Malta received ‘A’ high rating from international rating agency DBRS with stable trend.
DBRS said in its report, Malta benefitting from strong citizenship scheme (Individual Investors Programme or IIP) proceeds and tax-rich economic growth, the fiscal surplus reached 3.9% of GDP in 2017, surpassing its target. Against this backdrop, the government debt-to-GDP ratio dropped 5.5 percentage points to 50.7% of GDP.
Since 2013, Malta has experienced a significant improvement in its fiscal performance driven by:
(1) fiscal consolidation efforts,
(2) markedly higher GDP growth,
(3) lower funding costs,
(4) introduction of the IIP.
Proceeds from the IIP stepped up to 2.6% of GDP in 2017 from 1.7% in 2016.
In 2018-2021, the government aims to maintain an annual average headline surplus of 1% of GDP and a structural surplus. Malta’s Fiscal Advisory Council has endorsed the prudent macroeconomic forecasts. Given the difficulty in predicting the IIP proceeds, DBRS considers appropriate the authorities’ intention to comply with the government’s Medium-Term Objective, net of the IIP.
Malta’s A (high) rating is supported by its Eurozone membership, strong external position and low reliance on external financing, favorable public debt structure, and households’ strong financial position. Notwithstanding these credit strengths, Malta faces some challenges. Malta’s contingent liabilities, stemming from its large state-owned enterprises and concentrated financial sector, and rising age-related costs are sources of vulnerability for public finances.
Malta’s small and open economy, with some sectors highly dependent on foreign demand, such as tourism, exposes the country to external developments. Malta continues to outperform EU Average Growth Rates with Broad-based Expansion.
- The IMF’s GDP growth projections point to an annual average rate of 4.8% between 2018 and 2020, and to gradually converge to its long-term growth potential of above 3%.
- The DBRS credit rating report acknowledges that the steady increase in the labour supply, led by net migration flows and increased participation, as well as productivity gains, underpinned the significant increase in potential GDP growth during the 2013 to 2017 period.
- DBRS positively state that the banks’ reliance on retail deposits for funding and their healthy Tier 1 capital ratio, high levels of liquidity, and good levels of profitability, support the banks’ ability to weather adversity.
- DBRS also noted that the government presented a series of strategic initiatives to be completed by 2020 to enhance the AML/CFT framework, establish national coordinating mechanisms, and increase resources in the regulatory institutions.
Minister for Finance Edward Scicluna said in a press release: ‘Another well-deserved high rating for our country confirming the success of the government’s policies aimed to diversify Malta’s economic growth, restore fiscal sustainability, and secure a positive net external position. It is pleasing to note that DBRS has also taken note of our Anti-Money Laundering strategy and plan.’
Read more about the full DBRS report here
