Moody’s, DBRS upgrade Malta’s economic rating
Two international credit agencies, Moody’s and DBRS, have given an upgrade in Malta’s economic rating, reports published on Friday show.
In a statement, government said that after DBRS had improved Malta’s rating last August, the agency has now given Malta an upgrade from “A” to “A high”, which is the highest ever rating given to the country.
On the same day, Moody’s revised its rating from “A3 stabl” to “A3 positiv”, which is the first upgrade given by the agency to Malta since October 2013.
The DBRS rating upgrade is a result of improvement in public finances. “Since DBRS’s latest review, the projection of the general government debt ratio has been materially revised downwards due to more favourable growth prospects and stronger primary balances in coming years,” the report says.
DBRS is projecting that Malta’s debt will drop to 41% of GDP by 2022, or 7% lower than the previous estimates. DBRS sustain that “the general government is expected to have over-achieved its fiscal targets in 2017”.
“The Maltese economy continues to power ahead,” DBRS said, while Malta’s economy “remains one of the top performers in the euro area”.
DBRS added that “Malta’s political environment is broadly stable” and “the government is making additional efforts to improve gov- ernance and strengthen its institutional framework”.
In its report, Moody’s said it chose to upgrade Malta’s rating because of “Malta’s improving fiscal strength, due to a sustained pace of public sector debt reduction supported by prudent fiscal policy and containment of contingent liabilities”.
Moody’s sustain that a surplus of 1.5% was achieved in 2017, as against the 3.5% deficit in 2012. It noted that part of the improvement was a result of the Individual Investor Programme and “fiscal consolidation efforts and sustainably strong economic performance”, which “if sustained, the improvement in fiscal strength will support the assignment of an A2 rating”.
Moody’s also remarked about a “robust medium-term growth prospects supportive of further improvements in fiscal metrics in future”. It added that “measures implemented in recent years targeting the labour market” as well as “substantial progress has been made in diversifying Malta’s energy sources and increasing energy efficiency.”
DBRS positively notes that the Maltese economy continues to surprise on the upside. Malta remains a top performer in the euro area with its economy powering ahead. DBRS’ report highlights that Malta’s recent economic performance has been remarkable. Strengthening Malta’s fiscal framework has improved the gov- ernment balance sheet, and if this is sustained, Moody’s would support an assignment of an “A2” rating.
DBRS addresses Malta’s improvement in its fiscal management and performance, calling attention to the 2014 Fiscal Responsibility Act and its importance in strengthening the fiscal framework. In addition, DBRS outlines that Malta’s growth continues to support deficit and debt reduction.
Moody’s are also projecting a further reduction of about 10pp in the debt to GDP ratio over the years 2016-2019. DBRS’ report shows that Malta’s debt ratio is one of the lowest in the EU and predicts a further decrease by 2020.
Labour market dynamics, a record-low unemployment rate and increased labour force participation continue to strengthen our economic performance, with real GDP expected to further expand by 5.7% and 4.6% in 2018 and 2019, respectively.
As an affirmation of their upgrade, Moody’s emphasise that Malta’s credit profile shows stronger economic prospects and higher wealth levels than “A”-rated countries.
The DBRS report certifies Malta’s political environment as being broadly stable and expects no major policy changes, while appreciating the efforts being made by government to lower the scope for corruption and to strengthen its institutions.