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Malta’s 'A' Fitch-rating affirmed

Fitch's A-rating of Malta was once again affirmed on the 17th of February 2017. Fitch cites Malta’s robust growth, large creditor position, and estimates of rising disposable income as factors supporting the strong rating.

Malta continues to leverage its position as a sound financial hub as rating agency Fitch affirms Malta’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘A’. Fitch reiterates the positive outlook for Malta and rate senior unsecured foreign and local currency bonds at ‘A’ and ‘F1’. The Country Ceiling has been affirmed at ‘AAA’ and the Short-Term Foreign and Local Currency IDRs at ‘F1’.

The strong rating by Fitch is backed by Malta’s high national income per capita compared to the ‘A’ median, by its robust economic growth, and its large net external creditor position. The main constraints on the Maltese economy were identified as structural bottlenecks cited by the World Bank Ease of Doing Business indicator – where Malta sorted at place 76 between the Kyrgyz Republic and Tunisia. However, Fitch is confident that the public debt to GDP ratio is on a downward trajectory and that Malta will outperform peers rated similarly in terms of the country’s economic growth.

Fitch forecasts a year-on-year growth of 3.3 percent for Malta over 2017-2018. The growth rate is supported by estimates of strong employment growth, rising disposable income and the launch of new investment projects in health, education and infrastructure. Pharmaceuticals, remote gaming, financial services, and tourism are driving the export performance and are forecasted to maintain a solid current account surplus until 2018, despite the EU funding cycle and its related high import-intensive investments.

The rating is also reflecting the estimate that Malta’s gross government debt fell to 59 percent at the end of 2016 from 60.8 percent in 2015. On the back of the country’s improving primary surplus and strong nominal GDP growth, Fitch forecasts a decrease of the debt to 56 percent in 2018. This is still higher than the A-rated country median of 52 percent of GDP.

The fiscal deficit is projected to narrow to 0.5 percent of GDP in 2017 from an estimated 0.7 percent in 2016. Tax revenues will be boosted by robust economic growth and additional indirect tax measures. Revenues will be offset by The Individual Investment Program (IIP), the increased public spending related to the Maltese presidency of the EU, and lower pension tax.

Burdensome is the Maltese government-guaranteed liabilities that remain the highest in the EU, standing at 14.8 percent of GDP at the third quarter of 2016. They are expected to decrease by 2.9 percent at the end of 2017 with the expiration of the temporary guarantee of ElectroGas’ new power station. The Maltese banking sector is profitable, liquid and well capitalised. Concentration, however, is high with core banks representing 219.5 percent of GDP.

For Malta to strengthen its position and receive a higher rating, it is pivotal to showcase a longer track record of consolidating the public finances to achieve a lower government debt to GDP ratio. Another important development would be a significant decline in contingent liabilities or lowering the likelihood of liabilities to materialise, this includes for instance preventing and minimising the risks of shocks to the banking system that would require government support. 

For further details, see the full press release by Fitch.  

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