The setting up of a development bank in Malta

Abstract

The EC supports the creation of NDBs in countries that do not yet have one, but emphasises that this will only be allowed if the measure adheres to State Aid rules and if a particular market failure is identified that can be best addressed through the setting up of an NDB. In this respect, this dissertation studies the existence or otherwise of market failure in Malta and analyses the relevant EU legislation that an NDB must adhere to. Subsequently this study evaluates the policy options that the Government must consider while preparing its case for the setting up of the MDB. Two major finance gaps were identified: the shortage of liquidity available to SMEs and the lack of funds available to invest in infrastructural projects. An independent study commissioned by a Government appointed WG in 2015, calculated the credit gap for start-ups and SMEs to range between €325 and €590 million and a credit gap for infrastructural projects between €1.1 and €1.6 billion. Data provided by the CBM also shows that the extent of the credit gap is widening at a faster pace than its own predictions. Therefore the idea to set up Malta’s first NDB is timely since the MDB is expected to contribute up to €780 million during its first five full years of operation to bridge this gap. In view that in June 2016 the Government presented a Bill on the setting up of the MDB, this study discusses the strength of the proposal in convincing the EC that the MDB’s operations would be line with the State Aid acquis and the Eurostat that the MDB is not a CFI. Finally the author attempts at providing some recomme