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News & Knowledge

Malta: Fitch Ratings affirms Malta at ‘A’ with positive outlook

3rd April 2017

Maria Chetcuti-Cauchi, Chetcuti Cauchi

Fitch Ratings has affirmed Malta's long-term Foreign and Local Currency Issuer Default Ratings (IDR) at 'A' with a positive outlook. Furthermore, the issue ratings on Malta's senior unsecured foreign and local currency bonds have also been affirmed at 'A' and 'F1', respectively. The Country Ceiling has been affirmed at 'AAA' and the short-term Foreign and Local Currency IDRs at 'F1'. MSI's Maltese law member Chetcuti Cauchi Advocates explains further.

Fitch – Key Rating Drivers

Fitch Ratings noted that the Malta ratings reflect the high national income per capita compared with the ‘A’ median, Malta’s robust economic growth, and a large net external creditor position. The ratings are constrained by ongoing structural bottlenecks which were noted by the weak World Bank Ease of Doing Business indicator.

Fitch’s positive outlook for Malta reflects the rating agency’s view that the public debt/GDP ratio is on a downward trajectory and that economic growth will keep outperforming similarly-rated peers.

2016 saw Malta’s economic growth remain strong at 3.9% year-on-year over the first three quarters. This growth has been boosted by robust public consumption.

The rating agency forecasted that the “Maltese economy will keep growing at a faster pace than the ‘A’ median at an average 3.3% over 2017-2018, supported by strong employment growth, rising disposable income due to continuous wage appreciation and the launch of new investment projects in the health, education and transport sectors.” This projected growth is in line with the forecast in the Malta Budget 2017.

The pharmaceutical, remote gaming, financial services and tourism sectors are expected to experience strong export performance this year. Despite higher import-intensive investments related to the EU funding cycle, exports from the aforementioned sectors will help Malta maintain a solid current account surplus over 2017-2018. Fitch continued to add that Malta’s external position compares favourably with ‘A’ rated peers with a net international investment position estimated at 47% of GDP at end 2016.

Real GDP growth was revised up by 4.9ppp in 2014 and 1.3ppp in 2015, following national accounts revisions published by the National Statistical Office in December 2016. This can be attributed to upward revisions to non-residential construction and machinery, as well as service exports particularly from the gaming industry. The result was a substantial improvement in the public debt/GDP ratio and to an upward revision of potential GDP growth to 5.4% in 2016, reflecting higher estimates of total factor productivity.