Fitch has confirmed Malta’s ‘A+’ long-term rating, with the credit rating agency also maintaining its stable outlook for the country.
The US-based agency believes it will take until the second half of next year for Malta’s GDP to return to pre-pandemic levels, with economic recovery lagging that of its Eurozone peers but the country’s balance sheet propped up by stronger-than-expected revenue collection.
FATF greylisting has "not yet materially impacted the Maltese economy", it noted, though that could change if the country were to remain on the list for a prolonged period of time.
Fitch expects the country to rebound to growth and stabilise its level of debt well before it hits the 2011 high of 70 per cent of GDP, but also warned that an extension of the COVID-19 pandemic would hurt the tourism-focused economy and that Malta could suffer if it spent a prolonged time on the FATF grey list.
Economic growth
Fitch upgraded its projections for 2021 GDP growth to 5.7% (from 4.7% in its previous report) but noted that growth lagged at just 0.5% in the second quarter of this year, as private and public consumption as well as net exports decreased slightly, more than offsetting a strong increase in investment.
Growth is then expected to ramp up to 6.1% in 2022, as it matches pent-up demand and the tourism sector continues its recovery. Tourist arrivals reached 56% of their 2019 levels by September of this year, with Fitch noting that Malta’s high vaccination rate had allowed authorities to ease measures and restrictions.
Public finances
Fitch upgraded its forecasts for Malta’s public finances, on the back of what it said was “better-than-anticipated revenue performance”. By September, revenue collection had already surpassed 2019 figures, it noted.
While it previously said that it expected the deficit to hit 11.5% this year, it is now forecasting an 8.4% deficit.
On the other hand, Fitch expects the 2022 deficit to be larger than it previously anticipated (6.1% versus 5.4%), with the credit rating agency saying it expects the government will partly make use of a 1.4%-of-GDP let-out authorised in the budget “to deal with the pressure from higher energy prices.”
Prolonged high energy prices could require stronger intervention and negatively impact those figures, it noted.
Debt levels remain manageable, it indicated. Public debt is projected to peak in 2023 at 61% of GDP – marginally higher than the 59% ‘A’-rated median, but well below the 2011 peak of 70%.
This, Fitch said, illustrated “Malta’s fiscal prudence in pre-pandemic years of strong growth”.
Greylisting impact? Not yet
Fitch noted that the FATF decision to greylist Malta has "not yet materially impacted the Maltese economy and its large banking sector."
But this could change, it warned, if the country remained on the list for a long period of time, as it would damage the country’s reputation and lead to capital outflows.
Those comments mirror similar ones made by Bank of Valletta chairman Gordon Cordina earlier this month.
Malta was added to a list of greylisted jurisdictions by the Financial Action Task Force earlier this year, with the global body unconvinced by the country's efforts to enforce anti-money laundering laws.
Fitch also flagged the risk of one of the country’s larger foreign investors exiting Malta, creating spillover effects to the broader economy.
Further risks are related to the OECD deal on a global minimum corporate tax rate, which could hurt jurisdictions such as Malta that attract investment by offering low tax incentives, and any EU move to shut down Malta’s golden passport scheme.
The government has already slashed its expected receipts from that scheme in 2022 to €42 million (down from €100 million), it noted.
Malta continued to rank above the 50th percentile on World Bank governance indicators, with those scores having a positive impact on the country's credit profile.
The credit rating report was solicited by the Maltese government.