Ratings agency Moody's has confirmed Malta's A1 rating.
"The rating reflects high levels of economic and institutional strength, high government financial strength and very low susceptibility to event risk," the agency said.
"The assessment of high economic strength is based on Malta's progress towards real convergence with the rest of the eurozone.
"While competitiveness in some traditional export industries is decreasing as a result of real income convergence (textiles, electronics), market liberalization and EU/EMU membership are boosting new export-oriented activities such as pharmaceuticals, e-gaming, engineering, and financial and business services."
The agency, however, said that some However, somerating concerns remain due to the still relatively low diversification of the economy
It said that the country had clearly benefited from its accession to the EU in May 2004 and to the EMU in January 2008 through the related improvement of its economic and social institutions.
"The government made significant progress towards fiscal consolidation in the years prior to EMU accession, but the fiscal situation has deteriorated since then, and the country missed the Maastricht deficit criterion of 3% of GDP in 2008 and 2009 by considerable margins."
Still, it said, Malta's susceptibility to event risk is very low, mainly because its adoption of the euro has effectively eliminated the risk of a balance of payments crisis. Malta's banks also weathered the global financial crisis relatively unscathed.
"However, concentration risk is considerable, and banks are highly exposed to the local real estate sector."
Moody's said the rating outlook is stable.
"Malta's rating is one of the lowest among eurozone members, hence its A1 rating would likely tolerate some deterioration of the debt metrics or a gradual loss of competitiveness, provided that any such development be in line with peers and relatively short-lived," it said.
The rating would move upward should fiscal restraint meaningfully reduce the deficit and result in a strengthening of debt affordability. Moreover, implementation of measures that mitigate the impact of rising pension and health care costs for public finances would also exert upward pressure on the rating.
The rating would likely go down should prolonged fiscal slippage re-emerge, leading to a substantial accumulation of additional government debt.
It noted that the government expects the deficit to fall to 2.9% in 2011, largely due to reduced personnel costs and intermediate consumption by ministries; it plans to reduce staff numbers by not replacing all workers who retire or resign from the civil service and is also trying to strengthen the link between public-sector compensation and productivity.
"Achieving the deficit reduction targets will in part be determined by the speed of Malta's economic recovery, which we think could be somewhat slower than the government anticipates given the fiscal austerity measures being undertaken in some of Malta's key export markets."