No short-term rating risks from Maltese government's fall - Fitch

Fitch ratings agency warned last night  that although the Labour Party has said that it would keep the Budget 2013 measures - a measure which should give certainty to European partners and investors about Malta's commitment to fiscal consolidation - "should post-election fiscal policy significantly fail to achieve continued fiscal consolidation, it could have negative rating implications."

In a statement issued in New York, Fitch Ratings said that any impact on 2012 budget out-turns should be minimal, and recent fiscal data suggests that the government deficit will be 2.6% of GDP this year, in line with our forecast.

In the agency's most recent rating review, it was highlighted that the risk that the 2013 budget might not pass, and that in the event of early elections, fiscal slippage in 2012 was likely to be wider than our baseline, as the government would need to adjust expenditure in H212.

"But the review of ministerial spending allocations in H112 and the good revenue performance should ensure that our forecast, which already incorporates moderate fiscal slippage compared with the government's revised target of 2.3%, should be met," Fitch said.

"The impact could be more significant in 2013. With no budget approved, the 2012 budget will apply for no more than four months, with expenditure allocations equivalent to one-third of the 2012 budget. This should ensure expenditure restraint in the first quarter of 2013."

Fitch forecasts a general government deficit of 2.2% of GDP in 2013, which would be consistent with Malta's rating.

"The 2013 budget targeted a deficit of 1.7% of GDP. Our forecast assumes that the election outcome will not disrupt the medium-term objective of fiscal policy, which is to balance the central government budget and stabilise the public debt ratio. Should post-election fiscal policy significantly fail to achieve this, it could have negative rating implications."

The Labour Party, it said, that appears to be the favourite to win the next elections, has announced it will maintain the 2013 budget measures. "This stance should give certainty to European partners and investors about Malta's commitment to fiscal consolidation."

Fitch affirmed Malta's rating at 'A+' with a Stable Outlook on 25 September 2012. This reflects the resilience of Malta's economy and financial sector, a strong budgetary position, and a secure domestic investor base for fiscal funding. With a headline budget deficit below 3% of GDP and our forecast for a primary budget surplus in 2012-2014, the government debt to GDP ratio is projected to fall from 2013.