Moody’s gives Malta A2 rating, flags environmental issues

Credit rating agency Moody’s has affirmed Malta’s A2 credit rating with a stable outlook.

The credit rating agency highlighted Malta’s “wealth and fast-growing economy”, but warned an ageing population could pose challenges for the country.

It also warned against the institutional challenges related to the control of corruption, rule of law and supervision of money laundering risks.

It did say that last year’s exist from the Financial Action Task Force's (FATF) ‘grey list’ reflects the authorities' commitment to reforms.

In the credit opinion issued on Tuesday, Moody’s noted Malta’s small size and open economy make it vulnerable to external developments and the government debt is rising.

Moody's placed Malta's economic strengths at baa1. The country scored higher, hitting a3, in terms of institutional and governance strength, mainly attributed to its membership in the EU and Eurozone, much like Poland.

Regarding fiscal strength, it received an a1 from Moody's, placing it on a similar level as Slovenia, while its susceptibility to event risk was rated at baa. Analysts noted that the banking sector's risk is elevated due to its significant size in the economy, although this is somewhat mitigated by the separation between international and domestic bank orientations.

The rating agency also said it is concerned about the climate change risks facing the islands, stating highly limited forest areas and a low share of protected natural areas also lead to a low rank for natural capital.

“The country also faces more elevated waste & pollution risks in part due to rapid growth in the resident population over recent years,” the report read.

The country’s economy should grow by 3.8% this year, 3.5% in 2024, and 3.7% in 2025, according to Moody’s.

The agency said it expects Malta’s public deficit to reach 4.5% in 2024 and 4.1% in 2025 but warned debt interest payments will creep up in the coming years as higher interest rates filter through.

By 2026, the agency expects Malta to have around 58% of its GDP in debt.