Updated 7.25pm - Added government statement
Ratings agency Standard & Poor's has raised Malta's long-term rating to 'A-', predicting that the economy will continue to grow by an average of 3 per cent a year until 2019.
The agency raised its long-term sovereign credit ratings on Malta to 'A-' from 'BBB+'. The upgrade reflected what S&P called "Malta's improved credit metrics", including:
- Strong real GDP growth
- Deficits below 1 per cent for the 2016-19 period
- Durable current account surpluses
Malta's outlook remains stable, reflecting S&P's view that "the upside potential of Malta's economic and fiscal performance is counterbalanced by downside risks related to Brexit, external flows, and the structure of the financial sector."
The country's short-term foreign and local currency sovereign credit rating remained stable at 'A-2'.
In a reaction, the government welcomed the rating upgrade, noting that it was the first time in 20 years Standard & Poor's had bumped up Malta's rating.
The US-based ratings agency anticipated that Malta's economy would exceed pre-2009 levels "by more than 25 per cent" by the end of this year, and that most economic growth reflected "a genuine expansion of the domestic economy's capital base".
This, the government said in its statement, ran directly counter to the Opposition's claims that economic growth was not tangible or sustainable.
Malta had benefited from an expanded workforce, S&P noted. This was driven by an influx of foreign workers as well as a rapid increase in the number of working women. A decade ago, 36 per cent of women of a working age were in employment. That number now stands at 54 per cent.
Brexit effects likely to be contained
The ratings agency predicted that the medium-term effects of Brexit on Malta would be contained. The local tourism sector could "easily" fill an eventual gap in UK arrivals with tourists from other markets, S&P said.
Brexit's effects on Malta's financial services industry were less clear cut, the agency said, but the local sector appeared to be "sufficiently diversified to contain the risks".
Keep an eye on banking sector
S&P's report found that core domestic banks had assets amounting to roughly 2.3 times Malta's GDP in March of this year. When international banks are added to the equation, that figure rises to 5 times the national GDP.
Nevertheless, international banks' ties to the local economy are limited, and S&P considered core domestic banks's 43.5 per cent aggregate loan-loss provisioning rate to be low.
It however cautioned that the banking sector's size posed a potential risk to public finances.
"Notwithstanding the limits put on government support through the EU banking framework, financial stress in the sector could put pressure on the deposit insurance system and impose broader economic costs on the government," the S&P report read.