Fitch affirms Malta’s ‘A+’ credit rating, outlook stable

Credit rating agency Fitch yesterday affirmed Malta’s sovereign credit rating at ‘A+’ with a stable outlook.

The credit rating report attributes the ‘A+’ rating to Malta’s high income per capita, strong governance and human development indicators relative to peers, robust economic growth, and a large net external creditor position, among others.

Fitch acknowledged the strong private and public consumption driving growth, with private consumption supported by low interest rates and strong employment and wages. It notes that such strong growth has not led to overheating as reflected in the absence of macro imbalances and the inflation rate, which remained contained.

Fitch also notes that Malta’s budget performance has been stronger than similarly rated countries and is on an improving trend. It acknowledges that Malta’s fiscal policy outlook is anchored by the government’s commitment to a structural fiscal balance net of IIP revenues, with IIP revenues ringfenced for investment purposes.

Fitch noted the drop in public debt and expects the debt-to-GDP ratio to continue declining owing to the low interest payments, strong nominal GDP growth and recurrent primary surpluses. It also acknowledged the commitment to reduce guarantees, noting that they had fallen to 9.5 per cent of GDP at the end of 2017, down from 13.5 per cent in 2016.

On the financial sector, Fitch acknowledges that Maltese banks remain sound and well capitalised, while on external trade Fitch notes Malta’s current account surplus driven by the growing services trade sectors. It further expects the trade surplus to be sustained in the coming years.

The rating follows a similar forecast by the Moody’s credit rating agency earlier this week, which was also affirmed at A3 with a positive outlook. Moody’s attributes the A3 rating to the Maltese economy’s robust growth dynamics, relatively elevated wealth levels that support the country’s shock-absorption capacity, and a stable and conservative domestically oriented banking sector.

Government payments to credit rating agencies triple since 2013 to 237,502 a year

It was revealed in Parliament earlier this week how the government’s payments to credit rating agencies such as Fitch, Moody’s, DBRS and Standard and Poor’s had more than tripled since the Labour Party was elected to government in 2013.

According to figures tabled in Parliament on Wednesday by Finance Minister Edward Scicluna in response to a parliamentary question by Opposition Mp Jason Azzopardi, the government paid credit rating agencies a total of €237,502 in 2018. The total was slightly lower in 2017 and 2016 – at €248,697 and €243,883, respectively.

The data supplied shows payments of just €76,119 in 2013, rising to €126,576 the following year.

Scicluna said in Parliament that Malta had been making such payments since 2000 but historical data was not provided.

Agencies’ reputations were badly tarnished by the 2008 financial crisis and they have been criticised for failing to notice the warning signs in over-extended banks. Their job is to judge the creditworthiness of countries and companies. Governments and corporations pay them in return for a critical review of their debt.

The agencies’ ratings, designed to be fully impartial and credible, are a requirement for many investment funds before a decision is made to buy securities, be it a share in a company or a government bond.