DBRS has rated A high with stable trend for Malta in its latest Aug 9 update
The Maltese economy grew close to 7% in 2018, repeating 2017’s strong performance. In 2018, Malta’s fiscal surplus stood at 2.0% of GDP and the debt-to-GDP-ratio declined to 46.0% of GDP. Importantly, Malta recorded a surplus even if the net proceeds from the IIP are excluded.
Malta’s A (high) rating is supported by its euro zone membership, moderate level of public debt, solid external position, and households’ strong financial position.  Malta Continues to outperform EU Average Growth Rates although bottlenecks are emerging
Since 2016, Malta’s budgetary surpluses have been both in nominal and structural terms. Key factors underpinning this trend has been stronger underlying economic fundamentals boosting revenue growth, improved spending efficiency, lower interest payments, and the proceeds from the IIP since its introduction in 2014.
Given the difficulty in predicting the IIP proceeds, DBRS considers the authorities’ intention to comply with the government’s Medium-Term Objective, net of the IIP, to be appropriate. Moreover, around 70% of the proceeds from the IIP are allocated to the National Development and Social Fund (NDSF) to finance one-off projects. By the end of 2018, the market value of NDSF amounted to 3.7% of GDP.
The Public Debt Ratio is Expected to Continue Falling in Coming Years, said the report. Following a substantial drop of 24.2% percentage points over the last seven years, Malta’s debt-to-GDP ratio stood at 46.0% of GDP in 2018, one of the lowest in the EU.
The Maltese financial system remains sound, underpinned by its conservative core banks’ healthy levels of capitalisation, liquidity and profitability. The Non-performing loans (NPL) of core banks as a share of total loans, which stood at 3.3% in Q1 2019, continue to decline driven by the overall better economic and housing market conditions as well as tighter regulatory requirements.
The DBRS report warned Core banks’ high exposure to the real estate market and rapid housing price growth since 2014 is a source of risk. While valuation in the housing market is becoming stretched, strong demand has largely been driven by fundamental factors such as rising disposable income, substantial net migration and low interest rates.
DBRS further said the continuation of the government’s efforts to address AML/CFT concerns will remain important to contain reputational risks that may pose a risk to the Maltese financial system.
