Update 2 | Muscat says downgrade down to Enemalta losses and debt • Fenech blames Muscat for Standard & Poor's downgrade

Updated at 12:24pm

Labour leader Joseph Muscat held an impromptu press conference minutes after finance minister accused him of having caused a downgrade of Malta's long-term credit status by Standard & Poor's.

The agency downgraded Malta's sovereign long-term rating to BBB, whilst affirming it's A- short-term rating.

Muscat said the primary reasons for the downgrade by the agency were down to government debt, loss-making enterprises like Enemalta, private sector debt, the vulnerability of the economy, and the low female participation in the private sector.

"There is special mention of Enemaelta, which is described as an ailing energy utility... as it is Enemalta is a recipe for failure and this should not just concern workers, but also the private sector. If we keep going on like this, Enemalta will be driven straight into the wall and the country will be in trouble," Muscat said.

Muscat contradicted claims by Fenech that Labour was being blamed for not approving the budget in December.

"I wonder if Lawrence Gonzi would support out budgets if we are elected to power... there is no doubt that he knew the budget was not going to pass and he could have taken the steps necessary to avoid this.

"The only reference to Labour is when S&P refers to the country's 'strong political institutions'... and that's why S&P gives Malta a stable outlook."

Muscat also said S&P was not believing the government's growth projections, saying the deficit would not reach 2.2% of GDP as predicted by Tonio Fenech.

He reiterated that he would not reverse the tax cuts for the highest earners in the last budget to improve revenue flows in 2013. "The only way Malta can emerge from this vicious circle this government has placed us in, is to go for a roadmap that is geared towards economic growth."

Finance minister Tonio Fenech has blamed a downgrade from Standard & Poor's rating agency on Opposition leader Joseph Muscat, claiming the reason for the downgrade is because Labour did not support the 2013 budget on the eve of an election.

Tonio Fenech press conference

"I can confirm this downgrade is because of Labour's bad decision not to cooperate by approving the budget measures," Fenech said, in a press conference called at 10:30am.

Earlier at 10:15am MaltaToday broke the news that the credit rating agency was expected to downgrade Malta's long-term rating to BBB+.

Malta dissolved its parliament after a vote of no confidence was triggered by the rejection of the budget bill - by Nationalist MP Franco Debono and the Opposition - in December 2012.

"This irresponsibility must be borne by Muscat. Other EU countries approved their budgets before elections because they know they cannot enter elections with uncertainty. But Muscat decided to vote against because of political pique. S&P took this very seriously."

Fenech's flippant accusation against the Opposition was picked up by the press, which pointed out that it was Nationalist MP Franco Debono's vote that was also decisive for the failure of the budget to pass - something the MP had already warned he would do back in the summer of 2012.

"When government falls, it does so because it loses the confidence of parliament... in other countries that are about to go into elections, parties in Opposition make an exception to the rule - they approve the budget to have certainty as they go into a new election," Fenech said.

S&P will downgrade Malta's long-term rating to BBB+, and retain the short-term rating stayed at A-2. S&P has yet to issue an official confirmation of its review.

Fenech set much store in pointing out that in its 'overview', S&P mentioned that the dissolution of parliament raised questions about the government's ability to restore "the fiscal flexibility it has gradually lost".

However, in its 'rationale', S&P states that the downgrade is primarily motivated by Malta's increasing government debt, and losses from its state enterprises - among them Enemalta - but also structural issues from high levels of debt inside the private sector, and the low level of participation of women in the labour force.

Fenech also said that the fact that budget had not been approved would automatically affect the government's economic growth projections, which S&P described as being quite optimistic. "The consequence is obvious... if the budget did not pass, the growth projections are affected."

Malta's debt burden increased by €442 million to €4.9 billion in September 2012. S&P said that given Malta's high government debt burden, Malta is limited in its options how to counter prolonged periods of low growth.

The agency said that Enemalta's sizeable debt, at 600% of GDP, was a main factor in the country's liabilities, since the government guarantees debt of such state-owned enterprises worth some 20% of GDP, on top of its general debt.

S&P also noted that the parliamentary dissolution in December will prevent the 2013 budget from being passed until the end of March.

Yesterday, Labour leader Joseph Muscat told workers at Actavis pharmaceuticals that a new Labour government would take on the Nationalist budget in its entirety, except for the tax on minimum wage earners.