Fitch Ratings affirmed Malta's long-term foreign and local currency Issuer Default Rating (IDR) at 'A'. The outlooks are stable.
The issue ratings on Malta's unsecured foreign and local currency bonds were also affirmed at 'A'. The agency affirmed Malta's short-term foreign-currency IDR at 'F1' and the country ceiling at 'AAA'.
In its report, Fitch noted that GDP growth in Malta was outperforming the eurozone average.
"In 2013 the economy grew by 2.9 per cent, better than 2012 (1.1 per cent) and higher than the eurozone average (negative 0.4 per cent), but still below the 'A' median of 3.4 per cent over five years. In the first half of the year, real GDP grew by 3.5 per cent, mainly driven by domestic demand, underpinned by the reduction in electricity tariffs and favourable labour market conditions."
Fitch said it expected above potential growth averaging 2.5 per cent in 2015-16, continuing above the eurozone average.
At 5.7 per cent, the unemployment rate in July was below both the 'A' median and the eurozone average, while the employment rate rose, underpinned by the increasing female labour market participation rate. The decline in unemployment, therefore, took place against the backdrop of a strong increase in the labour force.
Public finances remained a sovereign rating weakness but they were on an improving trend.
While public debt/GDP continued to exceed the 'A' median, Fitch's public debt sensitivity analysis marginally improved.
Following significant fiscal slippage in 2012, general government deficit declined to 2.8 per cent of GDP, below Fitch's projection at the time of the latest rating review (three per cent of GDP).
Deficit reduction in 2013 reflected strong increases in income tax and indirect tax receipts. Fitch expected a deficit of 2.5 per cent of GDP in 2014 and 2015, closer to the rating median (2.1 per cent).
Continued slippages in public expenditure, however, could pose a risk to public debt reduction should revenues underperform in the future. In this respect, the adoption of the Fiscal Responsibility Act could help anchor fiscal policy and particularly growth in public expenditure, it said.
Fitch noted that Enemalta posed the main risk to 2015 fiscal outturns. It noted the authorities' decision to reduce energy tariffs for commercial users from next March, while simultaneously cutting production costs. However, the latter was subject to execution risk. It also assumed that the interconnector with Sicily would be completed by end-2014.
Moreover, Fitch said, the plan could negatively impact Enemalta's profitability, should cost savings fail to materialise. This would have an impact on the budget and be rating negative.
The government and the Labour Party welcomed the ratings.
The full report can be read in the pdf link below.FitchRatings report on Malta
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.