Malta on track to satisfy EU deficit rules ahead of time, Fitch believes

Updated 9am with Abela comment

Malta has had its A+ rating with a stable outlook reaffirmed by Fitch, with the rating agency saying the country is on track to lower its deficit below an EU-mandated 3% level faster than Brussels requires.

In its most recent analysis of Malta, issued on Friday, the credit rating firm made a positive assessment of the country's economy but tempered praise by noting concerning declines in good governance indicators. 

It found that Malta’s economic growth rate was among the best, with the economy having grown 86 per cent since 2015 versus the eurozone’s 14% rate. The average GDP growth rate over this period stood at 6.5%, well above the ‘A’ median of 3.8%, it said.

That economic growth was coupled with significant increases in employment and Malta’s unemployment rate stands at 3.1% compared to the peer median of 6.3%. Sectors focused on information and communication technology, tourism, and financial services helped drive that employment growth, it said.

Fitch analysts said they expect Malta’s GDP to grow by 4.3% in 2025, down from the 6% rate registered last year as tighter immigration policies constrain the supply of labour.

Prime Minister Robert Abela reacted positively to the report, saying "prosperity and stability remain our focus."

Fiscal position and public debt

Analysts also believe Malta is doing well to bring its deficit down.

The European Commission opened excessive deficit procedures against Malta based on its 2023 deficit, under its news deficit and debt rules for member states. Under those rules, Malta was given four years to cut its deficit to under 3%.

Fitch said strong economic growth means Malta is on track to do that over the next two, with the deficit having fallen below 4% last year, down from 4.6% in 2023.

Public debt remains stable at around 50% of GDP, below the ‘A’ median of 57% and the EU’s 60% threshold. Fitch expects a gradual decline in debt levels, supported by a narrowing budget deficit and sustained economic growth. Financing risks are considered low due to ample liquidity in the domestic banking sector and a strong domestic investor base.

Challenges in governance

One notable weakness in Malta’s rating is its deteriorating governance indicators. Since 2013, its World Bank governance ranking has dropped from the 86th percentile to the 71st, analysts noted. Government effectiveness and control of corruption rankings “have declined particularly strongly,” more than 20 percentage points over the same period, Fitch warned.

Banking and external position

Malta’s banking sector remains strong, with high liquidity and sound capitalisation. The country has one of the lowest loan-to-deposit ratios in the EU (60% vs. the EU average of 107%) and a strong common equity Tier 1 ratio of 21% (compared to the EU’s 16%). However, as interest rates decline in the eurozone, bank profitability may come under pressure.

Externally, Malta maintains a solid financial position, benefiting from eurozone membership. The country’s net international investment position exceeded 80% of GDP by the end of 2024, and the current account surplus is projected to average 6% of GDP between 2024 and 2026.

Future rating risks

Fitch said Malta’s rating could be downgraded if public debt surges due to rising deficits or external economic shocks. Conversely, an upgrade is possible if the government makes substantial improvements in governance and reduces debt as a proportion of GDP.

The agency’s sovereign rating model initially assigned Malta an ‘A’ rating, but Fitch adjusted it upward by one notch due to the country’s exceptional economic growth.