Fitch agency yesterday confirmed Malta’s ‘A’ rating, saying its public finances remained a weakness but were “on an improving trend”.
It envisaged a stable outlook for the country, noting GDP growth was outperforming the eurozone average and was expected to grow by 2.5 per cent in 2015-2016.
The agency, however, reiterated its concern that Enemalta was the country’s biggest liability and the “main risk for 2015”.
Adopting the Fiscal Responsibility Act could help anchor fiscal policy, particularly growth in public expenditure
On Malta’s deficit, Fitch praised the efforts that have brought the situation under control following the significant fiscal slippage of 2012.
“Deficit reduction in 2013 reflected strong increases in income tax and indirect tax receipts. Fitch expects a deficit of 2.5 per cent of GDP in 2014 and 2015, closer to the rating median of 2.1 per cent,” it said.
However, the agency warned of slippages in expenditure, particularly in the areas of healthcare, social security and transport.
Although it said it did not expect this to affect the deficit targets, it warned that continued slippages could pose a risk to public debt reduction efforts.
“In this respect, the adoption of the Fiscal Responsibility Act could help anchor fiscal policy and particularly growth in public expenditure,” it said.
Fitch noted that Malta’s economy had grown by 2.9 per cent last year, up from the 1.1 per cent growth achieved in 2012.
This growth was much higher than the eurozone average (negative 0.4 per cent) but still below the 3.4 per cent median of ‘A’-rated countries over five years, it said. Real GDP grew by 3.5 per cent in the first six months of 2014, mainly driven by domestic demand and underpinned by the reduction in electricity tariffs and favourable labour market conditions.
At 5.7 per cent in July, the unemployment rate is below both the ‘A’ median and the eurozone average, the agency said, noting that the employment rate had increased mainly due to a higher female participation rate.
“The decline in unemployment therefore took place against the backdrop of a strong increase in the labour force,” its report said.
On Enemalta, Fitch warned that the government’s decision to reduce energy tariffs for businesses by March next year could negatively impact the corporation’s profitability, should cost saving efforts fail to materialise.
The outlook for the energy company is based on the assumption that the deal between Enemalta and Shanghai Electric Power Company is finalised before the end of the year.
Shanghai Electric has agreed to acquire a 33 per cent stake in Enemalta to increase its profitability and reduce its debt.
Fitch said the agreement “should be presented to the Maltese Parliament”.
Commenting on Malta’s banks, Fitch said these were well-capitalised and did not need government intervention.