Fitch confirms Malta's A+ ratings

Fitch Ratings today affirmed Malta's long-term foreign currency and local currency Issuer Default ratings (IDRs) at 'A+' with Stable Outlooks.

Fitch also affirmed the Short-term IDR at 'F1'and Country Ceiling at 'AAA', the common country ceiling for the euro-area.

"The rating affirmation follows Malta's successful adoption of the euro on January 1 2008 and reflects the sharp consolidation of the public accounts in recent years in advance of joining EMU and the government's sponsorship of reforms to enhance growth and competitiveness," said Chris Pryce, Director in the Sovereign Group.

"The government is now expected to take advantage of its renewed electoral mandate to further constrain the growth of public spending while continuing its reforms in education and training. These are needed to enhance competitiveness and attract foreign direct investment which will remain central to the development of the economy."

The ratings agency said Malta's 'A+' rating is supported by healthy governance indicators reflected in strong institutions, a well capitalised banking system and membership of the euro area which reduces exchange rate and external financing risks. GDP per capita is in line with the 'A' range median of USD17,500 but still well short of the average of USD31,300 and USD29,800 for the euro area as a whole and the 'AA' median respectively.

It observed that public debt is still high relative to 'A' rating category norms but its continued decline assuages concerns, while recent structural reforms should help the economy to diversify, supporting medium term growth.

"The recent improvement in Malta's fiscal position has been quite dramatic. In the past four years the public spending ratio was cut from 47.8% of GDP in 2003 to 42.5% in 2007, at which level the agency now expects it to stabilise. Over the same period revenue rose by just under 3% of GDP and subject to cyclical developments will continue to rise albeit mildly for some years," Fitch said.

"The impact on the public debt ratio was equally pronounced. Having risen during the decade of fiscal laxity from under 40% of GDP to top out at almost 73% in 2004, it fell back below 63% by end-2007."

Fitch said it detected no evidence of a slackening fiscal resolve now that Malta was a full member of EMU and the outlook was for a continuing fall taking the ratio below the Maastricht 60% criterion within the next two years.