Economic prudency must continue following bailout

European Stability Mechanism (ESM) chief economist Rolf Strauch has urged the government to continue applying prudent economic policies and keeping fiscal buffers to safeguard against external risks that could affect the growth of its small and open economy.

Strauch said that despite the reduction achieved, non-performing loans in the local banking system, along with high public and private debt, remain the country’s key challenges.

He noted that they amount to 50 percent of the island’s GDP and continue to weigh on the economy.

Local banks managed to bring non-performing loans down to 10 billion euros or 30.3 percent from a peak of 28 billion euros, or 52 percent of the total loan portfolios, following the 2013 economic crisis and the resolution of the banking system.

He said ESM, the international financial institution set up by the euro area member states, will be monitoring the ESTIA (home) subsidy scheme designed to help non-performing home owners, “to see if it ensures a sound payment culture”.