Malta's A+ rating confirmed by German Credit Rating Agency
Malta has its A+ sovereign credit rating confirmed by international agency Creditreform Rating, reaffirming that the country’s outlook remains stable.
The German creditrating agency Creditreform Rating stated Malta’s low levels of public debt meant it was well-placed to recover economically from the COVID-19 pandemic and said that while there was “room for improvement” in Malta’s institutional framework, the government “seems committed to deliver” on rule of law and anti-money laundering reforms.
2020 Malta Credit Rating unsolicited
According to the Creditreform Rating, that has been following Malta's economic rating since 2016, the 2020 Malta Credit Rating was unsolicited and therefore was not paid for by the Maltese Government.
Pre-COVID Economy
Vivid economic growth well above that of the euro area over recent years, further supporting
the relatively high per-capita income level and buttressing strong labor market developments
prior to the outbreak of Covid-19
Coronavirus impact
Creditreform noted that the pandemic had caused widespread damage to the local economy, with GDP falling by 11.6 per cent between March and May when compared to the previous quarter.
Public finances will deteriorate markedly due to the pandemic, although still comparing as
relatively benign in the euro area context
Malta’s high reliance on tourism makes it vulnerable, the agency found. It cited OECD statistics which attribute 12.8 per cent of Malta’s GDP and 14.9 per cent of employment to the tourism sector. But Creditreform also noted that fallout from the coronavirus crisis had been “limited” thanks to wage subsidy schemes given to help prop up businesses.
Sectoral Diversification
The agency also noted that there were signs of economic diversification, with Malta’s gaming sector proving resilient throughout the pandemic. Gross value added by the art, entertainment and recreation sector and ICT services sector both increased markedly on previous years, it found.
Malta's Economic Growth
It said it expects Malta’s economy to grow by 4.5 per cent next year, although it tempered that forecast by highlighting the uncertainty surrounding the COVID-19 pandemic and said its predictions were based on the assumption that vaccines would ease the pandemic in 2021.
When setting aside considerations related to the pandemic, Creditreform analysts’ major concern regarding Malta was with red tape for investors. The country has slipped down the World Bank’s Ease of Doing Business index – it is now 88th out of 190 countries – and stands at 38th in the World Economic Forum’s most recent Global Competitiveness Report.
Public finances
The credit rating agency said that Malta’s low levels of public debt placed it in a “comparatively favourable position” when compared to its peers which should set it on a sound footing when recovering from the pandemic’s economic effects.
It said it expected the government to post a 9.7 per cent deficit this year – marginally higher than the 9.4 per cent forecast by the government last October - with the deficit declining to 6.1 per cent next year.
The deficit might be lower than forecast if Malta were to receive emergency pandemic funding from the EU, it said.
Increased spending coupled with declining revenues will bump government debt up to 56 per cent of GDP this year and 60 per cent in 2020, Creditreform said, before taking a more positive turn.
The agency also noted that Malta’s revenue streams are highly reliant on a volatile tax base , with 17.8 per cent of tax revenues coming from corporate income tax. The country’s income from its golden passport scheme was also under question, given EU pressure to cancel the scheme.
However, it noted that debt remained affordable, somewhat mitigating fiscal risks.
Institutional reform
Analysts noted that Malta lags behind the euro area average when it comes to perceived freedom of speech and free media and is even further behind when it comes to perceptions of corruption, where it ranks 81st out of 209 on a World Bank index. The euro area median is 42. The country has also fallen behind its peers when it comes to government effectiveness and rule of law, the report said.
It however tempered that criticism.
“We favourably assess Maltese authorities’ strong and intensified reform efforts to combat money laundering and financing of terrorism and enhance its justice system, in a bid to align the institutional set-up with European and international standards,” analysts said, adding that they believed the government was firmly committed to satisfying key anti-money laundering provisions set by Council of Europe assessment body Moneyval.
The rating agency cautioned that all its forecasts were extremely volatile as they were reliant on how the COVID-19 pandemic progressed.