S&P affirm stable ratings, warns of fiscal drain from cuts in energy tariffs

Credit ratings agency Standard & Poor's has affirmed its long-term and short-term sovereign credit ratings for Malta at BBB+/A-2, with a stable outlook.

The agency has warned Joseph Muscat's government of the fiscal drain that reducing energy tariffs could bring on government coffers, unless Enemalta's costs and debts are restructured.

S&P said the ratings are supported by the view of "Malta's relatively strong institutional and governance effectiveness, and its prosperous economy."

But the agency said a sizeable government debt burden and external imbalances were still constraining the ratings.

"We note that the new Labour government is progressing with the details of a wide-ranging reform agenda. It is tackling long-standing issues such as energy sector reform, and health care and pension reforms. However, even with its strong mandate, implementing these reforms will likely pose challenges," S&P said.

Adding a general government debt of some 73% of GDP and another government-guaranteed debt 17%, means the government's room for manoeuvre is limited, S&P said.

The agency expects real growth per capita to increase to 0.7% in 2013, and said that reducing the deficit to 2.7% of GDP would require further consolidation measures.

"Keeping electoral promises to reduce energy tariffs could become a fiscal drain if a plan to reduce loss-making Enemalta's overheads does not take place on schedule. Delays or obstructions to proposed age-related reforms such as raising the retirement age and reducing subsidies for medication could also hamper spending cuts. We therefore expect that, absent further measures, the government's deficit will remain marginally above target during 2013-2016," S&P said.

Malta's growth performance has been one of the strongest in the eurozone, with real growth averaging just below 1% between 2007 and 2012, but the country struggles with low female participation and a skills gap.

S&P said it would raise the ratings if a reform programme is implemented or lower the ratings if fiscal slippages continue.

In a statement, the government said the ratings had recognised the wide programme or reforms for the energy sector. "Despite other difficulties, the economy is stable and giving results that surpass eurozone averages. S&P clearly says our financial sector is stable, and that the country must address Enemalta's debt."

The Nationalist Party has said this result is the fruit of good decisions taken by the Nationalist government over the years.  

It said it was "of satisfaction to hear that after years the Labour government is admitting that despite challenges we faced, the Maltese economy remained strong and achieved among the highest results in the EU".

Malta's economic strength is the result of the vision and reforms carried out by Nationalist governments, PN said.