##lstered by the recently announced income tax savings and increases in social benefits. in view of these factors and the stronger than expected gdp growth in the first half of this year, the bank intends to revise up its growth projections, while inflation projections are not expected to be revised materially. nevertheless, there are reasons to be cautious in the degree of optimism. the inflation outlook remains sensitive to future developments in commodity prices, productivity growth, and firms'ability to absorb wage increases through profit margins. the ongoing escalation of geopolitical tensions and recourse to trade protectionism could lead to renewed disruptions to global supply chains and higher import costs. trade fragmentation instigates inefficiencies, with risks to jumps in the price level and 2 / 5 bis - central bankers'speeches downside risks to growth. as malta is a small open economy heavily dependent on international trade in various markets around the globe, trade fragmentation is a cause for concern. inflationary pressures may also arise from the transition to a climate neutral economy and the application of the eu's emission trading system ( ets ) to additional sectors such as maritime and road transport. in this regard, preliminary analysis by bank staff indicates that the increase in malta's commodity import prices due specifically to the extension of the ets to maritime transport should be small, as would be the effect on economic growth and inflation. nevertheless, the impact differs significantly across products and sectors, with implications for the competitiveness of certain industries. the impact also depends on various factors, including the level of future ets prices, the extent of spillovers from trading partners'import price shocks, and potential diversions in shipping routes. however, it needs to be emphasised that while the green transition is likely to entail costs in the short - term, the benefits of such transition are not only environmental, but are also economic in terms of reduced dependency on energy imports and exposure to the volatility of their prices. furthermore, although the fiscal deficit is narrowing towards 3 % and the debt ratio is still well below 60 % of gdp, an economy running at virtually full employment for some years well - into the post - pandemic period should not be recording fiscal deficits. reducing the fiscal deficit at the pace of around 0. 5 % of gdp per annum would mean that it will take up to around 2033 to get back to a small surplus. while the gradual approach adopted in unwinding the fiscal deficit is understand

by the pillar 2 guidance and the capital conservation buffer, to operate below the liquidity coverage ratio and to partially use capital instruments that do not qualify as common equity tier 1 capital to meet the pillar 2 requirements ; • easing of collateral requirements in obtaining funding from central banks ; • introduction of tltro iii to provide banks with very cheap funding at an interest cost of up to minus 1 % if such funds are lent to businesses ; • provide liquidity through a €750 billion pandemic emergency purchase programme ; • further flexibility in prudential treatment of loans backed by public support measures, thus allowing banks to avoid procyclical effects when applying ifrs 9. • the lowering of the countercyclical buffer requirement to zero in a number of countries. • requesting banks to suspend shareholder distribution of dividends for the 2019 financial year as well as for fiscal year 2020, at least until october, to enable banks rebuild capital buffers. all such regulatory measures have been implemented not only to encourage banks in their ongoing support to the economy but also to ensure the stability of the banking sector going forward. with these measures, one needs to take into consideration the fiscal support through a broad range of page | 4 document classification : public government measures aimed at helping households and businesses, which also indirectly sustain the banks by mitigating the effects of the crisis on bank balance sheets. the negative implications from the pandemic will continue to be felt in the near term and this is why the central bank encourages all financial institutions to preserve capital, while at the same time continue to lend prudently and avoid unnecessary forbearance measures. i will repeat : the banks are sufficiently liquid, with strong capital ratios and financial resources, and these, coupled with their technological infrastructure and human resources, is enabling them to meet the challenges that the pandemic presents. to conclude, although the pandemic has been around with us for some nine months, the uncertainties surrounding it are still high, although recent news of the rollout of a vaccine in the very near future have surely given hope that we are closer to the end of the pandemic. nevertheless, its effects will not go away any time soon, and 2021 will be a challenging year, both from an economic perspective and for the banking sector. therefore, both fiscal and monetary authorities will need to remain vigilant and monitor closely the situation to avoid untimely withdrawal of support measures. finally allow me a footnote. i would