Fitch affirms Malta’s ‘A’ rating

Fitch has affirmed Malta’s ‘A+’ rating with a stable outlook, in a credit rating report that highlighted the country’s strong economic basis while also pinpointing fiscal challenges and uncertainties.

Malta’s GDP surpassed that of pre-pandemic 2019 levels by approximately 17 percentage points by the end of Q4 2023, the agency noted in a report issued on Friday. It noted that the country’s 5.6% GDP growth rate last year was significantly higher than the 3.5% rate Fitch had initially forecasted.

The agency attributed that mostly to the full recovery of the tourism sector, which closed the year with almost three million arrivals, exceeding 2019 figures by more than 8%.

The agency said it expects Malta’s economy to grow by 4.1% this year and 3.7% the next, with previously booming sectors like the online gaming one slowing their pace of growth.

Unemployment is expected to average 2.8% over the forecast horizon, a notable dip from the pre-pandemic 4.1% rate, it said.

Employment was buoyed in 2023 by the continued influx of foreign workers, which helped stabilise wages, boost GDP growth and keep economic costs related to an ageing society at bay.

However, Malta’s labour market continues to experience low productivity and skill shortages, Fitch noted.

The agency said there were indications that a “novel” government initiative to slash the prices of various basic food prices by 15% had a positive impact, with HICP food index inflation dropping in February.

The fiscal deficit is narrowing, Fitch said, and dropped to 5% in 2023 from 5.6% the year prior. But it remains much higher than the 3.2% deficit other A-ranked countries tend to have and that is in large part due to the cost of energy subsidies, which ate up 1.3% of GDP last year.

While debt is gradually rising and is likely to hit 54% of GDP in 2024, it remains below the EU’s 60% threshold, with Fitch saying the fiscal burden appears manageable.

Fitch said that Malta could see its credit rating upgraded if it managed to improve its debt situation or register more progress in addressing key weaknesses in governance and economic diversification.

The country could see its rating downgraded if government debt continues to grow due to weaker economic growth or a growing deficit and if further regulatory changes – especially to taxation – make Malta less attractive to foreign companies as an investment destination, Fitch said.