DBRS/DOI – MALTA – International agency DBRS has confirmed Malta’s rating at A (high) level with stable outlook.
Malta’s A (high) rating is supported by its euro zone membership, moderate level of public debt, solid external position, and households’ strong financial position.
As expected, the pandemic shock has abruptly halted a period of remarkable economic performance in Malta, characterised by strong output growth (averaging 6.4% a year during 2013-2019) and shrinking the GDP per capita gap with the EU.
On the other hand, Malta’s small and open economy remains exposed to external demand or confidence shocks. In this sense, the tourism sector, an important source of income, employment, and investment in Malta, presents a vulnerability as long as the adverse effects of the pandemic continue.
Similarly, Malta’s attractiveness to foreign investment could suffer if measures to address the financial integrity risks and institutional governance weaknesses noted by international bodies are deemed insufficient.
Despite Malta’s sound public finances, medium- to long-term challenges could come from its contingent liabilities, changes in international taxation affecting Malta’s attractive tax system to foreign companies, or increasing age-related spending.
The report highlights that “the new administration led by Prime Minister Robert Abela has provided a new impetus to efforts to strengthen the rule of law”.
In fact, they noted the positive words of the Venice Commission for the six laws passed with a purpose of delivering further separation of powers, improving the system of checks and balances in the governance of our country.
The DBRS report states that Malta has a “stable policy environment” and, when taking into consideration the governance measures made by the World Bank, Malta is in the European average.
The DBRS report states that Malta benefits from a strong national and overarching European policy framework, which has underpinned Malta’s economic and public finance improvement since joining the European Union. The World Bank’s governance indicators for Malta are in general broadly in line with those of the EU average; however, they have exhibited a widespread deterioration during 2018-2019, especially marked in the cases of ‘Control of Corruption’ and ‘Regulatory Quality’.
Malta’s governance and institutional set-up has been under increased scrutiny in recent years following the assassination of the investigative journalist Daphne Caruana Galizia in October 2017.
The report also commends the government’s economic work to counter the effects of the pandemic.
The report notes that the unemployment rate has remained at the same low level as before the coronavirus outbreak.
According to DBRS, the wage supplement scheme proved essential in saving jobs. In addition, despite the pandemic, a number of sectors, including the financial, gaming and information and communication sectors, have grown at high rates.
While pointing out that the support from government was strong, impacting the national debt, there was confidence about the prospects for our country.
This reflected the low debt burden that Malta enjoyed at the start of the pandemic, the result of the fiscal prudence of recent years. In the words of DBRS “the fiscal prudence exhibited by Malta in the past”, gave confidence to foreign institutions.
Before the pandemic, Malta’s fiscal performance had improved significantly over the past two decades. Furthermore, Malta recorded annual average fiscal surpluses of 1.7% of GDP between 2016 and 2019. Key factors underpinning this trend have been its strong economic performance, improved spending efficiency, lower interest payments, and the proceeds from the Individual Investor Programme (IIP) since its introduction in 2014.
Both the government and the European Commission project the budget balance to reach a deficit of 9.4% of GDP in 2020 following on from a surplus of 0.5% of GDP in 2019. The Draft Budgetary Plan estimates the immediate fiscal impact of the measures to mitigate the impact from the pandemic at 5.8% of GDP in 2020. The main measures include the wage supplement scheme to protect employment, direct subsidies to firms in the most affected sectors, a voucher scheme to support domestic demand, higher healthcare spending, and a temporary reduction of the property transaction tax. In addition to this, the government introduced tax deferrals (1.5% of GDP) and a state guarantee scheme (2.8% of GDP) to alleviate firms’ liquidity constrains.
DOI (MALTA)
