Ratings agency Moody’s has upgraded Malta’s government bond rating outlook from negative to stable as it forecast improved economic recovery and a stabilisation of the national debt.

“The first key driver underpinning today’s rating action is Moody’s expectation that Malta’s government debt metrics will stabilise in 2014 given the country’s economic recovery and the newly elected government’s commitment to fiscal consolidation,” the agency said in a statement yesterday.

Maltese government bonds already enjoyed the topmost triple A rating but Moody’s yesterday changed the outlook back to stable from negative. The agency had downgraded Malta to A2 with a negative outlook in September 2011. The rating was upgraded back to A3 a year later but the outlook remained negative. Moody’s said its decision was motivated by an expected stabilisation of the country’s debt by 2014, given a moderate economic recovery and the Government’s commitment to fiscal consolidation.

It also highlighted the country’s easy access to funding and limited risk of contagion from the euro area crises. The agency also commented positively on the resilience of the Maltese banking system, which “follows a very conservative and traditional model that has not presented problems... even through the worst of the financial crisis”.

In its economic analysis, the agency noted that Malta’s economic output growth remained subdued the first part of 2013 after falling in 2012 to 0.8 per cent, from 1.6 per cent in 2011.

However, the rating agency said it expected that real GDP growth would recover, albeit remaining below potential, to 1.3 per cent in this year and two per cent in 2014 as domestic demand recovers, underpinned by low unemployment and rising real wages.

It also predicted that the budget, which was first adopted by the previous administration, would only likely take full effect in the second half of the year given delays associated with the March elections and government transition.

Yesterday’s statement comes after Moody’s gave a relatively positive review of the government’s energy plan, saying that a gas-fired power station built by the private sector, converting existing plants to gas and linking to the European grid should “decrease fiscal vulnerabilities” and bolster competitiveness. It also warned that the plan was “ambitious”.

The development also comes a month after ratings agency Fitch downgraded Malta’s credit rating from A+ to A.