Malta Development Bank presents study related to the Covid-19 guarantee schemeto the SME Chamber executive council

THE MDB COVID-19 GUARANTEE SCHEME: AN EX-POST ASSESSMENT

The Malta Development Bank presented the results of a research related to the MDB Covid-19 guarantee scheme to the Malta Chamber of SMEs executive council.

The COVID-19 outbreak, and the ensuing period of heightened uncertainty and economic volatility, precipitated a sudden and acute liquidity shortage for businesses in Malta. The MDB’s swift response through the COVID-19 Guarantee Scheme (CGS) provided guarantees to commercial banks to help businesses in Malta access bank financing for working capital requirements. The CGS was approved by the European Commission in April 2020 under the State aid Temporary Framework to support the economy, as part of the wider package of the Government of Malta’s COVID-19 Response Support Programme. A Guarantee Fund of €350 million was allocated by Government for the purpose of guaranteeing loans by commercial banks. The CGS addressed working capital needs for hundreds of businesses and was rolled out in record time by the MDB. The CGS peaked at more than half a billion euro in sanctioned working capital loans and remains MDB’s largest scheme to date. By the end of the inclusion period in June 2022, slightly more than two years from the launch of the CGS, the total amount of working capital loans sanctioned by the nine partnering commercial banks that were accredited to roll-out the CGS stood at €482.6 million, supporting close to 600 CGS facilities to more than 500 businesses.

The supported businesses collectively employ around 40,000 persons and range from hotels to large retail outlets, but also to smaller firms from all economic sectors. The assessment presented in this study is based on field research in the form of a survey conducted amongst a sample of beneficiaries of the CGS, as well as an economic impact measure based on the Gross Value Added data of all businesses benefitting from the scheme. This assessment aims to identify lessons learned, providing valuable insights to enhance future decision-making by pinpointing areas for improvement in both scheme design and implementation. By conducting ex-post analyses, the MDB ensures accountability, transparency, and evidencebased decision-making, fostering a culture of continuous learning and optimisation of its initiatives.

The assessment shows that the MDB scheme supported €1.7 billion in GVA equivalent terms. When taken as a share of total 2019 GVA, this €1.7 billion translates to around 13.0% of Malta’s 2019 GVA. From a sectoral point of view, the level of GVA supported for “Wholesale and retail trade, transport, accommodation and food service activities” by the CGS at 2019 levels was €849.6 million, or 34.3% of nominal sectoral GVA in Malta at 2019 levels. M

The impact of MDB’s countercyclical role cannot be assessed in isolation, but as part of broader government economic regeneration measures targeted towards local businesses, which amongst others included wage supplements and subsidies on utility bills and fuels. Nevertheless, economic literature suggests that working capital problems may severely affect the supply side of the economy. In this regard, the MDB’s working capital scheme during the Pandemic has been of critical importance to ensure that operating liquidity is constantly available to firms, which in turn is crucial for the efficient operation of businesses.