Fitch confirmed Malta’s A rating yesterday as the agency noted its economy was “on the road to recovery”.
With a stable outlook, gross domestic product (GDP) growth will continue to outperform the eurozone average this year and the next, it said.
The agency estimated that the economy will grow by 2.5 per cent this year and 2015.
Fitch noted the economy grew by 2.4 per cent last year, up from 0.9 per cent in 2012 and higher than the eurozone average, which was a decrease of 0.4 per cent.
It said the government had a strong parliamentary majority, which bade well for political stability.
“It also has a strong mandate to reform the energy sector and Enemalta,” it said.
It also has a strong mandate to reform the energy sector and Enemalta
On the downside, Fitch said progress on healthcare and pension reform, considered to be critical for long term sustainability of public finances, was slow.
The agency reiterated its belief that public finances remained “a sovereign rating weakness”, particularly the debt level, which exceeded the average for an A-rated country.
While the deficit is on a downward spiral – Fitch estimates it will go down to 2.8 per cent this year from three per cent in 2013 – the main driver was higher income from taxes rather than lower expenditure.
Fitch estimated expenditure increased to 44.2 per cent of GDP in 2013 from 43.4 per cent a year earlier.
The agency believes that in the longer term, it may be difficult for the government to achieve and sustain primary budget surpluses without making adjustments to expenditure.
Enemalta’s precarious position also got a special mention as a main risk to this year’s fiscal outcome. However, Fitch’s report was drawn up before the agreement with Shanghai Electric Power, a Chinese energy company, was reached this week.
While full details were not yet available, Fitch noted that the company’s acquisition of a 33 per cent stake reportedly had the potential to enhance the utility’s profitability over the medium term and reduce its debt.
The report follows the European Commission’s positive spring financial forecast and was welcomed by Finance Minister Edward Scicluna.
“With this report, the Maltese can put their mind at rest that this government has achieved a sustained economic turnaround and that the country can optimistically look forward to higher economic growth and employment,” he said.
ksansone@timesofmalta.com