Muscat: Moody’s outlook pours cold water over Malta growth forecast

Opposition leader Joseph Muscat said Moody's downgrade of Malta's credit rating had confirmed the weak management of the economy's debt, and that the government's growth forecasts were not being accepted by the agency.

Muscat said Moody's negative outlook was more worrying than the downgrade. "Obviously this is not good news for the country. We have no intention of attributing the effects from the eurozone crisis to the government. But the weak debt metrics cited by Moody's are related to the way the economy is being managed."

The Labour leader, addressing the press in Birgu, said Lawrence Gonzi's claims last week that Malta had the largest reduction in national debt was down to the issue of government stocks.

"The stocks were issued and bought up by the public in the same quarter of those figures, and that gave the government a surge in income, which was reflected in those figures," Muscat said.

"It is obvious that the government is playing with figures," Muscat said of the data supplied to Eurostat, the EU's statistical arm, by the National Statistics Office.

Muscat also said the government's economic growth forecast had been given short shrift by Moody's. "This comes on the heels of both the European Commission's and the International Monetary Fund's own doubts on the government's growth forecasts. And this will affect other forecasts and Malta's deficit reduction programme.

Muscat pointed out that Gonzi's announcement that €40 million in additional spending cuts, so far unspecified, would be postponed to the middle of the year, meant their effect will be harder felt in the six months that followed. "I fear this is just a pre-electoral tactic to postpone cuts that will be painful," Muscat said.

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 fragile environment is also exacerbating Malta's own challenge to keep its debt down, which Moody's said is the second driver of its downgrade. Malta's debt metrics are among the weaker of the 'A'-rated sovereigns.

"Growth prospects over the medium term also appear poorer for Malta than for its peers, given the country's dependence on tourism from the euro area as its main source of economic growth. This will hinder the narrowing of the fiscal imbalance.

"Lower business confidence and tighter credit conditions are likely to result in weak private-sector investment, and real output growth is likely to be significantly lower than the government's forecast of over 2%."