Fitch affirms A+ Malta rating with stable outlook

The international agency Fitch Ratings has confirmed the A+ rating of Malta, with stable prospects.

Fitch was predicting an economy growth of 3.9% earlier in the year but has now upped it up to 6.1%, while forecasting a 5.7% growth for this year. 

It said that Malta’s rating is supported by high per-capita income levels, a large net external creditor position and a pre-pandemic record of strong growth and sizeable debt reduction.

“These strengths, are balanced against a large banking sector and the small and highly open nature of the economy, which makes it vulnerable to external developments.”

“The Stable Outlook reflects Fitch’s expectation that GDP growth will recover and that debt will stabilise following the fiscal shock caused by the pandemic, supported by a strong revenue recovery. At the same time, there is continued downside risk from the evolution of the coronavirus and its effect on the tourism sector and public finances, as well as the risk of macroeconomic instability from the Financial Action Task Force’s (FATF) decision to greylist Malta.”

It highlighted Malta’s successful vaccination programme supporting the growth, with a gradual relaxation of containment measures and travel restrictions.

Fitch did however note that although tourist arrivals have recovered, imposition of travel restrictions, in particular by the UK, pose a risk.

Fitch revised the deficit forecast from 11.5% to 8.4%, following an increase in revenue collection. It did however project a wider deficit for 2022 at 6.1%, as it  assumed the government will partly make use of a 1.4% of the GDP to deal with the pressure from higher energy prices. “Fiscal downside risks relate to a further intensification of the energy crisis, which might require greater utilisation of the fiscal buffer.”

It anticipated the fiscal balance to further narrow to 4.1% of GDP by 2023, with public debt peaking at 61% of GDP in 2023, “illustrating Malta’s fiscal prudence in pre-pandemic years of strong growth”.

Fitch said that medium-term fiscal risks are present due to a potential introduction of a global minimum tax and pressure on low-tax jurisdictions to raise effective tax rates.

“In addition, the European Commission’s ongoing infringement procedure into Malta’s Citizenship by Direct Investment programme could lead to its termination. The government has already reduced the expected receipts from the programme to €42 million from around €100 million in its 2022 projections,” Fitch stated.

In a statement, the Government welcomed the rating and said, ”The positive certificate that Malta was given by Fitch Ratings is another confirmation of the responsible leadership with which the country’s economy was governed in such delicate moments.”