Moody’s believes Malta’s trend of strong economic growth, coupled with a strong domestic funding base and “moderate” debt burden are fuelling a reasonably diversified economy with a “sound” institutional framework.

However, it believes the country faces challenges in closing its fiscal deficit and in controlling corruption and upholding the rule of law.

The credit rating agency provided its assessment of Malta’s economy as part of a periodic review of the country’s A2 rating with a stable outlook.

The analysis was carried out on May 16 and published on Friday. Unlike a credit rating opinion, in which analysts assign a credit rating, reviews are intended to provide an overview of a country's economic performance. 

Moody's last issued a credit opinion of Malta in November 2023, when it affirmed the country's A2 rating with a stable outlook. 

In its periodic review, it said it expects Malta's GDP to grow by 4.5% this year and 3.7% in 2025, with “solid” tourism activity and domestic demand supported by real wage growth. The deficit will drop to 4.5% (from 4.9%) this year and 4% the next, it predicts, while the debt-to-GDP ratio will rise to 53.9% (from 50.4%).

While the country has high per-capita income levels and a relatively diversified economy, its small size poses a challenge in terms of institutional capacity and controlling corruption, money laundering and rule of law breaches, the agency said, adding that the government “has embarked on a process to tackle these issues.”

The country’s “moderate” debt burden and strong debt affordability metrics are at risk due to high deficits and the gradual impact of higher interest rates, it predicted. These will “more than offset the favourable effect of the country's strong nominal growth.”

“While the country faces institutional challenges, Moody's expects Malta to continue to engage with the financial community to ensure a more effective enforcement of the regulatory framework, which should support the island's financial competitiveness in a sustainable fashion,” analysts said.

Prime Minister Robert Abela said the assessment was “another vote of confidence”.

“They praise our moderate debt burden, sound institutional framework, and the country’s strong trend growth, well above the Euro area’s average,” he said on X, formerly Twitter.

Moody’s analysts said Malta could see its rating upgraded if it managed to slash the deficit at a faster rate than expected, or if introduced further reforms to bring national institutions closer to those of A1 rated countries.

The country’s rating could be downgraded if Malta’s debt was to significantly increase, economic growth were to slow or institutional failings when it comes to combating money laundering were to emerge, the agency said.