For the first time in 11 years, Moody’s, the established credit rating agency, updated Malta’s rating from A3 to A2.
The changes can be ascribed to the country’s strong medium-term growth prospects and “continued improvement of Malta’s fiscal strength, on the back of prudent fiscal stance and an enhanced fiscal policy framework.”
It also moderated its outlook for the island from ‘positive’ to ‘stable’. “The stable outlook on the rating reflects our expectation that government debt levels will continue to decline in coming years, although at a gradually slower pace as we also expect the growth rate of the Maltese economy to decelerate from the exceptionally high rates registered in recent years,” Moody’s stated.
The report continued in saying that, “it is also based on our expectation from current efforts to address institutional challenges will be maintained and that systemic risks emanating from the financial sector will be contained.”
Economic growth likely to decelerate
The growth rate between the years 2013 and 2018 was calculated at 7.2%, The prediction is that it will decrease “as the economy is running up against capacity constraints, and the pace of expansion will slow for rapidly expanding sectors that have been driving growth in recent years.”
Capacity constraints refer to infrastructure impediments and the availability of employment and housing.
Growth in labour has been noticed as a result of immigration and increased employment of females and older age groups. According to Moody’s publication, this is predicted to reduce yet “remain positive”. The link can be seen in the reforms such as raising the pension age and supporting more women to participate in the labour force by providing free childcare.
The report also stated that “While these factors will alleviate pressures on the Maltese economy related to population ageing, Malta nonetheless faces a significant increase in its old-age dependency ratio over the coming decade and beyond”.
Government debt projected to continue on a declining trend
Malta’s debt-to-GDP ratio has been diminishing since 2011, dropping significantly from 70.2% to 46% at the end of 2018. By 2020, it is anticipated to fall further to 40%.
The government’s commitment to fiscal discretion would be sustained even in the face of the imminent slowdown in growth.
Malta has experienced very robust economic growth in recent years, which has prompted rapid improvement. Moody’s also highlighted those previously distressed corporations such as Enemalta and Air Malta, are once again fiscally stable.
The government released a statement on the publication of this update, in which it reaffirmed its commitment to achieving better results to assure the wealth generated by the country reaches everyone.
Finance Minister Edward Scicluna commented, “This upgrade for Malta follows closely on the heels of Fitch’s outlook upgrade.”
He went on to say that “they both confirm that Malta’s economic growth model is indeed sustainable. These upgrades increase our country’s attractiveness to foreign investment, which in turn leads key to a further significant increase in the standard of living of families recorded in recent years.”