Standard & Poor’s cuts Malta rating

Malta’s credit rating, along with that of several eurozone countries, was yesterday downgraded by one notch by rating agency Standard and Poor’s.

The decision reflects the “deepening political, financial and monetary problems” within the eurozone, the rating agency said.

Malta’s rating was downgraded to AA2 from AA1.

Finance Minister Tonio Fenech expressed concern at Standard and Poor’s decision to downgrade the rating of half of the eurozone but, given the prevailing economic climate, was not entirely surprised either.

The rating agency had in December put all the eurozone on credit watch as the bloc struggled to reach a deal to stop the sovereign debt crisis from spreading to other countries.

The eurozone’s second, third and fourth largest economies – France, Italy and Spain – were also downgraded yesterday.

Mr Fenech said the downgrade would not have an impact on Malta’s debt servicing because government bonds were primarily taken up by the domestic market. But the impact on other countries was worrying, he said.

“Such a downgrade reduces investor confidence and may accelerate the onset of a recession, which will, undoubtedly, have an impact on our exports and jobs,” Mr Fenech said.

Malta was included in this downgrade exercise despite receiving a positive bill of health on its public finances this week from the European Commission after the government agreed to previously unannounced expenditure cuts.

“Unfortunately, the rating agency has a more negative assessment and outlook of the situation in the eurozone despite the fact that the December summit agreed on decisive action to stem the sovereign debt crisis,” Mr Fenech said.

The rating agency’s decision, he added, confirmed the government’s “responsible and prudent” approach to take further cost-cutting measures as a result of the deterioration in the international economic and financial situation since the announcement of the Budget for 2012.

“It is only through prudence that stability, which is critical in safeguarding economic growth and job creation, can be maintained,” Mr Fenech said, while taking a dig at the Labour Party for criticising the expenditure cuts.

According to Standard and Poor’s, the eurozone agreement reached on December 9 has not “produced a breakthrough of sufficient size and scope to fully address the eurozone’s financial problems”.

In a joint statement, the eurozone member states, including Malta, reaffirmed that the fiscal compact included far-reaching measures to overcome the crisis, ensure sound public finances and return to a path of growth and job creation.

ksansone@timesofmalta.com