Fitch Affirms Malta’s Positive Outlook

Fitch Ratings affirmed Malta’s long-term foreign and local currency issuer default ratings at ‘A’ with a positive outlook. The issue ratings on Malta’s senior unsecured foreign and local currency bonds have also been affirmed at ‘A’ and ‘F1’. The country ceiling has been affirmed at ‘AAA’ and the short-term foreign and local currency IDRs at ‘F1’.

The agency said Malta’s ratings reflected its high national income per head compared with the ‘A’ median, robust economic growth and a large net external creditor position, MNA reported.

The ratings, it said, were constrained by ongoing structural bottlenecks as captured by the weak World Bank ease of doing business indicator. The positive outlook reflected the agency’s view that the public debt/GDP ratio was on a downward trajectory and that economic growth would keep outperforming similarly-rated peers.

Economic growth remained strong in 2016 at 3.9% year-on-year over the first three quarters, boosted by robust private consumption. “We forecast the Maltese economy will keep growing at a faster pace than the ‘A’ median at an average 3.3% over 2017-2018, supported by strong employment growth, rising disposable income due to continuous wage appreciation and the launch of new investment projects in the health, education and transport sectors.

“Strong export performance in the pharmaceutical, remote gaming, financial services and tourism sectors will help maintain a solid current account surplus over 2017-2018 despite higher import-intensive investments related to the new EU funding cycle.”

Malta’s gross general government debt fell to an estimated 59% of GDP at the end of 2016 from 60.8% in 2015 due to high revenues from excise duties, income tax and the international investor program.

“We expect it to decrease to 56% in 2018, on the back of an improved primary surplus and strong nominal GDP growth, still higher than the ‘A’ median of 52% of GDP. We project the fiscal deficit to narrow in 2017 to 0.5% of GDP from an estimated 0.7% in 2016.”

The agency said robust economic growth and additional indirect tax measures would boost tax revenues and offset more moderate revenue from the IIP, increased expenditure related to the EU presidency and lower tax on pensions.

“We believe the deficit will remain stable in 2018 as higher absorption of EU funds enables lower public investment, while revenues from the IIP decrease.”