Rating agency Standard & Poor’s has affirmed Malta’s sovereign credit rating at BBB+/A-2 with a stable outlook.
S&P said that the Government had a strong electoral mandate that favoured reforms but noted that tight public finances and a high debt burden would constrain its flexibility.
The ratings were supported by S&P’s view of the “relatively strong institutional and govern-ance effectiveness and its prosperous economy”.
The agency said that the Labour Government was going about tackling long-standing issues such as energy sector, healthcare and pension reforms.
“However, even with its strong mandate, implementing these reforms will likely pose challenges,” it said.
With government debt at an estimated 73 per cent of GDP and guaranteed debt at an additional 17 per cent, room for manoeuvre was limited, S&P noted.
The rating agency expected GDP per capita growth to increase marginally to 0.7 per cent this year and to remain below pre-crisis rates for the next few years.
“Given the fragile growth outlook, we believe the Government will likely adopt further consolid-ation measures if it is to meet this year’s budgetary deficit target of 2.7 per cent of GDP,” the agency said.
S&P warned that keeping electoral promises to reduce energy tariffs could become “a fiscal drain” unless a plan to cut Enemalta’s overheads was implemented on schedule.
Delays or obstructions to proposed age-related reforms such as raising the retirement age and reducing subsidies for medication could also hamper spending cuts, the agency said.
“We therefore expect that, absent further measures, the Government’s deficit will remain marginally above target during 2013-2016. At the same time, if the Government can successfully implement reforms, this will likely boost the longer-term growth outlook for Malta.”
S&P noted that Malta’s growth performance was one of the strongest in the eurozone, with real GDP per capita averaging just below one per cent annually between 2007 and 2012. Manufacturing and services exports have been key drivers of the economy. However, the composition of growth was changing and S&P projected that the net export contribution would decline as imports slowly increased.
Long-standing structural labour market issues, such as low female participation and a skills gap, are dampening the domestic demand’s contribution to growth.
S&P said Malta’s domestic financial system appeared stable and the presence of internationally-oriented banks posed little threat to the Government by way of contingent liabilities.
The Government welcomed the rating and described it as a positive result for the country.
It was a “result which should encourage us to address the challenges ahead while striving to sustain stability, incentivise investment and create more employment for the well-being of all”.
The decision was also welcomed by the Nationalist Party, with economy spokesman Mario de Marco saying this was the fruit of “the wise decisions” taken by Nationalist governments along the years.