DBRS confirms Malta’s A credit rating

Credit rating agency Morningstar DBRS has confirmed Malta’s long-term foreign and local currency issuer ratings at A (high) with a stable outlook, citing strong economic growth and a resilient external position, while also acknowledging challenges related to fiscal consolidation, population pressures, and governance.

In its latest report published on Friday, the agency also affirmed Malta’s short-term foreign and local currency ratings at r-1 (middle).

Economy still outperforming the Eurozone

DBRS said that Malta’s economy grew by 6% in 2024, significantly above the Eurozone average of 0.9%, driven by strong tourism, professional services, and financial sector exports. Growth is expected to moderate to 4% in 2025 and 3.6% in 2026, but will remain well above the EU average.

“Despite global uncertainties, Malta’s service-driven economy is less vulnerable to trade shocks like higher US tariffs,” DBRS said, although it warned that Malta’s labour-intensive growth model and high population density could strain infrastructure.

Fiscal deficit narrowing but still sizeable

DBRS noted that the general government budget deficit narrowed from 4.6% of GDP in 2023 to 3.7% in 2024, but said that fiscal pressures remain due to energy subsidies and wage agreements such as the new teachers’ deal. The Central Bank of Malta forecasts the deficit to fall below the EU’s 3% threshold by 2026.

“While public revenues are likely to continue to benefit from strong, albeit moderating, economic growth, the introduction of new fiscal household support measures (e.g. income tax cuts), the fiscal cost of which is estimated at 0.5% of GDP, is likely to slow down the pace of fiscal consolidation adjustment.,” the agency warned.

DBRS added that continued reliance on energy subsidies and uncertainty around future revenue from the citizenship scheme and corporate taxation pose further risks.

Public debt still moderate

Malta’s public debt is forecast to rise gradually from 48.9% of GDP in 2024 to 50.1% by 2026, remaining below the Euro area average. The interest burden is also projected to remain relatively low.

“While debt is higher than prior to the Covid-shock in 2019, the current debt level continues to provide the government with valuable space to support the economy if under stress. The interest burden is projected to increase but to remain low,” DBRS said.

Banking sector stable, but exposed to housing market

The rating agency praised strong capital buffers and low non-performing loan (NPL) ratios in Malta’s banking sector, with core banks holding a Tier 1 capital ratio of 21.0% and an NPL ratio of 2.1%. However, it flagged high exposure to residential mortgages, which make up 66% of total loans to the private sector.

Governance and AML reforms crucial

Governance remains a mixed picture for Malta. While progress has been made in reforming the justice system and exiting the FATF grey list, DBRS warned that rankings for government effectiveness and control of corruption have declined. It called for “more tangible evidence of enhanced efficiency, and effectiveness in the country’s judiciary and control of corruption.”

What could move the rating?

DBRS indicated that Malta’s rating could be upgraded if there is a material improvement in the debt trajectory or greater resilience to economic shocks. Conversely, a downgrade could result from a deterioration in public finances or a reversal in governance reforms.

The agency also noted that social and governance factors had a significant effect on the credit rating, particularly human capital and institutional transparency.