Moody's sees 'promising' niches for Malta

Moody's Investor's Service said that new promising niche activities for Malta could include the repair of super yachts, back office administration and special interest tourism such as language teaching, culture and cruise liners.

Moody's also noted that in the medium and long run, Malta was well placed to develop higher valued-added technology-based industries and services. Its workforce was relatively well educated and competitively priced.

Moody's outlook for Malta's ratings was recently changed to stable, reflecting the expected far-reaching structural reforms most of which are guaranteed by compliance with EU requirements.

Yesterday's credit report was an annual update to the markets and not a formal action to alter the credit rating of the issuer.

It said that Malta's A3 ratings were based on new development opportunities for the small island economy deriving from entry to the European Union in May 2004.

While the 2003 referendum and general election both irrevocably secured Malta's future in the EU, the election results provided a clear new mandate to the government to press forward with the EU harmonisation effort, with crucial progress still needed in certain sensitive areas that promoted the further liberalisation of the economy in order to comply with the EU acquis communautaire, Moody's said.

"The challenges faced by the island are mainly of a fiscal nature: public finances have registered sizable deficits in recent years and government debt has exceeded the 60 per cent ceiling set by the Maastricht criteria," Bernard Musyck, author of the new report, said.

"Malta's budget for 2003 does not provide for significant cost cutting and public finances are still overburdened by generous social security benefits.

"Moreover, actuarial studies for the much-needed reform of the pension system have still not been concluded," the analyst added.

Although the government's privatisation plans might accelerate because of EU membership rules pertaining to economic liberalisation, competition policy and state aid, Moody's noted that no significant proceeds from sales of public assets were expected in the near future.

The current account deficit, at just under five per cent of GDP during the last few years, reflected flat exports in the electronics sector and a contribution from tourism that has been curtailed by world events, Moody's noted.