Michael C Bonello: Achieving sustainable growth after the recession Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the annual dinner of the Institute of Financial Services – Malta, Saint Julian’s, 27 November 2009. *  *  *  I would first of all like to thank you, Mr. President, and your Council for inviting me once again to address your members and their guests. Before I do so, however, I must commend the Institute’s growing contribution to the financial services industry. An initiative deserving special mention is the Foundation Degree programme with the University of Kent and the MCAST. Equally important for their role in bridging existing skills gaps are the seminars on specialized subjects such as Fund Administration and Hedge Funds. The Institute’s joint initiative with a leading law firm to produce a series of books on “Maltese Financial Services Laws” should likewise satisfy a felt need in promoting a better understanding of financial legislation. Finally, I would like to mention the Institute’s cooperation with the European Bank Training Network (EBTN), whose representatives are with us this evening. An improving external environment … At this time last year the global economy was entering a severe recession as a result of the shock waves transmitted from the financial markets after the collapse of Lehman Brothers in September. It was only the resolute and timely interventions by governments and central banks that prevented a repeat of the catastrophic consequences of a 1930s-style depression.
In this regard, the Budget for 2010 provides several incentives that are conducive to a stronger productivity performance, particularly concerning SMEs and research and development. Beyond capital deepening, improved prospects for productivity growth also require a heightened awareness that inefficient work practices, including over manning, slow down output growth and threaten the sustainability of employment and income levels. The concept of value for money that is increasingly determining consumer behaviour should be given equal importance in the workplace. There also exists potential for creating a more congenial business climate to reinforce Malta Enterprise’s investment promotion strategy. In a recent survey of corporations, a reduction in bureaucracy topped the list of measures that were considered necessary to further enhance Malta’s attractiveness as a location for foreign direct investment. 3 Education policies, too, can play a role by strengthening the country’s human capital, particularly by promoting greater synergies between educational institutions and industry. In assessing the role of productivity, it is well to reflect on the words of the Nobel laureate Paul Krugman, who said “productivity is not everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”. 4 … and sound public finances The third policy priority is to achieve sustainable public finances. The process of fiscal consolidation must resume in earnest once the recovery materialises.