Fitch affirms Malta’s credit rating at ‘A+’ with stable outlook

The credit rating agency Fitch has affirmed Malta’s rating at ‘A+’ with the outlook being stable.

The rating balanced Malta’s high income per capita, strong governance and human development indicators relative to peers, robust economic growth, eurozone membership and large net external creditor position, against its large banking sector, relatively high government contingent liabilities and vulnerability to shocks due to its small and very open economy. 

Fitch’s affirmation comes a couple of days after Moody’s, another of the world's biggest credit rating agencies, confirmed Malta’s credit rating at ‘A3’ with a positive outlook.

In its credit report, Fitch said that the country’s budget performance had been stronger than other ‘A’ rated peers, and is on an improving trend.

“Malta's general government balance turned a surplus in 2016, peaking in 2017 at 3.5% of GDP. The sharp increase in 2017 fiscal surplus was partly due to significant individual investor programme (IIP) revenues and tax revenues from strong economic activity,” the agency highlighted.

The agency said that it estimates the country’s surplus to have narrowed to 1.1% of GDP in 2018 and that it will narrow further to 0.8% of GDP by 2020.

“Malta's fiscal policy outlook is anchored by the government's commitment to a structural fiscal balance net of IIP revenues, with IIP revenues ring-fenced for investment purposes,” it underlined.

It said that tax revenues are expected to fall as a share of GDP, however, due to a one-off impact of a new European Union directive on eVAT revenues, the government’s measures to support first- and second-time home buyers, and support for pensions, graduates and low income earners.

Moreover, IIP revenues are forecast to fall to 0.9% of GDP in 2019 from the 2.2% peak in 2017. 

Rapid fall in public debt but GDP growth to taper in 2019

Public debt, Fitch said,  has fallen rapidly to 47.3% of GDP in 2018, from a peak of 70.2% in 2011.

“Debt dynamics remain very favourable, driven by low interest payments, strong nominal GDP growth and recurrent primary surpluses.”

The agency forecasts that the gross general government debt to GDP ratio will fall to 41.7% by 2020, and further to 26.7% by 2028, according to projections.

When it coms to Malta’s real GDP growth, this is estimated to have slowed to 5.9% in 2018, slightly higher than the 5.6% Fitch had forecast in its August 2018 review.

“Strong private and public consumption is driving growth, with private consumption supported by low interest rates and strong employment and wages,” it said, noting that it continued to be surprised by Malta’s upside growth, due to the island’s ability to attract foreign labour and a strong supply-side response in the property market, which make good for the country’s capacity constraints.

However, Fitch forecasts GDP growth to taper to 5.1% in 2019 and further, to its medium-term potential growth of 3.0% by 2024, as infrastructure, real estate and labour market constraints lead to higher rents and wages.