Malta has had its rating and long-term outlook confirmed at A and 'stable' by rating agency DBRS.
The agency noted that while GDP growth would slow in 2023, it would remain higher than in most other EU peers and that Malta's removal from the FATF greylist was a positive sign.
Less encouraging is the size of Malta's public deficit, which would remain among the EU's highest due to the decision to subsidise energy prices.
However, DBRS said it believed the government's plan to reduce the deficit to under 3 per cent by 2025 is "credible", given its track record of fiscal management, although it noted that nobody knows how long, or how intense, energy and inflation shocks can get.
The agency spoke in broadly positive terms about the energy subsidy plan, saying support measures "have played a key role in shielding the private sector from the pandemic and energy shocks as well as limiting potential persistent effects."
Those support measures come at a cost, however, extracting 2.7 per cent of GDP this year and 3.6 per cent of GDP in 2023. DBRS said that Malta being removed from the FATF greylist after just one year was encouraging and meant the negative impacts of greylisting would be contained. However, there remain issues to be resolved: Malta still lags behind leading countries when it comes to the independence, efficiency and effectiveness of the country's judiciary and control of corruption, it said.
Over the medium- to long-term, Malta's major risks stem from its contingent liabilities, changes to international tax systems that could limit its attractiveness to foreign companies, and an ageing population that will need investment to sustain.
The government may need to introduce additional measures to contain the costs of health and pension systems, it said.
Although public debt levels have risen rapidly as a result of support measures during the COVID-19 pandemic and war in Ukraine, the 55.1 per cent of GDP level registered at the end of 2021 "still remained below the Maastricht benchmark of 60.0% of GDP and well below the EU's aggregate 87.9% of GDP," DBRS said.
Problems in managing those levels of debt could arise if Malta's GDP growth level dramatically dropped, if contingent liabilities materialise or if the government is forced to intervene to support state-owned enterprises, including Air Malta.
Malta's banking system has relatively few ties to Russia and Ukraine and there are few ties between international banks and the domestic economy. Local banks have strong liquidity and capital.
Tourism has been recovering at a faster rate than expected and the sector picking up should help Malta rebalance its external position, which took a hit when the pandemic stopped tourism and energy import costs soared.
Source: Times of Malta
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