S&P confirms Malta's ratings, outlook stable

Ratings Agency Standard & Poor's has affirmed its A/A-1 sovereign credit ratings on Malta and said the outlook was 'stable'.

"The stable outlook balances our expectation of continued fiscal consolidation in the medium term against the challenges of the economic reform agenda in combination with a high debt burden," the agency said in a statement.

"The ratings on the Republic of Malta are supported by the sovereign's strong political institutions and a commitment to economic reforms, which we believe are needed to maintain competitiveness."

It said the ratings were constrained by Malta's narrow economy, which was vulnerable to external shocks, and by the seizable public sector debt burden.

"The government is supporting the private sector's diversification into higher value-added manufacturing, as well as into new services sectors, in particular information and communications technology (ICT). This ongoing diversification should decrease the volatility of Malta's growth path and moderate the economy's vulnerability to external shocks, as well as offset the ongoing decline in manufacturing.

"The policy focus on improving the quality of human capital is crucial for implementing this higher growth strategy."

The agency noted that last year the general government deficit had deteriorated significantly to 4.7% of GDP after several years of fiscal consolidation.

"We expect the government to consolidate its fiscal position once the economy starts to recover, but at a modest pace. We also expect general government debt (including the state-guaranteed debt of Malta Freeport Corp. Ltd.) to remain at around 70% of GDP in the coming few years before starting to trend down towards the end of the forecast period."