Friday, November 1, 2024
spot_imgspot_img
HomeEconomyFitch Ratings confirms Malta's 'A+' rating with stable outlook

Fitch Ratings confirms Malta’s ‘A+’ rating with stable outlook

The rating agency Fitch Ratings confirmed Malta’s long-term foreign currency debt rating at ‘A+’ with a stable outlook. Fitch Ratings’ decision is based on the strengths of the Maltese economy, including its high per capita income and strong pre-pandemic growth record, along with significant debt reduction. However, these strengths are balanced by the challenges facing the Maltese economy, such as the country’s small size, high vulnerability to external developments, a large banking sector and a recent deterioration of public finances with large fiscal deficits.

Let us now look at the details of the challenges and opportunities facing the Maltese economy, as predicted by Fitch Ratings, as well as the implications for the country’s credit rating.

Country growth according to Fitch Ratings

The Maltese economy has performed well in recent years, with high per capital income and strong growth rates before the pandemic. In 2022, the Maltese economy continued to expand rapidly, outperforming the rest of the European Union (EU) excluding the inflated Irish GDP figures. The country’s growth was mainly driven by investment, although it was heavily influenced by the acquisition of imported aircraft equipment. Nevertheless, private consumption remained robust in 2022, supported by the accumulation of past savings and favourable labour market conditions.

The country’s online gaming, information and technology (ICT) and professional services sectors were the main growth drivers, while the construction sector contracted rather sharply. The recovery of the tourism sector also continued, reducing the gap in tourist arrivals compared to 2019 to about 17% in 2022.

Fitch Ratings expects growth in Malta to slow to 3.5% in 2023 due to the expected economic slowdown in Malta’s main trading partners and a moderation in economic indicators. However, growth will be close to potential in 2024, reaching 3.7%. The lifting of international travel restrictions has helped support the return of foreign workers, further increasing domestic consumption and potential growth, somewhat alleviating structural labour supply shortages.

Risks to consider for the coming years

Although Malta’s economic performance is solid, there are some risks that need to be considered. The country’s small size makes it highly vulnerable to external developments and its large banking sector presents risks. In addition, the recent deterioration of public finances, with large budget deficits, has led to a sharp increase in the country’s moderate debt burden, which is a source of concern for the country’s credit rating.

Inflation levels in Malta have remained relatively low compared to other EU countries, but imported inflation from food and construction prices has affected the country’s economy. The government has pledged to limit increases in electricity and fuel prices to help control inflation. Fitch Ratings expects inflation to moderate slightly to 4.9 % in 2023, thanks to normalising food prices and easing international price pressures, but wage inflation will rise with a lag.

Malta’s fiscal deficit narrowed in 2022 due to offsetting factors such as energy and food subsidies, ad hoc revisions of public spending, and the continued phasing out of Covid-19 spending. However, the 2023 deficit is expected to reach 5.4% of GDP, exceeding the median ‘A’ of 4.1%. The European Commission’s rescue package for state-owned airline Air Malta and the timing and total cost of any state aid to the airline remain unknown, creating fiscal uncertainties. The government’s lack of a clear exit strategy from the current fixed price policy also creates risks for the future cost of energy subsidies.

Read the full report by clicking here.

To stay updated continue to follow the Maltabusiness.co.uk portal and to request more detailed information or receive ad hoc advice please fill in the following form.

DISCLAIMER

This article provides general information only and does not replace professional advice in any way. It is recommended to consult a qualified professional before making any important decisions regarding financial, legal or other matters. The author and the publication are not responsible for any errors or damages caused by the use of the information contained in this article.

We are memberspot_img
spot_img

Related articles

Assomalta protagonist at Naples Shipping Week 2024: at the forefront of Mediterranean development

Transhipment, shipbuilding, maritime sustainability and technological innovation are at the centre of discussions at Naples Shipping Week, which will be attended by Assomalta for the development of the sector in the Mediterranean.

Malta has the highest employment rate in the EU: 96% of recent graduates find work by 2023

Malta leads the EU with an employment rate of 96% among recent graduates in 2023, demonstrating the effectiveness of its economic policies and job...

Energy transition in the Mediterranean: collaboration between Malta and Sicily for a sustainable future

Discover how Malta and Sicily are leading the energy transition in the Mediterranean. Innovative offshore wind projects and environmental sustainability at the centre of...

Funding focus
Discover the news in the dedicated section