Malta has retained its A3 credit rating with a “healthy” economic outlook according to Moody’s, but the credit rating agency is reserving judgement on the Enemalta reform.

The agency is forecasting an economic growth of 2.8 per cent next year and a deficit dropping to 1.7 per cent. However, the State energy company is described as the “most prominent source” of contingent liability risk as a result of the high debt guaranteed by the government, equivalent to 10 per cent of GDP.

“Despite the company’s ongoing restructuring and the progress achieved under the energy reform, it is too early to assess whether the new framework will allow the company to become financially viable,” Moody’s noted in its 26-page assessment released yesterday.

The government is in the process of roping in Chinese firm Shanghai Electric Power as a strategic partner in Enemalta with a 33 per cent stake and shifting electricity generation to gas with the building of a new power station and LNG terminal by Electrogas, a private company.

Moody’s attributes the economy’s strength to the good performance of a growing services sector

Moody’s made no reference to the government’s recent admission that the gas power station project has slipped its March 2015 deadline.

But the agency noted that the participation of several private and experienced energy providers limited implementation risk.

The stable credit rating should come as good news for a government facing mounting criticism on its energy reform programme after it became apparent the gas project was delayed.

The Opposition also raised the prospect that the delay could impact Malta’s rating.

Moody’s attributes the economy’s strength to the good performance of a growing services sector and the government’s access to “a large and reliable domestic funding pool” – such as government stocks – supported by a high deposit base.

The contribution of the services sector, which includes tourism, to gross value added grew to 81 per cent last year from 73 per cent in 2004, compensating for a decline in construction and manufacturing. The contribution of the construction sector halved to four per cent during the same period while manufacturing dropped to 13 per cent from 17 per cent.

Moody’s said real growth next year would be fuelled by higher domestic consumption and capital formation.

It commended the initiatives to target inefficiencies in the labour market, such as universal free child care to encourage greater female participation, but noted it was too early to conclude whether the policies have succeeded.