working from home (Daniela, 2020).

            The second economic policy was rolled addresses the employment and social measures of the citizens. Employment measures include payment of employees working in enterprises with complete and partial suspension of operations and those whose employments has been terminated. Social measures include grants of € 800 per month to families and persons with disabilities. The government also provide rent subsidies to unemployed citizens. Other measures employed are guarantees for soft loans to businesses and cash injections(Daniela, 2020).

            In conclusion, the pandemic has adversely affected the Maltese economy and across the world. The GDP is expected to fall with a wide margin, as its main economic activities remain non-operational. Exports and imports have reduced drastically while the Maltese currency weaken compared to the USD. However, the Maltese government has designed economic policies to help cushion the economy. Tax deferrals, payments of employees and families and subsidizing payment of rent to unemployed individuals are the main measures taken by the government.

 

References

Daniela .G. (2020) Malta's Economic Response to COVID-19 retrieved from  https://www.mondaq.com/operational-impacts-and-strategy/912290/malta39s-economic-response-to-covid-19

Eugenio .D. (2020) Fiscal and monetary responses to the COVID-19 pandemic: Some thoughts for developing countries and the international community retrieved from - https://www.ifpri.org/blog/fiscal-and-monetary-responses-covid-19-pandemic-some-thoughts-developing-countries-and

Nordea (2019) The economic context of Malta retrieved from - https://www.nordeatrade.com/se/explore-new-market/malta/economical-context