The month of February finished on a high note for the economy of Malta, as it received a double vote of confidence from two major rating agencies, Moody’s and DBRS.
Moody’s upgraded the outlook on the country’s credit rating, “A3”, from “stable” to “positive”. It was Malta’s first positive rating action from Moody’s since October 2013. The agency added that if improvement of the country’s fiscal position is sustained, it would result in a future upgrade to an “A2” credit rating.
DBRS also raised Malta’s rating to “A High” from “A” on February 23, which is the highest rating ever given to the country.
The catalyst for the double upgrade was the credible improvement of Malta’s public finances, on the back of strong economic growth. The country’s GDP is estimated to have increased by an impressive 6.9% in 2017. According to the European Commission’s Winter 2018 Interim Economic Forecasts, the Maltese economy will grow by 5.6% this year and by 4.5% in 2019. While future rates point to a slowdown from 2017, they are still the highest projected rates in the entire EU and are more than double the projected EU average of 2.3% for 2018 and 2.0% in 2019. DBRS referred to Malta’s gaming industry as one of the most important sectors in the Maltese economy, but insisted that several others were also crucial for growth.
The agency projects that Malta’s public debt ratio will drop to 41% of GDP by 2022 (from 59% in the first quarter of 2017), which is 7% lower than previous estimates. The rating agency also stated that the general government is expected to have exceeded its fiscal targets in 2017. Moody’s estimates that Malta achieved a fiscal surplus of 1.5% in 2017, against a 3.5% fiscal deficit in 2012. Both agencies highlighted the efforts being made by the Maltese Government to lower the scope of corruption and strengthen its institutions.
It is worth noting that the third of the “Big Four” international rating agencies, Fitch, confirmed Malta’s A+ rating on February 10th. It noted that strong growth in 2017 was boosted by a robust net trade contribution. “However, domestic demand will also remain strong, with declining unemployment (estimated at 4% in 2017 down from 4.7% in 2016) and an increase in wages pushing up private consumption. Increased absorption of EU funds and launching of large projects in health and education sectors will bring back equipment and machinery investment to positive growth,” Fitch said. The ratings agency predicts that the economy’s structural shift from investment-intensive sectors towards more service-oriented sectors will lead to a sustained surplus of 9.7% average on the current account forecast in 2018-2019.
As for the last of the “Big Four”, Standard & Poor’s maintained Malta’s sovereign credit at “A-“ on September 2017, but raised the country’s outlook from “stable” to “positive”. “The positive outlook reflects that we could raise ratings on Malta over the next 24 months if economic growth remains in line with our expectations,” S&P said, while adding that Malta’s ratings are supported by strong growth performance, with consistent current account surpluses, and the narrowing of government deficits.