Moody's praises Malta's economic resilience
Warns about oversized and inefficient public sector, and over-reliance on public subsidies
Moody's Investors' Service has praised Malta for its economic resilience.
In a report issued today, the ratings agency said: "Malta's A1 government ratings reflect the country's high economic resiliency and its very high financial robustness.
"The country's primary challenge is to maintain economic competitiveness over the longer term, building on and securing its success in attracting investment in fields such as remote gaming, financial services, call centres and pharmaceuticals.
Dietmar Hornung, Vice President-Senior Analyst in Moody's Sovereign Risk Group and author of the report, said that Malta has made substantial progress towards real convergence with the rest of the eurozone.
"Although competitiveness in some traditional export industries is decreasing as a result of real income convergence, market liberalisation and EU membership are facilitating new export-oriented activities.
"Key to addressing the competitiveness issue will be making progress on structural reforms associated with the EU's Lisbon Agenda.
"Areas of weakness for Malta include an oversized and inefficient public sector, an over-reliance on public subsidies, insufficient spending on research and development, and a low female participation in the labour force," said Mr. Hornung.
"These problems will be exacerbated in coming years due to the ageing population," he warned.
The analyst noted that Malta's institutional strength benefited from the EU accession process.
"Now, the risk of economic disruption from the political cycle is far less than it has been historically, not least because of the heavy constraints on economic policy that are imposed by Malta's membership of the EU and its adoption of the euro,"
Moody's said it also considered Malta's susceptibility to event risk as being very low.
"For one thing, its adoption of the euro has effectively eliminated the risk of an external financial crisis. Malta's banks also weathered the initial stage of the crisis relatively unscathed, but their concentration risk is considerable, given their high exposure to the real estate sector.."
The outlook on Malta's government ratings is stable but Moody's said it saw a clear need for Malta to address its structural economic problems if it was to continue its real convergence with core eurozone countries and remain competitive over the longer term.