Interview | Josef Bonnici: ‘Fortunately for the economy, MDB was there when the pandemic hit Malta’

How has MDB’s Covid-19 scheme been received? What’s the take-up and how many businesses have benefited from loans backed by funds from the scheme?

The MDB started operations in December 2017 with a broad mandate to support sustainable economic development and to promote inclusive growth.

Its mission is to address investment gaps and collaborate with the commercial banks in respect of viable projects which the banks consider as too risky to be accommodated on their own.

The MDB had to intensify its support during economic downturns to mitigate the adverse impacts of the prevailing economic cycle. Fortunately for the local economy, the MDB was there when the COVID-19 pandemic hit Malta.  The MDB immediately reacted to COVID-19 and swiftly launched a number of schemes tailored to offer a comprehensive package of assistance.

MDB’s COVID-19 response package was very well received. Through the sound collaboration with nine commercial banks our assistance has reached over 400 businesses, through more than €344million in loan facilities, thus protecting in excess of 30,000 jobs.

How has COVID_19 changed the MDB’s focus of operations?

Obviously, the advent of COVID-19 has been a game-changer. An economy that had been performing at a very high rate of real growth was suddenly hit by a global phenomenon that, in the space of a few weeks, thrust our major trading partners into economic crisis. The spread of the pandemic decimated the global travel industry and introduced challenging circumstances that led to the imposition of varying degrees of national lockdowns in many countries all over the world.

Malta is a small open economy. Our economic activity is based on, and dependent upon, international investment and trade in both goods and services. The incidence of a global economic crisis clearly left a severe impact on our economy, and this changed the environmental context of the MDB’s operations. In a boom economy, a development bank focuses on the identification of market failures and the design of initiatives to compensate for these factors. In preventing an economic crisis, we needed to rapidly analyse what would be the short-term needs, and to project a medium-term recovery trajectory in a largely indeterminate timeframe.  This had to be done within Government’s overall strategy.

The MDB’s reaction was to issue the COVID-19 support schemes to address both the short and the medium term needs of the Maltese economy, offering businesses assistance to survive the initial impact, and an inventive and tangible support to invest in preparation for recovery.

Do you believe the assistance given thus far to ailing businesses, including that by MDB, is enough to see businesses through the COVID-19 pandemic? Should more be done? What?

MDB is supporting businesses impacted by COVID-19 with a portfolio of three complementary instruments. However, these instruments cannot be assessed in isolation, but as part of broader government economic regeneration measures targeted towards local businesses, which amongst others include wage supplements and subsidies on utility bills.

MDB is facilitating the availability of the necessary cashflow, so essential for businesses’ working capital, through a revolving facility, namely the COVID-19 Guarantee Scheme (CGS). The CGS is a guarantee to commercial banks, which enables them to leverage the MDB’s guarantee fund of €350 million up to a total loan portfolio volume of €777.8 million to support all types of businesses. This has enabled the commercial banks to make available a large pool of new credit facilities for working capital purposes.

The second instrument is the COVID-19 Interest Rate Subsidy Scheme. This provides a grant of up to 2.5 percentage points on the interest of the loan for the initial two years of the loan, thereby effectively reducing the cost of borrowing to a negligible level.

The third COVID-19 instrument is the Small Loans Guarantee Scheme (SLGS), that came on stream in the past few weeks. By eliminating the need for soft collateral we are aiming to make it possible for those investors who are not in a position to offer personal guarantees to the commercial banks to still be able to benefit from the ease of access of cheap credit made available under the first two complementary instruments.  Not only that, but this SLGS is also retroactive; if a business has already concluded a loan with a commercial bank under the terms of the CGS, it can now retroactively apply under the SLGS for the withdrawal of the personal guarantee already submitted.

We believe that this is a diversified and versatile portfolio to enable business acquire the necessary liquidity to tide over the COVID-19 repercussions.  But we will not sit on our laurels. We are operating in an environment of extreme uncertainty. Will a successful and effective vaccine for COVID-19 be discovered by end of this year, or will it take into 2021, or will it remain an elusive target? Will the economy recover with a V-shape or will it be a more prolonged recovery? At MDB, we constantly monitor market changes to be in a position to pre-empt future developments. We do not assert that our current schemes are enough to see through the pandemic, but we do assure the public that we have sufficient potential to continue making available support funds, and we will continue to develop new initiatives to adjust our packages to fit the evolving circumstances.

Are small businesses benefiting from assistance provided, or is it just big businesses that are being provided with loans by commercial banks?

Our role in this crisis is to support the economy and we all know that small businesses are the bedrock of our economic ecosystem. The schemes are tailored to their target audience and our CGS is available to any size of business. The interest rate subsidy scheme complements the CGS and is likewise non-discriminatory. The Small Loans Guarantee Scheme by definition is aimed at businesses seeking small loans. The data in hand up to end-September indicates that the vast majority of our beneficiaries have been SMEs and family-owned firms, attesting that our schemes are within the reach of any business, regardless of their size.

What is your outlook for 2021?

Nobody has a crystal ball and it is difficult to predict an economic outlook in such an unprecedented period where the main depending factor relates to the successful and wide-spread launch of an anti-COVID-19 vaccine. Latest published forecasts by a number of competent authorities indicate that an economic recovery can be as early as next year.

From our end, through our portfolio of incentives, we will continue working hard to help businesses, and together with their entrepreneurial mindset, we are confident that the large majority of businesses will brave this storm, with some of them emerging even stronger.

As MDB we keep our doors open and economic operators and their representative bodies are always welcome to engage with us, send us feedback, and to inform us if new circumstances appear to be underserved by our schemes. It is through such engagement that we can continue to be responsive and effective in supporting the economy throughout changing circumstances.