10.30am Updated with Finance Ministry comments
Malta will likely see economic growth of 4.1 per cent this year, on the back of solid consumer spending and investment, Moody's Investors Service said in a new report.
"While we expect economic growth to moderate this year, our forecast remains strong compared to its peers in Europe. Key drivers of Malta's economy are domestic consumer demand and investment, with tourism rising six per cent in 2015," Evan Wohlmann, analyist and assistant vice president said.
“While there are potential upsides that could boost Moody's 2016 forecast for Malta, various factors will continue to constrain economic growth, including challenges related to resource allocation and the small size of the domestic market with a population of just over 400,000.
“In Moody's view, Malta's government has also made significant progress on reforms in the energy sector and the labour market, in line with recommendations from the IMF and the European Commission. However, it is too early to conclude that these policy initiatives have met their intended objectives.
Moody's noted that while a credit challenge was Malta's relatively high general government debt burden, fiscal consolidation is progressing.
It expected debt-to-GDP to fall below 60 per cent by 2017, based on the fall in Malta's fiscal deficit to 1.5 per cent of GDP in 2015 and a likely further decline in the deficit in 2016-17.
Another key credit constraint was Malta's reliance on domestic sources of funding, which made it vulnerable to the health of the banking system.
However, the rating agency assessed risk emanating from the banking sector as 'low', balancing the system's significant size against the low contagion risk between constituent segments, with international banking activities largely insulated from the domestic system.
In addition, Malta's energy sector reform has moved ahead, which should allow the government's material contingent liability risks to public utilities to decline in the coming years.
The island's previously loss-making energy service provider, Enemalta, was the most prominent source of contingent liability risk, although the firm's ongoing restructuring and the progress achieved as part of the broader energy reform should allow the company to become financially viable.
Finance Ministry welcomes report
Finance Minister Edward Scicluna said that the report augured well.
"Moody’s, along with other independent international institutions, are expecting the robust economic growth recorded in the recent years to remain so in the coming years," he said.
Prof. Scicluna attributed this to "various reforms and initiatives undertaken by this Government to boost private consumption and investment."
A ministry statement said that the setting up of a National Credit Registry "will, over time, improve the World Bank Doing Business Report’s rankings."