Malta retains high credit rating but warned over property and Enemalta

International credit rating agency Standard and Poor’s kept Malta’s favourable A/A-1 rating but warned about possible problems with Enemalta and the property market.

It said Malta’s economy had weathered the global economic crisis relatively well and predicted a growth of about one per cent this year. However, Standards and Poor’s pointed to lingering problems such as the size of the growing government debt burden, estimated at 74 per cent of GDP in 2010, and potential liabilities from Enemalta Corporation and the property sector, which heavily impacted on the health of the banks and the economy at large.

“Risks from Enemalta and the financial sector could put downward pressure on Malta’s creditworthiness if plans to reform its business model prove ineffective or if there is a downward revision of property prices... A significant decline in the debt burden would also support higher creditworthiness. Conversely, in the case of sustained and significant fiscal deterioration, or further deterioration in the competitiveness of the economy, the ratings could come under pressure.”

The agency expressed confidence in Maltese political institutions and their commitment to “reinforcing sustainable public finances”.

“The stable outlook balances our expectation of continued fiscal consolidation against the difficulties of increasing competitiveness in combination with a high debt burden,” said Benjamin Young, Standard & Poor’s credit analyst.

The Maltese economy contracted by 2.1 per cent in 2009 as external demand for key exports – particularly tourism and exports of electronic goods, the main drivers of growth – collapsed during the global recession. A 16 per cent contraction in real investment levels from 2008 also contributed to this reduction. “We expect that growth will return to one per cent in 2010 as external and domestic demand start to recover but believe that gains in competitiveness are needed to secure high growth rates over the medium term,” Standards and Poor’s said.