Fitch Affirms Malta At ‘A+’ Outlook Stable

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Global credit rating agency Fitch has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.

The Stable Outlook reflects Fitch’s expectation that GDP growth will recover and that debt will stabilise following the fiscal shock caused by the pandemic, supported by a strong revenue recovery. At the same time, there is continued downside risk from the evolution of the coronavirus and its effect on the tourism sector and public finances, as well as the risk of macroeconomic instability from the Financial Action Task Force’s (FATF) decision to greylist Malta.

Malta’s rating is supported by high per-capita income levels, a large net external creditor position and a pre-pandemic record of strong growth and sizeable debt reduction. 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.

Fitch adds that the medium-term downside fiscal risks stem from the loss of key sources of revenue. The potential introduction of a global minimum tax and pressure on low-tax jurisdictions to raise effective tax rates may pose a downside risk to public finances and inward investment over time.

Malta has established itself as an attractive low-tax destination for international companies and corporate taxes are a key source of fiscal revenue, accounting for around 15.2% of total tax revenues in 2020 (2019: 17.8%). In addition, the European Commission’s ongoing infringement procedure into Malta’s Citizenship by Direct Investment programme could lead to its termination. The government has already reduced the expected receipts from the programme to EUR42 million from around EUR100 million in its 2022 projections.

Fitch added that the FATF’s decision in June to place Malta on its so-called greylist has not yet materially impacted the Maltese economy and its large banking sector (total banking assets amounted to close to 300% of GDP at end-September).

However, if Malta remains on the list for a prolonged period, the reputational damage from greylisting could eventually adversely affect the country and its financial system by reducing its attractiveness for investors and corporates, ultimately leading to capital outflows and weaker-than-projected economic performance. We are also aware of contagion risks as the exit of one or more larger companies from Malta could create spillover effects to the broader economy.

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