The credit agency Standard and Poor's has affirmed the long- and short-term sovereign credit ratings on Malta's rating at 'BBB+/A-2' - outlook stable.

The government welcomed the decision and described it as a positive result for the country.

"A result which should encourage us to address the challenges ahead while striving to sustain stability, incentivise investment and create more employment for the well-being of all."

The decision was also welcomed by the Nationalist Party.

Economy spokesman Mario de Marco said that this was the fruit of the wise decisions taken by Nationalist government along the years for the economy to continue to grow and create employment.

In its commentary, S&P said the new government had a strong electoral mandate that favoured reforms.

"However, we believe tight public finances and a high debt burden will constrain the government's flexibility, particularly as we forecast growth will remain below pre-crisis levels.

"We are affirming our long- and short-term sovereign credit ratings on Malta at 'BBB+/A-2'.

The stable outlook balances our view of improving prospects for economic reform against Malta's recurrent fiscal and external deficits.

The transfer and convertibility assessment remains at 'AAA'.

S&P said the ratings were supported by its view of Malta's relatively strong institutional and governance effectiveness, and its prosperous economy.

However, a sizable government debt burden and external imbalances constrained the ratings.

"We note that the new Labour Party government is progressing with the details of a wide-ranging reform agenda. It is tackling long-standing issues such as energy sector reform, and health care and pension reforms.

"However, even with its strong mandate, implementing these reforms will likely pose challenges.

"Further, with gross general government debt at an estimated 73 per cent of GDP in 2013 and government guaranteed debt at an additional 17 per cent of GDP, we view the government's room for maneuver as limited.

"We expect Malta's real GDP per capita growth to increase marginally to 0.7 per cent in 2013 and to remain below pre-crisis rates for the next few years. Given the fragile growth outlook, we believe the government will likely adopt further consolidation measures if it is to meet this year's budgetary deficit target of 2.7 per cent of GDP."

S&P warned that keeping electoral promises to reduce energy tariffs could become a fiscal drain unless a plan to reduce Enemalta's overheads does not take place on schedule.

Delays or obstructions to proposed age-related reforms such as raising the retirement age and reducing subsidies for medication could also hamper spending cuts.

"We therefore expect that, absent further measures, the government's deficit will remain marginally above target during 2013-2016. At the same time, if the government can successfully implement reforms, this will likely boost the longer term growth outlook for Malta."

S&P noted that Malta's growth performance has been one of the strongest in the eurozone with real GDP per capita averaging just below one per cent annually between 2007 and 2012.

Manufacturing and services exports have been key drivers of the economy. However, the composition of growth is changing, and "we project the net export contribution will decline as imports slowly increase. Long-standing structural labour market issues, such as low female participation and a skills gap, are dampening domestic demand's contribution to growth."

S&P said Malta's domestic financial system appeared stable and the presence of internationally oriented banks posed little threat to the government by way of contingent liabilities.

The subset of the system that was partly funded by domestic deposits and short-term foreign lines, but with no domestic assets, could become increasingly systemically important, however.

"We note that banks in this category have assets of 77 per cent of GDP, with asset quality that appears stable."

Malta's external data, it said, were skewed by the presence of internationally oriented banks, and its reported net external asset position of about 15 per cent of current account receipts did not accurately reflect how its domestic economy compared with that of other rated sovereigns.

"If we exclude these banks from our estimates, Malta appears to be in a net external liability position."

S&P said that on the flow side, Malta's current account was heavily influenced by foreign companies repatriating profits.

"We note that about half of net income outflows have been reinvested through FDI in recent years, which is a substantially smaller proportion than in earlier years.

"However, these outflows are dwarfed by net portfolio equity outflows linked to international banks since 2009."

Malta's current account was marginally in surplus in 2012 as the trade deficit narrowed. Linked to energy policy, a reduction in fuel imports would significantly affect Malta's current account in future.

S&P said that the stable outlook balanced its view of improving prospects for economic reform against Malta's recurrent fiscal and external deficits.

"We could raise our ratings on Malta if the government can implement its reform programme such that it boosts growth and reduces imbalances in its finances quicker than we currently expect, while precluding a return to higher current account deficits.

"Conversely, we could lower our ratings on Malta if fiscal slippages continue, further raising the government's debt burden and its net external liabilities."