Fitch Affirms Malta at ‘A+’; Outlook Stable but warns on unfolding corruption allegations
7022 Mins Read
Fitch Ratings has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.
International credit agency Fitch reported that Malta’s rating is supported by high per capita income levels, a large net external creditor position and EU and eurozone memberships.
It added that these strengths are balanced against its large banking sector and the small and highly open nature of its economy, which makes it vulnerable to external developments. The Stable Outlook balances Fitch’s expectation that GDP growth will recover and the budget deficit narrow in 2021 and 2022, against continued downside risk from the path of the coronavirus and its effect on the tourism sector and public finances, as well as adverse developments in governance.
On the other hand, Fitch said that while still at par with the ‘A’ median, Malta’s governance quality continued to deteriorate in 2019/2020 according to the World Bank Governance Indicators (WBGI).
Particularly, the Control of Corruption and Regulatory Quality pillars experienced one of the sharpest drops in Fitch’s rated universe, declining by 10.2 and 10.6 places in percentile rankings over the last year.
At the same time, Malta’s press freedom also continued to deteriorate according to Reporters Without Borders’ annual press freedom index, where it ranked 81st in 2020, down from 47th place in 2017. Fitch notes that the reform momentum on the judiciary and rule of law has accelerated under the new prime minister Robert Abela, who took office in January 2020. However, Fitch said it believes that unfolding corruption allegations in the context of the public inquiry into the murder of journalist Daphne Caruana Galizia could further affect Malta’s governance scores.
The credit agency also said among other things that Malta has one of the largest positive net international investment positions in the EU at 54.3% at end-2019 (‘A’ median at 4.3% of GDP) and a track record of sizable current account surpluses.
Despite the sharp decline in tourist receipts this year, Fitch said it expects Malta’s current account to remain in surplus due to import compression, at 2.4% of GDP in 2020 compared to 5% of GDP on average between 2017-2019.
At the same time, Fitch noted that Malta’s external position is strongly influenced by a large number of special purpose entities (SPEs) and multinationals in the financial and insurance activities, which introduces some uncertainty around the measurement of primary income flows, and thus of the current account balance.
Main Photo: (FILE) A file photograph showing a view of the offices of Fitch Ratings in New York, New York, USA. EPA/JUSTIN LANE
