Moody’s flags spending and rule-of-law weaknesses despite Malta’s economic resilience

Credit rating agency Moody’s has maintained Malta’s A2 credit rating with a stable outlook, while warning that rising government expenditure and institutional shortcomings continue to constrain the country’s credit profile.

In its latest assessment, published on Friday, Moody’s said sustained economic growth and a diversified services sector have helped Malta withstand international shocks. However, continued energy subsidies, higher social security spending and growing public investment are expected to push the fiscal deficit higher.

The deficit is forecast to rise from 2.1% of GDP in 2025 to 2.8% in 2026, before easing slightly to 2.7% in 2027. Energy subsidies alone are expected to cost around €400 million next year, equivalent to 1.4% of GDP.

Moody’s forecast economic growth of 4.1% in 2026 and 3.7% in 2027, following 4.7% in 2025, driven largely by domestic demand and sectors including tourism, financial services, remote gaming and IT.

The agency also highlighted persistent weaknesses in the rule of law, judicial independence and corruption control, alongside limited capacity within the public administration.

While institutional improvements could support a future rating upgrade, a structural deterioration in public finances, particularly alongside weaker growth, could trigger a downgrade.