The latest report by the rating agency Fitch gives a clean bill of health to Malta’s economic situation with all major indicators pointing in the right direction. An A rating with a positive outlook for a small country at a time when economic growth in the EU remains sluggish as an achievement.
Some indicators are indeed encouraging. In 2016, GDP real growth amounted to 3.9 per cent and a similar rate of growth of 3.3 per cent is projected for 2017-2018. National income per head is improving when compared to the median of ‘A’ rated countries.
This economic growth is both the cause and the effect of ‘robust private consumption’. As unemployment levels are at a historically low level, people feel they can afford to spend more both on consumables and durable goods.
Growth was also experienced thanks to a strong export performance in the pharmaceutical, remote gaming, financial services and tourism sectors, probably helping Malta to achieve a solid current account surplus in the next few years.
Foreign direct investment remains robust at 47 per cent of GDP.
The national debt has gone down to 59 per cent of GDP just below the 60 per cent maximum limit imposed by the EU regulations, even if this figure does not take into account government–guaranteed liabilities to state-owned companies. A welcome comment is that Enemalta is now considered as a ‘profitable company’ thanks to the electrical energy supply restructuring.
The fiscal deficit is estimated to have reached 0.7 per cent in 2016 and is expected to fall even further in 2017. The fly in the ointment is expected to be the next stage of restructuring of Air Malta. Fitch says the government expects private investors to take a stake in the airline during 2017. But details about how this will be achieved remains a mystery as the government is unlikely to divulge its plans any time before the next election.
A rating agency grading is significant as it gives a snapshot of how analysts perceive the economic health of a particular country or company. Analysts also give a medium-term prediction of how they see economic developments evolving based on what is known at the time of writing their report.
But for a more thorough long-term view of the economic prospects of a country, one has to undertake some deep soul-searching to understand the social and economic risks that might evolve in the future. The health sector reforms, for instance, will have a direct effect on the country’s economic prospects in the next decade and beyond. It is still not clear for many analysts where the present reforms are heading.
Are we moving to a strategy of privatisation of some of the health services? How will this impact ordinary people who are already feeling the effects of limited resourcing in the public health system?
The housing market is probably in a boom phase, helping local banks to be more profitable but exposing them to a major risks should there be a sudden downturn in the market. Fitch itself downgraded Bank of Valletta in the last few months as it argued that it needed to raise its capital to increase its cushion against possible downside outcome of concentration risk.
The clean bill of health by Fitch is likely to raise expectations for wage increases by trade unions, which, understandably, feel they need to share in this bonanza. Managing people’s expectations may be difficult so near a general election.