Standard & Poor's Ratings Services has affirmed its 'A/A-1' sovereign credit ratings on Malta.
In its report S&P said the he transfer and convertibility assessment remains 'AAA', the same as for all members of the European Economic & Monetary Union. The outlook is stable.
S&P said Malta's political and economic profiles featured stable political institutions, effective policymaking that delivered relatively sustainable public finances and balanced economic growth, and per capita GDP of $20,200 (about 60 per cent of the EU average).
Recent policies helped improve public finances, such as the reduction of energy-related subsidies and limiting spending on public–sector employees.
"We expect the 40 per cent electricity tariff hike between 2009 and 2010 -which will place state-owned and loss-making Enemalta (BB/Negative/-) on a better financial footing - to reduce related government expenditures."
S&P said Malta's historic growth has matched other recent EMU entrants and it expected Malta's real GDP growth to drop below trend to one per cent in 2012, reflecting the deteriorating external environment.
"We had previously expected Malta to grow by 2.5 per cent in 2012. Now, however, we expect that consumption will decline as consumer confidence weakens, while further planned hikes to utility tariffs reduce disposable income."
"We had previously expected Malta to grow by 2.5 per cent in 2012. Now, however, we expect that consumption will decline as consumer confidence weakens, while further planned hikes to utility tariffs reduce disposable income."
S&P said Malta fell in the mid-range of its flexibility and performance profile indicators, comprising external, monetary, and fiscal measures.
"Although Malta has a broadly balanced external position (including direct and portfolio equity holdings), short-term external debt is high as a percentage of current account receipts at an estimated 300 per cent.
"This figure reflects the growth of Malta's international banking activity.
"However, Malta's current account remains in deficit, reflecting consistent net income payments to non-residents.
"Malta's banking system has continued to grow strongly and total banking system assets are estimated at over 750 per cent of GDP in June, after attracting foreign institutions, particularly Turkish, that use the jurisdiction as a booking centre due to its advantageous tax regime."
"Malta's general government deficit has averaged 3.3 per cent of GDP since 2005.
" We expect that the government will miss its 2011 and 2012 fiscal targets of 2.8 per cent and 2.1 per cent by around 0.5 per cent of GDP due to our lower growth assumptions and some underperformance on expenditure restraint.
"We also expect important longer term pension and labour reforms to be slow in implementation.
"Net general government debt, which we forecast will average close to 65 per cent of GDP through to 2014, has grown faster than we expected over 2010 and 2011.
"This is after the government needed to borrow to help the ailing national airline, Air Malta, and also to fund Malta's contributions to the Greek rescue package.
"The government guarantees a stock of debt totalling about 17 per cent of GDP, mostly on behalf on Enemalta, which we expect will continue to be loss making in 2011.
"We estimate the contingent liabilities to the government from the banking system to be moderate under our criteria, at the lower end of the 30 per cent to 60 per cent of GDP band.
"Total assets of the domestic banking system are estimated at over twice GDP.
"The domestic banks (principally Bank of Valetta and HSBC) are exposed to residential real estate.
"House prices increased by almost 80 per cent between 2000 and 2007. By late 2010, they had fallen 12 per cent, before increasing slightly in the first half of 2011.
Additionally, vacant stock is estimated at 23 per cent of the total, leaving the potential for a further correction.
"On the other hand, the domestic institutions have limited exposures to Italy, Spain, Greece, Ireland, and Portugal, of nine per cent of total domestic assets.
"We see upside and downside rating pressures as balanced.
"Upside pressure on the ratings could build, for example, if the government over performs on the fiscal side so that net general government debt falls below 60 per cent of GDP and is expected to remain so.
"On the other hand, given that Malta is a small state of 400,000 people, any adverse developments in particular sectors or with large employers would reverberate through the economy, which in turn could create downward rating pressure."