Gonzi undeterred by Moody's downgrade

Prime Minister Lawrence Gonzi was undeterred by a downgrading of Malta's credit rating to A3 from A2 by Moody's today, saying the country's deficit-reduction programme was on track and that its debt status was not threatened by exposure to foreign lending.

Addressing the press on a visit to the offices of EMD Services, Gonzi said Moody's was not seeing "any particular difficulty" when asked about Malta's weak debt metrics - highlighted by the agency as one of the drivers of Malta's downgrade.

"Our debt is mainly national debt, which means we are not exposed to the uncertainty taking place in other countries," Gonzi explained of Malta's debt status, whose foreign lending is a very minimal portion.

Gonzi also insisted that Malta's credit status was secure: "We ask for money and we get offered double."

The prime minister said Malta's main problem was the vulnerability of its open economy to the vicissitudes of the global economy. "Our market is so small that we depend on exports, like our tourism, to generate growth. This means that if there is uncertainty overseas, that reduces demand from the rest of the world for our tourism."

Gonzi also defended the 'certificates' that registered Malta's successes, citing tourism figures and low unemployment levels. "The point Moody's is making is that we depend on foreign markets, and if their markets go wrong, we suffer too."

The prime minister also said Malta's deficit-reduction was on track, after the government approved €40 million in spending cuts over and above the approved Budget and is now about to approve the Constitutional entrenchment for balanced budgets.

Malta is facing detoriorating growth prospects that will expose the government to "constrained, higher-cost" funding conditions, Moody's Investors Service said yesterday as it downgraded the island along with five European nations.

Malta, Portugal, Slovenia, Italy and Spain received one-notch downgrades and still have negative outlooks, Moody's said. Moody's actions follow similar moves take by Standard & Poor's an Fitch Ratings last month where multiple downgrades were made all at once. Like S&P and Fitch before it,

Moody's said the two drivers for Malta's downgrade were the uncertainty from the eurozone area, which was weighing on an already fragile market confidence; but also Malta's relatively weak debt metrics compared with other 'A' category peers, and the country's reliance on the strength of the European economy.

This, Moody's said, would dampen Malta's growth prospects and worsen its debt dynamics.