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Malta upgraded to 'A+' by Fitch

Upgrade returns Malta to 'A+' category after four years

Photo: Shutterstock

Photo: Shutterstock

Updated 8.45am - Added Finance Minister's comments

Rating agency Fitch has upgraded Malta's long-term rating to 'A+' with a stable outlook, noting that the country is fast reducing its debt and growing its GDP. 

Malta's return to the 'A+' category comes just under four years after Fitch had downgraded the country to 'A', with the agency having cited significant fiscal slippage as the reason for the September 2013 downgrade. 

The economy is now faring better, with Fitch saying it expected gross general government debt to decline to 50% of GDP by 2019, with GDP growth remaining strong and the government continuing to record recurrent primary surpluses. 

Finance Minister Edward Scicluna welcomed news of the upgrade, saying "Malta is becoming a solid top performer in economic growth, employment growth, and sound public finances. All this is being confirmed by the rating agencies."

Fitch noted that government-guaranteed liabilities will fall to 9.7% by the end of this year, when the guarantee to Electrogas for the new gas-fired power station expires. Guarantees currently stand at 14.2% of GDP. The agency said no cash injections for Air Malta are currently provisioned for. 

The rating agency said it expects Malta's GDP to grow at a faster clip than its similarly-rated peers, with growth forecast at 4.3% this year, 3.7% the next and 3.5% in 2019. The 'A' median growth rate is 2.9%. 

It said this GDP growth, as well as income from the cash-for-passports scheme, should make up for increased spending on pensions and wages required following the signing of a new collective agreement for the public service.

Pension spending pressure would also be eased by recent reforms incentivising late retirement and lengthening the contribution period, Fitch said, noting that the government had managed to cut social benefit spending by nearly 2 percentage points since 2013.

Fitch said it expects investment to pick up in 2019, thanks to new EU funds becoming available and "the launch of large transport, health and education projects," and added that the government's successful reelection should serve as a stabilising factor. 

The agency pointed out some weak points, noting that Malta's ranking of 76th out of 190 on the World Bank's Ease of Doing Business indicator is significantly lower than that of its similarly-rated peers and that the country's banking sector remains highly concentrated, with core banks accounting for 220% of GDP, international banks 223% and non-core banks 25%. The country's high reliance on imports - its net international investment position rests at 48% of GDP - makes it vulnerable to external developments. 

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