Thank you for a most scientific analysis.

You are obviously a professional economist.

I can assure you that, at best, 5% of Maltese voters are able to understand 5% of what you are saying.

Very sad but very true.

Interest-free government bonds? This must be another first for Malta.

Interest is a concept that violates Sharia law. Therefore, it looks like the government is seeking to attract Muslim investors with Sukuk (Islamic Bonds) which will be asset-backed so that the yields at the time of maturity will be tied to the profits (or losses) from an existing or future asset.

Given that one needs to constantly deduce what this government is NOT saying, the sum of probabilities is that the government is creating this new class of Islamic bonds to part-finance the Zonqor and Dock 1 real estate developments.

The government might have found a way of releasing the blocked millions of Libyan funds in Maltese banks.

I guess it will only take a legal notice, say on Christmas or New Year’s eve, to unblock those funds for investment in “education”.

Indicators that a Sukuk is being created would be the incorporation of a Special Purpose Vehicle (SPV) that will handle the buy back of the bonds at maturity date.

One also needs to watch the maturity date and relate it to the 10-year profit forecast of the Arab project at Zonqor and Dock 1.

All other significant foreign and local investment has to be underwritten and guaranteed by the poor workers’ taxes and by selling the family silver.

It is no wonder the roadmap was, and still is, under wraps.

This is a normal feature in a modern state. The UK issues gilts, the Germans issue bunds; it’s all the same thing: debt.

The better the country’s financial standing, the less government will need to pay to attract borrowing. This makes debt, and its servicing (i.e. paying interest to the lenders) cheaper and more manageable.

If the debt grows significantly, that affects the country’s rating and in turn, the sovereign bond markets (composed of investors who lend and governments who borrow) will demand a higher interest rate on future issues.

Government bonds are often issued simply to pay off the last lot that matured and is due to be repaid to the lenders.

Obliging new residents to lend money to the government on an interest-free basis (at no dividend) is a very cheap way to borrow and it could be argued that the new residents are making a contribution to the Treasury by lending at no premium. It’s free.

There are, however, three major issues, and given that the present government is probably the most crooked government in the EU, you need to look at what has been excluded rather than what has been said.

(a) What term to maturity will these interest-free bonds have, i.e. how long is the lender (the new resident) obliged to keep them for; or are they ‘tradable securities’, i.e. Mr Khatami buys them in day 1 and may sell them on in day 2, to Mr Abdullah who has just arrived?

This stinks of the government scamming ALL of us again, because if they are not fixed-term non-tradable securities, we might have a situation where 50,000 ‘new residents’ come over, each of them selling the bonds on to the next, with a net total inflow to the Treasury of €250,000. A bit like orange juice being used as registered company capital.

It would create a nice little side-market for (Labour party) financial advisers to broker sales and purchases of bonds from new-comers to newly new comers by arranging to find buyers and sellers for a 5% commission.

(b) If they are non-tradable what is the term to maturity – is it for the entire duration of the residency period, with the capital redeemable (payable back to the individual) on cessation of residency, or is it a fixed term of 5, 10 or 15 years?

In other words, is it a ‘ploy’ to increase the total net figure of ‘foreign investment’ or is it a cheap way of government borrowing money to finance increased social costs which increasing population imposes, such as schooling, health services, and so forth.

(c) Let’s say 30,000 are interested in taking up the scheme and provide total lending to the Treasury of €7,500 million (€7.5 billion in Anglo-Saxon financial terms), or €250,000 each. That is a huge risk to the local economy and markets. Why?

Because Malta successfully avoided the great recession of 2008-2009 as most, nearly all, of the state’s debt is held domestically by Maltese lenders.

It was therefore not subject to the rapacious appetites of speculative traders on global sovereign (government) bond markets and therefore the interest rates (or dividends) which government was expected to pay to attract bond holders did not have to fluctuate (rise considerably) akin to those of other peripheral area states, such as Portugal, Spain, Italy, Greece, Ireland, Cyprus and so on.

This kept Malta’s debt servicing very stable and did not require increased revenue, through high and punitive taxation, surgical cost-cutting measures and other ailments brought on by a large and increasing debt obligation.

That will change if such a huge chunk of our domestic sovereign debt is held by foreign ‘investors’. In time of market volatility they may decide to ‘dump’ their interest-free debt on the global sovereign markets for a lower price (say sell €250,000 for €200,000) (called ‘below-par’), which would provide the purchaser with a future profit when the bonds mature and government pays back €250,000.

Once securities find themselves on global markets, that is a point of no return. The government will lose ‘control’ on who it borrows money from. The ravages of US, Chinese and other investment banks snapping up chunks of government bonds and trading them on at ridiculous prices or buying and selling them at high frequency trading would rip away the stability and security inherent in Malta government stock for Maltese domestic savers and investors.

All of a sudden, Mrs Grima of Zabbar, who placed €100,000 worth in Malta government stock paying her 6.2% annually, needs to sell her holding to move into a retirement home, and because a vast chunk of
Malta government bonds are now globally traded, she may only get back much less than she initially put in as the previously somnolent Malta government bond market, which moved up or down by fractions of percentage points is now shooting up and down in line with other Euro-zone periphery markets’ sovereign debt.

This measure may be a high panic stop-loss position being brought in at panicked speed to raise the capital needed if the Electrogas Malta Ltd loan guarantee needs to be activated and government needs to raise the few odd hundreds of millions to pay off the debt to avert the collapse of the domestic banking system.

The government may be borrowing money from
Libyans to pay off the loan raised by an Azerbaijani-led consortium, for a power station we do not actually need.

It really means that the government is assuming a huge risk to manage another huge risk to the Maltese economy, all for the sake of an ego trip: a new power station.