S&P affirms Malta's sovereign debt ratings

Standard & Poor's Rating Services yesterday affirmed its long and short-term A/A-1 foreign currency sovereign credit ratings on Malta, following a review.

It also affirmed its A+/A-1 local currency sovereign credit ratings on Malta. The outlook is stable.

In addition, S & P affirmed its A senior unsecured debt rating on Malta Freeport Corp. Ltd's two outstanding bonds, guaranteed by the central government.

"The ratings on Malta are supported by its small but prosperous service-oriented economy, which benefits from sustained improvements in competitiveness and continued integration with the EU," S&P said.

"The policy anchor from the EU, and the potential benefits of EMU membership, create strong incentives for the government to accelerate fiscal consolidation and structural reforms but the existing sizable fiscal deficit and debt stock remain constraining factors on the ratings," credit analyst Eileen Zhang said.

"The ratings on Malta are further supported by its healthy external balance sheet and its sizable inward foreign direct investment (FDI) that mitigates risks stemming from persistent current account deficits."

The agency said it expected the government's commitment to reverse fiscal imbalances to continue, leading to fiscal reforms and the reduction of the general government deficit and debt levels.

"Failure to reduce the fiscal deficit, however, would undermine the prospects of an early participation in EMU and weaken the government's credit standing," Ms Zhang concluded.