Global ratings agency Fitch affirmed Malta’s credit rating at ‘A+’, saying Malta’s rating is supported by high per capita income levels, a large net external creditor position and a pre-pandemic track 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.
In its report, Fitch added that the Stable Outlook reflects Fitch’s expectation that GDP growth will recover and that debt will resume a gradual downward path following the fiscal shock caused by the pandemic. At the same time, there is 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.
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 Fitch added. Malta has established itself as an attractive low-tax destination for international companies and corporate taxes are a key source of fiscal revenue.
Fitch added that:
FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO NEGATIVE RATING ACTION/DOWNGRADE:
– Public Finances: Failure to place general government debt on a downward path over the medium term, for example due to a more prolonged period of fiscal stimulus, weaker growth prospects or materialisation of contingent liabilities.
– Structural Features: Further deterioration in governance or banking supervision that could adversely impact Malta’s attractiveness as an investment destination.
– Macro: Severe and prolonged economic weakness due to the pandemic, including a failure of the tourism sector to revive.
FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO POSITIVE RATING ACTION/UPGRADE:
– Public Finances: General government debt/GDP returning to a firm downward path over the medium term, for example due to a post-coronavirus-shock fiscal consolidation.
– Macro: Confidence that Malta can return to high GDP growth in the medium term, supporting a convergence of GDP per capita with that of higher-rated sovereigns.
– Structural Features: Further progress in addressing key weaknesses in governance, banking supervision and the business environment.
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