##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

technological innovation proliferates, activities of financial sector players, including nonbank financial institutions ( nbfis ), fintech firms, and traditional banks, increasingly overlap and compete for market share. the non - bank financial institutions sector comprises a wide spectrum of entities with very diverse business models and risk profiles. indeed, it is becoming increasingly challenging to categorise key market players, as the domains of finance and technology continue to blur. this is why regulation both from a micro and a macro perspective is expanding beyond banking. entities that perform some bank - like activities are susceptible to propagate bank - like risks and may amplify risks through the liquidity and leverage channels. these institutions are typically also less regulated, hence exacerbating counterparty risk for the banking sector. this is why at the european level we are now also looking at implementing macroprudential tools on non - bank financial institutions. but beyond the systemic aspects of this sector, risks increase as the constellation of firms in this sector expands. while such risks need to be managed, the contribution of such firms in terms of innovation and competition is undoubtedly beneficial to the consumer. therefore, a balance is needed to foster the right working environment for nbfis to continue thriving, while minimising risks, including reputational ones for our jurisdiction from possible misconduct of individual firms. this must be seen in the context of the ever - intensifying competition on the speed of transaction execution and onboarding spurred by technology. regulation and oversight need to keep pace with such developments, but, as the first line of defence, practitioners attracting such business also have a crucial role in fostering a safe environment for these emerging sectors to grow sustainably. while delving into the topic of non - bank financial activity, i would also like to make some reflections on the local capital market and its potential to play a bigger role in funding the changing needs of maltese firms, mostly arising from climate change and technology - driven considerations. to realise this potential, capital markets require the trust and confidence of investors. this is achieved, amongst others, by strengthening regulatory frameworks and requirements and minimising asymmetric information. introducing private debt issuer and issuance ratings should be a fundamental 4 / 5 bis - central bankers'speeches requirement to enable investors better assess whether yields are commensurate with the risk being taken, and to establish a more level playing field in financial markets. similarly, use of sinking funds should be required to ensure private debt