Special purpose vehicles in the public sector

Abstract

Purpose: The scope of this research is to explore the reasons behind the Maltese Government’s decision to implement SPVs for the public sector. This study analyses whether SPVs are an attractive tool for structuring government finances, and examines the benefits and limitations of SPVs, in particular for the public sector. In the process, the outcome of the two SPVs established by the Maltese Government, namely Malita Investments and Vault Finance, is examined. Design: Due to the exploratory nature of this study and the limited research population, a qualitative research methodology was suitable. Semi-structured interviews were conducted with public officers knowledgeable in the field. Queries that arose after the interviews were clarified in a second interview or through email. Furthermore, for secondary data collection, numerous reliable sources were consulted. Findings: Even though the Maltese Government has only utilised the SPV instrument twice, the findings demonstrate that SPVs were developed because they were deemed to be the most appropriate instrument for the intended functions. However, the findings suggest that the Government opted to use SPVs since the paramount activities performed by these SPVs would have had a significant impact on the deficit and debt values reported in the national accounts. Therefore, the ESA rules that need to be satisfied to avoid consolidating SPVs were taken into account when the legal format and characteristics for the SPVs were being selected. Despite the limitations of SPVs, the findings indicate that SPVs also offer benefits that make them an attractive tool for structuring government finances. Conclusions: Implementing SPVs for the public sector provides various advantages, and should not be perceived solely from a negative lens due to the massive corporate scandals that had led to the last global meltdown. Hence, the results obtained through SPVs will depend on the aims and objectives they are established for. Value: This research is important because there are no previous studies regarding SPVs created for the Maltese public sector. This study shows that creating an SPV does not necessarily mean that it will be used for off-balance sheet financing, creative accounting or illegitimate activities. Yet, EU Governments should not resort to SPVs to avoid reporting debt values and excessive deficits because this would not solve financial difficulties.