Malta’s Fitch Rating Affirmed at A+

Fitch Ratings has affirmed Malta‘s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook, as detailed in their report from last week (March 15, 2024). This affirmation reflects a comprehensive evaluation of Malta’s economic, fiscal, and banking sector strengths and challenges.

Key Highlights of the Report:

• Malta’s ‘A+’ rating is supported by its high per-capita income, high potential and actual growth rates, and membership in the euro area, which contribute to a robust economic foundation.
• The rating is balanced against concerns such as the large size of Malta’s banking sector relative to its economy, the economy’s high vulnerability to external developments, and a recent deterioration in public finances characterised by large fiscal deficits leading to an increase in public debt.
• Malta’s economy has shown a strong post-pandemic recovery, with GDP growth outpacing forecasts and eurozone averages. The growth is expected to moderate in the coming years, reflecting lower contributions from previously booming sectors.
• Unemployment rates in Malta are forecasted to remain low, with strong employment growth supported by the inflow of foreign workers. However, challenges such as weak labour productivity and skill shortages persist.
• The government has implemented measures to stabilise prices for electricity, fuel, gas, and food. These interventions, while providing short-term relief, contribute to fiscal pressures.
• Inflation is expected to moderate, with the government taking steps to control food prices. The fiscal deficit is projected to narrow, but energy subsidies and the lack of a clear exit strategy from fixed price policies present fiscal risks.
• Malta’s banking sector is characterised by strong balance sheets, high liquidity, and low non-performing loans, contributing to financial stability.
• Malta scores well on governance indicators, reflecting stable political transitions, strong institutional capacity, and effective rule of law. These factors positively impact Malta’s credit profile.

In Summary:

The report does highlight areas that require attention, such as addressing fiscal deficits, managing public debt, and navigating challenges in the banking sector and labour market; however, the affirmation of Malta’s ‘A+’ rating with a Stable Outlook indicates confidence in the country’s economic resilience and fiscal management.