Malta to ben­e­fit from strong growth in 2016-17

Financial Mirror (Cyprus) - - FRONT PAGE -

Malta will likely see eco­nomic growth of 4.1% in 2016, on the back of solid consumer spend­ing and in­vest­ment, Moody’s In­vestors Ser­vice said in a new re­port, ‘Gov­ern­ment of Malta — A3 Sta­ble.’

“While we ex­pect eco­nomic growth to mod­er­ate this year, our forecast re­mains strong com­pared to its peers in Europe. Key driv­ers of Malta’s econ­omy are do­mes­tic consumer de­mand and in­vest­ment, with tourism ris­ing 6% in 2015,” said Evan Wohlmann, an an­a­lyst at Moody’s.

While there are po­ten­tial upsides that could boost Moody’s 2016 forecast for Malta, var­i­ous fac­tors will con­tinue to con­strain eco­nomic growth, in­clud­ing chal­lenges re­lated to re­source al­lo­ca­tion and the small size of the do­mes­tic mar­ket with a pop­u­la­tion of just over 400,000.

In Moody’s view, Malta’s gov­ern­ment has also made sig­nif­i­cant progress on re­forms in the en­ergy sec­tor and the labour mar­ket, in line with rec­om­men­da­tions from the IMF and the Euro­pean Com­mis­sion. How­ever, it is too early to con­clude that th­ese pol­icy ini­tia­tives have met their in­tended ob­jec­tives.

Moody’s notes that while a credit chal­lenge is Malta’s rel­a­tively high general gov­ern­ment debt bur­den, fis­cal con­sol­i­da­tion is pro­gress­ing. Moody’s ex­pects debt-toGDP to fall be­low 60% by 2017, based on the fall in Malta’s fis­cal deficit to 1.5% of GDP in 2015 and a likely fur­ther de­cline in the deficit in 2016-17.

An­other key credit con­straint is Malta’s re­liance on do­mes­tic sources of fund­ing, which makes it vul­ner­a­ble to the health of the bank­ing sys­tem.

How­ever, the rat­ing agency as­sesses risk em­a­nat­ing from the bank­ing sec­tor as ‘low’, bal­anc­ing the sys­tem’s sig­nif­i­cant size against the low con­ta­gion risk be­tween con­stituent seg­ments, with in­ter­na­tional bank­ing ac­tiv­i­ties largely in­su­lated from the do­mes­tic sys­tem.

In ad­di­tion, Malta’s en­ergy sec­tor re­form has moved ahead, which should al­low the gov­ern­ment’s ma­te­rial con­tin­gent li­a­bil­ity risks to pub­lic util­i­ties to de­cline in the com­ing years.

The is­land’s pre­vi­ously loss-mak­ing en­ergy ser­vice provider, Ene­malta, is the most prom­i­nent source of con­tin­gent li­a­bil­ity risk, although the firm’s on­go­ing re­struc­tur­ing and the progress achieved as part of the broader en­ergy re­form should al­low the com­pany to be­come fi­nan­cially vi­able.

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