The international credit rating agency Standard & Poor’s yesterday downgraded Malta’s long-term rating, shifting the election debate from energy to the economy.

Standard & Poor’s expressed concern over the level of government debt, flagging specifically that of Enemata, and argued that the fact that the Budget had not been approved by Parliament raised questions about the Administration’s ability to address its budgetary risks.

As a result, Malta’s long-term sovereign credit rating was lowered to BBB+ while the short-term sovereign credit rating was kept at A-2, as was the stable long-term outlook.

The news comes at an unwelcome time for the Government, whose economic track record forms the central plank of its electoral campaign.

In a press conference yesterday morning, Finance Minister Tonio Fenech blamed Labour for the result, pinning the downgrade on the fact that the Budget did not go through.

The Opposition had “irresponsibly” scuttled the Budget despite having agreed with its measures when the Prime Minister had given Opposition Leader Joseph Muscat other options for registering its lack of confidence in the Government.

But in his reaction, Dr Muscat said Mr Fenech’s arguments were puerile. In reality, he said, S&P had flagged the same problems with government and Enemalta debt that were highlighted by Labour in past years but which were consistently ignored or downplayed by the Nationalist Party.

Moreover, he argued that the agency’s analysis had actually corroborated Labour’s argument that something needed to be done about Enemalta sooner rather than later and that the country could not wait another seven to eight years for the PN’s energy alternative.

S&P commented positively on Malta’s strong political institutions and its relative resilience but argued that this view was counterbalanced by the size of the Government’s debt burden – guaranteed debt of state-owned companies worth almost 20 per cent of GDP, on top of an estimated gross debt burden of 75 per cent of GDP in 2013.

“Given its high government debt burden, Malta possesses limited fiscal space to counter prolonged periods of lower growth,” S&P said, arguing that the economy was impaired by relatively large contingent liabilities that stemmed from Malta’s sizable financial system (estimated at 600 per cent of GDP) and Enemalta.

“Recent progress on Enemalta’s restructuring could reduce the amount of government guarantees and reduce the overall stock of contingent liabilities. However, we anticipate Enemalta will remain loss-making over the foreseeable future.”

In a more detailed comment on repercussions of the Government’s collapse, S&P said while a fiscal rule limited expenditures was in place, “we expect the 2012 deficit, at just under three per cent of GDP, will exceed its target of 2.2 per cent”.