Updated | Moody's revises Malta's outlook to stable, parties squabble over economy

Moody's Investors Service upgraded Malta's outlook to stable from negative, citing views that the country's debt will stabilize next year as the economy gathers steam.

The rating agency also affirmed the country's A3 government bond rating. The agency's decision to revise the outlook on Malta's sovereign rating was driven by a number of key drivers.

"The first key driver underpinning today's rating action is Moody's expectation that Malta's government debt metrics will stabilize in 2014 given the country's economic recovery and the newly elected government's commitment to fiscal consolidation," Moody's said in a statement.

It pointed out that output growth continued to moderate last year falling to 0.8 per cent from 1.6 per cent in 2011.

Moody's said this subdued pace of growth persisted into the first half of 2013 due to electoral uncertainty; however, real GDP growth is expected to recover, albeit remaining below potential, to 1.3 per cent in 2013 and two per cent next year as domestic demand recovers underpinned by low unemployment and rising real wages.

The credit rating agency also noted that the 2013 budget was adopted before the current Government fully began operating.

Moreover, Moody's underlined the fact that budgetary measures for this year are only likely to take full effect in the second half of 2013 given the delays associated with recent elections and government transition.

However, the authorities remained committed to the medium-term objective of consistently reducing fiscal imbalance, Moody's said.

Moody's also noted "limited contagion risk" from the euro zone and the resilience of the country's banking system.

It pointed out that the resilience of the Maltese banking system, with banks following a very conservative and traditional banking model that has not presented problems for the sovereign even through the worst of the financial crisis.

Standard & Poor's rates the country BBB-plus with a stable outlook. Fitch rates Malta A with a stable outlook.

In reaction, the Labour Party said that Moody's conclusion that Malta was moving in the right direction came "just six months after" the party's election to office.

Labour welcomed the change in Moody's outlook from negative to stable and the consolidation of the A3 rating for the country's bonds.

"This is the fruit of the government's responsible and prudent efforts,"" the statement said.

Moreover, the Labour Party hit out at the previous Nationalist administrations which claimed to have a safe pair of hands in managing the economy despite the credit rating agencies'' negative outlooks.

It added that Moody's report showed the clear difference between the two big parties.

On one hand the PN was "negative" and on the other the Labour government was working hard and introducing a number of incentives, which were acknowledged by Moody's.

On its part, the Nationalist Party welcomed Moody's report, while pointing out that previous downgrades by another credit rating agency, Fitch, was down to the government's failure to give timely reassurances on its plans to curb the deficit.

"Therefore the PN calls on the government to have a clear economic and job creation policy," the Opposition said.

Moreover, the PN insisted that the report indicates that contrary to what Prime Minister Joseph Muscat had claimed, Malta was required to present the EU with a programme of measures to narrow the deficit. Yesterday, the finance minister said that the government will publish the plans presented to the commission on Monday.

"The report the government will publish on Monday is not its own plan but the economic partnership programme imposed upon the government by the European Commission, due to the Prime Minister's bad decisions," the PN said. 

The Opposition spokesperson on finance, Tonio Fenech pointed out that the Commission had pressed the government to publish these new measures to curb its excessive spending, including the costs of new positions, salaries and perks for Labourites.  

"The PN hopes that the Maltese people will not be made to pay by suffering cuts in sensitive sectors, including health, social services, education and initiatives aiding industry and businesses, to make good for what was appropriated by the Labour Party faithful."

The government was also politically bound to keep its electoral promises, the PN said, including free childcare services, the free delivery of medicines to people's homes, the refund of VAT paid on car registrations and free tablets for students.