Moody’s confirms Malta’s A1 rating

Ratings agency Moody’s has confirmed Malta’s A1 rating, saying it reflects high levels of economic and institutional strength, high government financial strength and “very low susceptibility to event risk”.

“The assessment of high economic strength is based on Malta’s progress towards real convergence with the rest of the eurozone,” the agency said.

“While competitiveness in some traditional export industries is decreasing as a result of real income convergence (textiles, electronics), market liberalization and EU/EMU membership are boosting new export-oriented activities such as pharmaceuticals, e-gaming, engineering and financial and business services.”

The agency, however, said that some concerns remain in connection with the still relatively low diversification of the economy.

The country had clearly benefited from accession to the EU in May 2004 and to the EMU in January 2008 through the related improvement of its economic and social institutions.

“The government made significant progress towards fiscal consolidation in the years prior to EMU accession, but the fiscal situation has deteriorated since then, and the country missed the Maastricht deficit criterion of three per cent of GDP in 2008 and 2009 by considerable margins.”

Still, it said, Malta’s susceptibility to event risk is very low, mainly because its adoption of the euro has effectively eliminated the risk of a balance of payments crisis. Malta’s banks also weathered the global financial crisis relatively unscathed.

“However, concentration risk is considerable, and banks are highly exposed to the local real estate sector.” Moody’s said the rating outlook is stable.