Malta has had its A- long-term credit rating confirmed by Standard and Poors, which said on Friday that the country’s outlook remains stable. 

The country's short-term rating was kept at A-2.

The international rating agency said that it expected Malta’s GDP to contract by 8 per cent this year, with Malta’s open economy making it considerably more vulnerable to external shocks such as the COVID-19 induced global recession. 

It however expressed optimism that the Maltese government’s emergency measures to cushion the blow of the economic downturn would help minimise economic disruption and “accelerate a rebound”. 

The agency cited measures such as the COVID wage supplement, increased healthcare spending and measures to provide liquidity to struggling businesses and cash vouchers as examples.  

“Without this comprehensive fiscal response, we think the Maltese GDP would have fallen considerably lower, unemployment would have surged faster, and solvent businesses would be forced to liquidate, eroding the economy's productive base, perhaps permanently,” the agency said. 

In a statement, the government welcomed the report and said it would continue to spur the economy forward in its upcoming Budget. 

S&P said it was predicting a gradual return to 5.5 per cent GDP growth in Malta, as restrictions eased and tourism picked up again. 

The agency cautioned that its economic predictions were shaky as they included a high degree of uncertainty. 

Back in March, at the start of the COVID-19 pandemic, S&P had predicted that Malta would end the year with 2 per cent GDP growth. At the time, the agency had cut its outlook to Malta from ‘positive’ to ‘stable’, citing coronavirus concerns as well as issues concerning Malta’s reputational risk. 

Concerns about reputational risk continue to plague perceptions of the country, S&P said.

“Increasing international scrutiny of Malta's financial system and reports of persistent weaknesses in regulatory oversight have tainted the local banking sector's reputation, straining relationships with correspondent banks that have pursued de-risking strategies,” it said. 

S&P said Malta has committed to strengthen supervisory standards, with increased budgets for the FIAU and MFSA and a new method to appoint a police commissioner. 

Failing a Council of Europe Moneyval review due in October “could further pressure the financial sector and overall business climate in Malta,” it warned. 

Financial predictions   

S&P is predicting: 

• An 8.7 per cent fiscal deficit this year and 4.5 per cent deficit in 2021
• 42 per cent government debt by 2023 
• Non-performing loan ratio to rise to more than 7.9 per cent in 2020 from 3 per cent last year