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Reason for being of rating agencies

The major rating agencies have assumed a strong position in the financial world, both in regard to sovereign states as well as to the parastatal and corporate sectors. Their assessments are looked forward to with anticipation by lenders and with trepidation by borrowers. They are not infallible, but the attention paid to their analytical assessments are placed somewhere in that category.

That rating agencies are not infallible was proven in the sub-prime crisis in the US and elsewhere five years ago. Securitisation reached a peak with mortgage lendings bundled together and offered as AAA securities with the blessing of the rating agencies. When the roof fell in the agencies took a lot of flak but did not suffer from calls for compensation.

In fact it was quite amazing, even disconcerting, how rapidly the rating agencies reacquired their standing in the financial world. That goes to show the reliance on them by both borrowers and lenders who, aside from making their assessments, want to rely on independent opinions.

The fact that the reach of the rating agencies went out to the top sovereign states, including the likes of the US and Britain, added to their relevance. Malta too falls in the catergory where the opinion of the rating agencies in our regard is given very heavy weight. Opinions tend to relate only to Malta as a sovereign state, to Enemalta Corporation and Bank of Valletta.

The opinion of the rating agencies serves more to fuel attention and a lot of controversy over here than to offer any guidance in the credit markets. As a sovereign state, Malta has minimal foreign borrowings. So does Bank of Valletta. Enemalta has larger exposure, which is guaranteed by the State of Malta, which makes the ratings of the island relevant.

Such ratings add to the analysis regularly made by the apparatus of the European Union and less frequently by the International Monetary Fund. They are further benchmarks against which to measure the forecasts given by the Minister of Finance in the annual Budget speech and the actual data on financial and other indicators as they are released during the year. As such, they offer good fodder for the political parties to use in their endless confrontational debates which often take the style of diatribes. Such style aside and without considering the ratings as sacrosanct they are useful for the public, and for potential foreign investors, to assess where Malta stands and, more important still, where it is heading.

Had there been statements by the Labour Party that, once in government, it would reverse the privatisation process no privatisation would have taken place

The latest rating of Malta by Standard and Poor’s has to be seen against this background. Rather surprisingly it did not arouse much debate. So far, at least. Surprisingly because it gives a very positive assessment of things as they stand in the context of the government’s promise and measures to bring down the cost of energy supplies, for both domestic and commercial consumers.

The promise and the steps taken so far have been welcomed by the rating agency. The government quickly highlighted that in its reaction. The Opposition, on its part, remained silent. There were points against it in the assessment regarding energy tariffs. But, to the extent that the economy continues to perform well, that is in large part a legacy of structures built by the Nationalist governments between 1987 and 1996 and 1998 and 2013.

Credit has to go where it is due. That said, the most important part of the latest credit rating was that concerning outlook. In that area Malta was given a stable rating. Meaning that, other things remaining equal, there should be positive economic performance over the next two to three years.

Will things remain equal? One can never tell. No one but the foolhardy will try to forecast events. At present all the focus seems to be on the the Individual Investment Programme concerning citizenship and what it takes for suitable foreigners to acquire it. Instead of trying to converge on a suitable instrument that could be marketed for the good of present and future generations it has become a political football kicked savagely all over the place. Had this attitude prevailed during the years when various Nationalist governments privatised chunks of state-owned assets, something which the then Labour Opposition disagreed with, the situation would be very different. Had there been statements by the Labour Party that, once in government, it would reverse the privatisation process no privatisation would have taken place.

Such a negative attitude by the Opposition of the day makes the country ungovernable. Meanwhile, while the debate on citizenship rages on the economy is ticking away with its successes and problems. Most important of all Malta Enterprise, tasked with attracting new foreign investment and looking after the existing industrial set-up, is busy getting on with its work.

The results achieved, together with initiatives taken by Maltese entrepreneurs, are what count for a stable outlook to be truly realised. That is what counts, as the rating agencies will no doubt be pointing out in reports that will follow in the coming months and years.

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