edward scicluna governor

As the European Central Bank (ECB) continues its unprecedented asset buying programme, initiated to support European economies in the face of he COVID-19 pandemic, the effect on Maltese Government debt has been significant, allowing it to grow at record rates very cheaply.

BusinessNow.mt asked Central Bank governor Professor Edward Scicluna to explain more about the ECB’s response to the pandemic, and how much of the Maltese Government’s debt is held by the ECB.

Prof. Scicluna, who was Malta’s Minister for Finance between 2013 and 2019, explains that the Eurosystem, made up of the ECB and national central banks of the eurozone, has been buying debt securities issued by euro area governments and public sector agencies as part of the Asset Purchase Programme (APP) since 2015.

The public sector portion of the APP is known as the Public Sector Purchase Programme (PSPP).

Last year, with the COVID-19 pandemic was raging through Italy, the first European country to be seriously affected, the Governing Council of the ECB on 12th March extended and eased credit operations to support the banking system of the euro area, and added an extra €120 billion to the APP till the end of the year.

As the pandemic situation quickly and considerably worsened, on 18th March the Pandemic Emergency Purchase Programme (PEPP) was launched, with an initial envelope of €750 billion. This envelope was later extended.

“This,” explains Prof. Scicluna, “is a temporary asset purchase programme aimed at countering the serious risks that the spread of COVID-19 posed to the economic outlook for the euro area.”

“Under the PEPP,” he continues, “the Eurosystem buys a range of debt instruments issued by both the private and the public sector.”

Debt issued by the Government has increased significantly as it launched expensive support measures, like the wage supplement, to help keep the economy’s productive capacity afloat.

National Statistics Office figures show that by the end of July 2021, Central Government debt stood at €7,848.4 million, a €1,224.2 million rise from 2020, with Malta Government Stock issues making up a majority (€857.9 million) of this.

This follows an increase of some €1.4 billion during 2020, also fuelled by an increase in the issuance of Government Stock.

How much, then, of the Maltese Government’s ballooning debt, has been bought up through the APP and PEPP facilities?

Prof. Scicluna says that between the beginning of the programme and the end of July 2021, cumulative net purchases of Maltese government debt under the PSPP amounted to €1.3 billion. This figure includes net purchases booked by both the Central Bank of Malta and the ECB.

Through PEPP, Prof. Scicluna cites €300 million in net purchases by the Eurosystem since its inception until July 2021.

The numbers make sense in light of NSO figures showing the portion of Maltese Government debt owned by foreign entities growing by around 30 per cent, or €400 million, over 2020.

In addition, he says, the Central Bank of Malta owns a portfolio of Maltese Government debt securities that supports its market-making function in the domestic capital market.

Responding to whether the limit on how much of a particular Government’s outstanding securities can be held across all portfolios of the Eurosystem (that is, by both that country’s national central bank, any other eurozone central bank, and the ECB), set at 33 per cent on aggregate, is close to being reached in Malta’s case, the CBM governor says, “In July 2021, the Eurosystem’s holdings of Maltese government securities across the various portfolios was well below the overall issuer limit established under the PSPP.”

These figures are separate to a €420 million loan extended to Malta by the European Union, which, for the first time ever, issued €750 billion in eurozone bonds, dubbed Next Generation EU.

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