In a statement published earlier this weekend, the Ministry for Finance welcomes the latest upgrade of Malta’s credit rating from A3 to A2 with a stable outlook, by Moody’s.
The sustained improvement of Malta’s fiscal strength, on the back of a prudent fiscal stance and enhanced fiscal policy framework as well as Malta’s strong medium-term growth prospects were the main drivers for this noteworthy upgrade.
The Minister for Finance Professor Edward Scicluna said, “This upgrade for Malta follows closely on the heels of Fitch’s outlook upgrade. They both confirm that Malta’s economic growth model is indeed sustainable. These upgrades increase our country’s attractiveness to foreign investment which in turn leads key to a further significant increase in the standard of living of families recorded in recent years.”
The stable outlook on the rating reflects Moody’s expectation that government debt levels will continue to decline, current efforts to address institutional challenges will be maintained and systemic risks emanating from the financial sector will be contained.
Moody’s notes that after peaking at 70.2% at end-2011, Malta’s debt-to-GDP ratio has been on a declining trend, reaching 46% at the end of 2018. This, it comments, was driven by the very strong economic growth recorded in recent years and the fiscal restraint exercised by the government. As a result, expenditure as a share of GDP recorded a marked decline, leading the government to register both headline and structural fiscal surpluses since 2016.
The improvement to Malta’s fiscal strength has also been supported by institutional improvements to the fiscal policy making framework, such as the introduction of a structural budget balance rule and the establishment of the fiscal council and the comprehensive spending reviews. As a result of these improvements, Moody’s expect that the government’s commitment to fiscal prudence will be maintained even in the event of a slowdown in growth.
Moody’s notes that Malta’s improving fiscal strength is also supported by a decline in the contingent liabilities and guarantees extended to state owned enterprises as well as the improved financial health of previously troubled entities such as Enemalta and Air Malta.
The report acknowledges the marked increase in the employment rates recorded in recent years especially that of female and older workers. It expects that previous reforms to gradually increase the pension age and to encourage female labour force participation, such as the provision of free childcare for working and student parents, are likely to continue raising these participation rates.
In a related rating action, Moody’s has also upgraded the senior unsecured rating of Freeport Terminal (Malta) Limited to A2 from A3 with a stable outlook.