Ratings not affected by euro adoption

Ratings agency Standard & Poor's said yesterday that the recommendation of the European Commission and the European Central Bank for Malta and Cyprus to join the Eurozone does not have an immediate impact on the sovereign rating either country.

"The expectation that both Malta and Cyprus will join the EMU in 2008 is already incorporated into the ratings on these sovereigns," said Standard & Poor's credit analyst Eileen Zhang. "As a result, the green light from the European Commission and the ECB has no impact on the ratings."

Malta has an A/Stable/A-1 rating and Cyprus A/Positive/A-1.

The agency said the ratings on Malta are supported by strong political institutions that underpin progressive macroeconomic policy.

"This policy is demonstrated by the government's willingness to pursue fiscal consolidation and the restructuring of the public sector. The ratings are constrained, however, by Malta's small and open economy that is vulnerable to external shocks, as well as by the sizable, although declining, public debt burden."

It said the stable outlook on the ratings on Malta reflects Standard & Poor's expectation that the government's commitment to reversing budget imbalances will continue, leading to further fiscal reforms and a reduction in general government debt.

In addition, the ongoing restructuring effort and the downsizing of the state's presence in the economy are expected to improve the prospects for higher economic growth in the long run.

"As progress unfolds, Malta's creditworthiness is likely to improve. Conversely, significant setbacks in reaching the Maltese government's fiscal targets, especially given the imperative for fiscal discipline within EMU, which Malta is expected to join in 2008, or setbacks in implementing the reform agenda, would undermine Malta's creditworthiness."