DBRS confirms Malta credit rating at ‘A’, stable trend

Credit rating agency DBRS has confirmed the long-term foreign and local currency issuer ratings of Malta at A, reflecting Malta’s Eurozone membership, which ensures reliable access to European markets and makes available financial support from European institutions.

DBRS said the robust financial position of households and an attractive business environment, partly reflecting a favourable tax climate, also supported Malta’s ratings, together with the country’s solid external position.

But DBRS said Malta’s public finances, while improving, remained a source of vulnerability, and that weak productivity growth combined with rapid wage growth could gradually erode Malta’s competitiveness.

"Continued progress on fiscal consolidation and a meaningful reduction in public indebtedness could put upward pressure on the ratings. Successful implementation of reforms to improve the efficiency of the public sector, boost private sector investment and increase labour force participation could also have a positive effect. On the other hand, the emergence of additional contingent liabilities, from the energy or financial sector, could have adverse implications for Malta’s ratings. Large or prolonged external shocks could also pose downside risks," DBRS said.

The agency said that some of Malta’s credit challenges are associated with the exposure of its public sector and the still high level of public debt. The government has extended guarantees to several large state owned enterprises (SOEs). The high degree of concentration in the domestic financial sector could also be a source of contingent liabilities, though the overall financial condition of the core domestic banks appears to be strong.

"The restructuring of some of the SOEs has reduced risks to the public sector balance sheet, and the new fiscal framework may help achieve a durable reduction in debt over coming years. Nevertheless, the public sector remains vulnerable to debt shocks. Moreover, although public sector debt compares favorably to other European economies, it remains elevated at just over 68% of GDP in 2014. Government debt, however, has started to decline, and its favorable composition and maturity profile mitigate some of the risks," DBRS said.