Credit rating agency Moody’s has just released a report which announced an updated rating from A3 to A2.
“Continued improvements of Malta’s fiscal strength, on the back of prudent fiscal stance and an enhanced fiscal policy framework” has been incremental in establishing the country’s robust medium-term growth forecasts.
Moody’s report also made reference to the adjustment of the island’s outlook, which changed from ‘positive’ to ‘stable’. “The stable outlook on the rating reflects our expectation that government debt levels will continue to decline in coming years, although at a gradually slower pace as we also expect the growth rate of the Maltese economy to decelerate from the exceptionally high rates registered in recent years”.
Moody’s noted that “it is also based on our expectation from current efforts to address institutional challenges will be maintained and that systemic risks emanating from the financial sector will be contained.”
Government debt projected to continue to decline
Since 2011, Malta’s debt-to-GDP ratio has diminished significantly from a relatively high 70.2% in 2011 down to 46% at the end of 2018. It is anticipated to further decrease to 40% by 2020.
Although Malta’s future growth is facing a slowdown, the government will remain committed to sustaining financial prudence in such situations.
In the report, Moody’s mentioned companies who were previously financially afflicted, such as Air Malta and Enemalta, are now thriving. Malta’s recent economic growth has been the catalyst for quick expansion.
Economic growth expected to remain strong
Malta’s economic growth rate between the years 2013 & 2018 was calculated at 7.2% However, the growth is anticipated to lower “as the economy is running up against capacity constraints, and the pace of expansion will slow for rapidly expanding sectors that have been driving growth in recent years.”
Capacity constraints make reference to the infrastructure bottlenecks as well as the opportunity for employment and housing.
With increasing numbers of immigrants and females and older age groups returning to work, this influx is reflected as a growth in the labour market. According to Moody’s report, the boost is due to the rising pension age and increased support in women returning to work with the provision of free child-care.
The report also stated that “while these factors will alleviate pressures on the Maltese economy related to population ageing, Malta nonetheless faces a significant increase in its old-age dependency ratio over the coming decade and beyond.”
This upgrade is subsequent to credit rating agency Fitch’s outlook revision. Following both reports, the government issued a statement assuring its commitment to obtaining better results is still at the forefront of the agenda. The statement ensured that the wealth generated by the island would reach everyone.
Finance Minister Edward Scicluna commented on the reports that “they both confirm Malta’s economic growth is indeed sustainable. These upgrades increase our country’s attractiveness to foreign investment, which in turn leads key to a further significant increase in the standard of living of families recorded in recent years.”