Fitch affirms Malta at A+; Slow recovery in tourism expected

Miguela Xuereb

Tista' taqra bil- Malti.

Fitch forecasts Malta’s real GDP will contract by 6.9% in 2020, ‘a moderate downward revision’ from its April review (5.9%), saying declining net exports played a significant role in the change. 

In its report on Malta, the credit rating agency said that Malta outperforms the ‘A’ median on the World Bank governance indicators, although its scores on the ‘Voice and Accountability’ and ‘Control of Corruption’ sub-components have been slipping in recent years.

It noted that the tourism sector suffered a “large contraction” in the second quarter of 2020 due to the continued travelling restrictions.

As of April, tourism overnight stays collapsed to under 10,000 stays compared to 871,000 tourism overnight stays in April 2019, according to Eurostat data.

Commercial flights were grounded in mid-March due to the coronavirus outbreak in Malta. The Malta International Airport was subsequently opened on 1 July. Travel restrictions will be fully lifted on 15 July. Fitch expects only a slow recovery in the second half of 2020 and for international tourism arrivals and hotel occupancy to remain below 2019 levels in 2021 and 2022.

Government vouchers will have a limited effect

The report takes note of the government plans on introducing vouchers for residents to spend on domestic tourism, this might have a limited effect as foreign tourism represents around 97% of total stays in the high-season. The tourism sector contributed about 13% of GDP in 2018 (excluding indirect effects) and 15% of employment, according to the OECD (2020). While there are still material downside risks to growth forecasts, we now believe risks to be more balanced.


Malta’s medium-term potential growth remains strong and well above the eurozone average, at 3.0%-3.5%. Historical GDP was recently revised upwards, with 2019 growth raised to 4.7% from an earlier estimate of 4.4%. Inward migration has helped support growth in recent years. While loss of foreign labour due to the pandemic is expected to generate negative migration for 2020, this should be temporary and reversed once conditions improve. Fitch forecasts growth to rebound to 4.1% in 2021, before easing to 3.6% in 2022.

Fitch estimates the general government balance will deteriorate to a deficit of 9.2% of GDP in 2020 (8.2% in April’s review), from a surplus of 0.5% in 2019, based on the operation of automatic stabilisers and the direct budget impact of government measures.

Further to the €520 million (4.1% of GDP) in government measures announced in March, in June the government announced a €900 million (6.8% of 2019 GDP) fiscal support package, which includes €400 million infrastructure spending (3% of GDP) over the coming years as well as the extension of tax deferrals and wage subsidy schemes. In addition, the government allocated €350 million (2.6% of GDP) in guarantees through the Malta Development Bank, which could be leveraged to a total portfolio of loans under guarantees of €780 million (6% of GDP). Lower spending and a rebound in economic activity should help shrink the deficit in 2021 to 6.1% of GDP and 3.4% in 2022.

Positive news

In a statement the government welcomed the analysis describing it as another “positive certificate” for the country’s economy.

The Finance Ministry explained that the indicators used by Fitch to analyse the financial system include a buffer which takes into account the possibility of a lower GDP than predicted.

Finance Minister Edward Scicluna noted that Fitch gave the same rating to Malta despite the coronavirus pandemic and its negative impact on our economy.