Moody's affirms Malta's rating at A2 with a stable outlook
Amid the current global Covid-19 pandemic, Moody's has affirmed Malta's rating at A2 with a stable outlook. The reason given is that Malta's shock resilience can be supported by its past track record of strong economic growth, its elevated wealth levels, and an affordable debt burden combined with a reliable domestic funding base.
Moody's observe that, although tourism remains a key sector, the Maltese economy is relatively well diversified in terms of trade partners and sectors. In particular, the remote gaming sector and the professional services sector have grown in importance over the past years. Such sectors are not expected to be significantly affected by the pandemic, thus compensating for the sectors hit harder. As a result, Moody's expects the Maltese economy to contract by 3.8% of GDP in 2020, but to return to a full year of growth of 3.2% of GDP in 2021.
"I am pleased to note that Moody's, along with the IMF, are both expecting the economic impact of Covid-19 to be relatively less pronounced on the Maltese economy than other neighbouring countries, and that growth is expected to fully recover to healthy levels in 2021. This outlook reflects the trust that these international institutions have in the country's government and its people, who are both being proactive in the health and financial areas," stated Minister for Finance and Financial Services Edward Scicluna.
The stable outlook was also based on their expectation that efforts to address institutional challenges will be maintained and that systemic risks emanating from the financial sector, including those related to money laundering and the financing of terrorism, will be contained.
Moody's also commended the government's fiscal strength reflecting its affordable debt burden and a debt-to-GDP ratio, which had been rapidly approaching the median of similarly rated countries. Indeed, the stable outlook reflected Moody's expectation that, although the outbreak of the Covid-19 pandemic will have a negative impact on 2020, the outbreak will have a limited lasting, negative impact on Malta's economy or public finances.
Moody's also gave a positive rating for both the government liquidity risk and the external vulnerability risk. The former reflected the government's large and reliable domestic funding pool, while the low external vulnerability risks were due to the strong current account surpluses, solid net positive FDI flows and net international investment position.
Moody's acknowledged the range of measures announced by the government to cushion the economic impact of the coronavirus on the economy, including additional funding for the health care sector and income support, provided in particular to employees and the self-employed.
Fitch affirms Malta's 'A+' rating and revises the outlook to 'stable'
Fitch also affirmed Malta's sovereign credit rating at 'A+', though revising Malta's outlook to 'stable' as a result of the impact of the global COVID-19 pandemic on Malta's economy and public finances. Fitch forecasts real GDP to contract by 5.9 per cent in 2020 but to revert back to a healthy growth rate of 3.6 per cent in 2021.
Fitch expects the current healthy current account surpluses to be maintained in 2020, in spite of the external shock caused by the global pandemic. However, in view of the significant increases in public expenditure and the fall in revenues, the deficit could reach 8.1 per cent this year. Malta's high governance score, and its strong financial soundness indicators which provide buffers to the financial system in the event of a sharper contraction than forecast, also contributed to this 'A+' rating.
Similar to the IMF and Moody's, Fitch also expects economic growth to rebound in 2021 while expecting the government's relief measures to combat the disease and to soften the impact of the shock on the Maltese economy.
Fitch commended the government's swift response to the health risks associated with COVID-19. Indeed, it notes that on March 7th, before any case was diagnosed, the authorities mobilised the healthcare system and implemented comprehensive containment and mitigation measures.
Finance Minister Edward Scicluna said, "Fitch has confirmed that Malta is able to withstand the inevitable shock to its public finances in view that it is better prepared for such an eventuality than its peer."