Malta’s high credit rating remained untouched for the second time this week with ratings agency Standard and Poor’s citing the “strong political and economic profile” as reasons for maintaining a stable outlook.

The ratings agency yesterday maintained Malta’s credit rating at AA1 while classifying the transfer and convertibility assessment as AAA, the same as for all members of the European Economic and Monetary Union.

On Tuesday, ratings agency Fitch confirmed Malta’s A+ rating, weeks after Moody’s downgraded the island’s rating by one notch.

Finance Minister Tonio Fenech said the assessment was positive because it affirmed that the economy was holding its own in a turbulent international climate.

Standard and Poor’s said stable political institutions and effective policymaking delivered “relatively sustainable public finances and balanced economic growth”.

It commended the government’s actions to improve public finances, citing as an example the reduction in energy-related subsidies. “We expect the 40 per cent electricity tariff hike between 2009 and 2010... to reduce related government expenditures.”

However, Standard and Poor’s reduced its growth forecast for this year and the next, which it said would cause the deficit targets to slip by 0.5 per cent of GDP.

“We expect Malta’s real GDP growth will drop below trend to one per cent in 2012, reflecting the deteriorating external environment. We had previously expected Malta to grow by 2.5 per cent in 2012.”

Growth will also be hampered, it added, by lack of consumer confidence as “planned hikes to utility tariffs reduce disposable income”.

However, Mr Fenech was confident the deficit target for this year would be reached and the government was aiming for a 2.2 per cent deficit next year.

“I am confident we will reach our targets and the Budget will have to be a prudent one to maintain fiscal stability, which is an important ingredient for economic growth,” he said.

Incentives to encourage economic growth, he added, would be the primary aim of the Budget but the government would also seek targeted reductions in expenditure.

According to figures released by the National Statistics Office yesterday, in the first nine months the government deficit stood at €188.4 million, an improvement of €111.3 million over the same period last year.

An increase of €24 million in expenditure was outweighed by an increase of €135.3 million in recurrent revenue.

Capital expenditure dropped by 12.5 per cent when compared to the same period last year and the cost to service public debt went up by €17.6 million to €159.5 million.

Standard and Poor’s said that government debt grew “faster than expected” between 2010 and this year on the back of additional borrowing to help Air Malta and to fund Malta’s contribution to the Greek rescue package.

The agency noted that the government guaranteed a stock of debt totalling about 17 per cent of GDP, mostly on behalf of Enemalta, which it expected to be loss making in 2011.

The agency said banks had limited exposure to debt-stricken eurozone countries although they were exposed to residential real estate.

According to Standard and Poor’s, there was still room for “further correction” in the housing market as vacant stock was estimated at 23 per cent. The property market saw prices fall by 12 per cent last year before improving slightly in the first six months of this year.

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