Updated 5.40pm - Added Finance Minister's statement
Malta's credit rating has been upgraded to 'high' and the trend on all the country's ratings has been changed from positive to stable by DBRS.
On the same day, Moody’s revised its rating from ‘A3 stable’ to ‘A3 positive’, which is the first upgrade given by the agency to Malta since October 2013.
In a statement, DBRS Ratings Limited said it had upgraded Malta's long-term foreign and local currency issuer ratings to A (high) from A and upgraded its short-term foreign and local currency issuer ratings to R-1 (middle) from R-1 (low).
The rating upgrade reflects the Canada-based DBRS's assessment that the trajectory of Malta’s public debt has improved considerably. The clean bill of economic health comes shortly after a similar report by Fitch.
Since the latest review, the projection of the general government debt ratio has been materially revised downwards due to more favourable growth prospects and stronger primary balances in coming years.
The debt-to-GDP ratio is now forecast to decrease to 41.2% of GDP by 2022, almost seven percentage points less than previously anticipated.
In 2017, the government is expected to have exceeded its fiscal objective and reduced its debt ratio thanks to stronger-than-expected revenues. Improvements in the 'debt and liquidity', 'economic structure and performance', and 'fiscal management and policy' sections of the agency's analysis were the key factors for the rating upgrade.
Thank you to all the hard working people of #Malta for their everyday committment leading to exceptional, internationally recognised results. @DBRSRatings now upgraded us to A-High, at par with #Ireland and above #Japan, while @MoodysInvSvc changed outlook to positive -JM— Joseph Muscat (@JosephMuscat_JM) February 24, 2018
The rating is supported by Malta's Eurozone membership, DBRS said. Malta's strong external position and low reliance on external financing help mitigate the vulnerabilities linked to its small and open economy. Also, households’ strong financial position enhances private consumption resiliency.
Malta nonetheless faces some challenges, with the agency saying that contingent liabilities, stemming from its large state-owned enterprises and concentrated financial sector, remaining a source of vulnerability.
Pressures from rising age-related costs, if un-addressed, could pose a concern for the pension and healthcare system.
Still, it says that recent economic performance has been remarkable, with 6.4% average GDP growth during 2013-2017 tripling the 2.1% average rate in 2004-2012. While remote gaming was a determining factor, other sectors such as tourism which is a major source of income and employment in Malta and financial and business services also contributed to the out-performance.
Increasing labour force participation and addressing emerging infrastructure bottlenecks are expected to help Malta’s GDP per capita.
In the longer term, corporate tax reforms at EU level and in the US, could diminish to some degree the attractiveness of several jurisdictions, including Malta, for multinational companies. Also, the gaming industry in Malta could be impacted by regulatory changes at the EU level, it warns.
Related to a buoyant economy and higher than-expected-revenues from the citizenship scheme, the general government is expected to have over-achieved its fiscal targets in 2017.
Improving fiscal health - Moody's
In its report, Moody’s said it chose to upgrade Malta’s rating because of “Malta’s improving fiscal strength, due to a sustained pace of public sector debt reduction supported by prudent fiscal policy and containment of contingent liabilities”.
Moody’s said that a surplus of 1.5% was achieved in 2017, as against the 3.5% deficit in 2012. It noted that part of the improvement was a result of the Individual Investor Programme and “fiscal consolidation efforts and sustainable strong economic performance”, which if sustained, the improvement in fiscal strength will support the assignment of an A2 rating.
'Proud to be Maltese' - Finance Minister
The ratings upgrades delighted Finance Minister Edward Scicluna, who said the news had filtered to halls of power in Delhi. Prof. Scicluna is currently visiting India on state business.
"There is an increasing interest in the desire to do business with Malta," he said. "It makes you proud to be Maltese."
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