In sharp contrast to fears expressed before the UK voted to leave the European Union, a credit rating agency has now given a different prognosis for Malta, suggesting it will remain one of the fastest-growing economies in the eurozone. Despite the island’s direct economic links with the UK through tourism and the financial services, the agency, Standard & Poor’s, is expecting that Brexit’s impact on growth “to be relatively contained”.

A number of local economists expressed the same sentiment after the referendum result, indicating that, considering the island’s track record, particularly the way it sailed through the 2008-2009 financial crisis and the subsequent recession, Malta may once again show the same resilience and be able to handle the Brexit fallout well enough to avoid serious repercussions both to tourism and the financial services sector.

Projections by well-established economic houses are not done haphazardly, but they can still go wrong, as experience has shown over the years. Even so, it is well to see how others are seeing the situation as it is evolving.

Only weeks before the Brexit referendum, the International Monetary Fund was saying that it agreed with credit rating agencies that Malta was among the countries that stood to lose most from an exit by the UK.

It said that, within the EU, data showed that Malta, Ireland, Cyprus, the Netherlands and Belgium were most exposed via trade linkages.

In terms of financial links, the IMF said that Luxembourg, the Netherlands, Cyprus, Malta and Ireland were most exposed to the Brexit spectre. That was not a very encouraging projection but Standard & Poor’s has given a different picture. It not only affirmed its BBB+/A-2 ratings for Malta but also said that the outlook looked positive, reflecting a one-in-three likelihood of an upgrade within the next 12 months.

There are a few concerns here and there, some of which are of a long-term nature, such as, for example, the long called for reforms in pension and healthcare. The agency feels that budget consolidation may indeed come under pressure unless reforms in these two very important sectors are carried out. However, greater labour participation and continued economic growth has led to an improvement in the sustainability of the social security system.

There is also the issue over non-performing loans, representing 7.2 per cent of total loans last year, which the agency described as an ongoing challenge to the economy.

Standard & Poor’s is also echoing the wise words of the former Central Bank governor when it calls for the building up of fiscal buffers against any future shocks. With the economy doing well, this is the time to go for such buffers.

It is difficult to say how the UK’s exit from the EU will affect tourism from the UK to Malta, at present accounting for some 30 per cent of tourism receipts. With sterling plunging to new lows, British tourists are likely to seek cheaper destinations for their holidays. The island is therefore likely to face new challenges in its fight to remain competitive and seek new tourism sources on the continent and elsewhere.

Taking the latest assessment in its general context, the fact that the outlook for Malta remains positive ought to give the island an added impetus to strengthen its position even further by making sure the economy remains competitive. Likewise, it is essential new measures are taken to ensure that the new wealth being generated percolates more equitably through all the social strata of Maltese society.

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