Malta has retained its A+ credit rating with a stable outlook in an assessment released by rating agency Scope released on Friday. 

The Germany-based agency said that Malta’s strong growth potential, Eurozone membership and track record of reducing public debt all boded well for the country’s economic future.

But it tempered enthusiasm by noting that the country’s rapidly ageing population, reliance on foreign demand and “lingering institutional and administrative deficiencies” related to regulatory oversight and good governance could all prove to be stumbling blocks in the years to come. 

Its A+ peers range from France to Bulgaria, Spain, Slovakia and Japan.

Strengths

The report noted Malta’s high GDP growth and low unemployment figures, saying inflation also remained contained when compared to its peers, thanks to “forceful” government intervention to cap energy prices. 

Scope expects the country to trim its deficit and debt-to-GDP metrics in the years to come, after they both ballooned during the COVID-19 period. Interest payments on national debt will remain below 1.2 per cent of GDP over the forecast horizon, despite rising interest rates, and 86 per cent of debt is long-term, with virtually no foreign currency exposure and 75 per cent of it held by residents.  

Risks

There are risks, however, most notably in the extent of government-issued guarantees. These represented a massive 12.8 per cent of GDP at the end of 2021, Scope noted.

Rising costs related to an ageing population will also play an important role, with Malta’s old age dependency ratio – the ratio of pensioners to workers – forecast to increase at a significantly higher rate than the EU average over the next 50 years. 

The difference is so stark that while EU member states are likely to see their GDP hit by an average of 1.9 percentage points due to ageing pressures, Malta must brace itself for an 8 percentage point impact.  

And the country must also contend with a lack of workers to fill demand, though Scope believes those pressures will be relieved somewhat once international travel normalises and the number of migrant-workers increases following a COVID-induced slowdown.   

That, however, brings challenges of its own, with Scope noting that a rapidly expanding economy - and population- "pose long-term sustainability challenges in a country with scarce resources in terms of land, water and energy."  

Property prices have been rising in recent years, placing people deeper into debt and making homeownership a tougher goal to reach, Scope said, but assessments by the European Systemic Risks Board indicate the country presents ‘medium’ levels of real estate risk, with property prices still broadly in line with fundamentals. 

“Still, an unabated increase in real estate prices could pose long-term financial stability challenges,” Scope added in its report. 

Prime Minister Robert Abela flagged the Scope rating assessment on Twitter, saying his government remained “committed to our progressive economic policy in favour of families and firms”.