Fitch Ratings affirms Malta’s A+ rating

Fitch Ratings has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Positive Outlook, despite unfolding corruption allegations and a recent rise in political volatility. Foreign demand is expected to contribute positively despite the mild forecast slowdown in Malta’s trading partners. GDP growth is forecast to edge down to 4.5% in 2020 and 4.2% in 2021.

Fitch also projects Malta’s current account balance to average 9.9% of GDP in 2019. The current account surplus narrowed to 8.5% of GDP in the first half of 2019 from 11.3% in 2018.

In its assessment, Fitch Ratings said that Malta’s ratings are supported by euro area membership and institutions stronger than the majority of ‘A’ rated peers.

In fact, it reports thatMalta outperforms the ‘A’ median on the World Bank human development and governance indicators. However, Fitch said that Malta’s scores on the ‘voice and accountability’ and ‘control of corruption’ subcomponents have been slipping in recent years.

Despite unfolding corruption allegations and a recent rise in political volatility, which could further affect governance scores, the Positive Outlook reflects an expectation of sustained high economic growth from diverse sources in the medium term and a firm downward trajectory for gross general government debt/GDP driven by sound fiscal performance.

Fitch estimates economic growth to have reached 4.9% in 2019, down from 7.0% in 2018 but significantly higher than the ‘A’ forecast median (3.0%), propelled by strong public consumption and a recovery in public investment.

Foreign demand will contribute positively despite the mild forecast slowdown in Malta’s trading partners. GDP growth is forecast to edge down to 4.5% in 2020 and 4.2% in 2021, with projects supported by EU structural funds concluding (‘A’ forecast median of 2.8% for 2020-2021).

Revisions of population growth have led to lower GDP per capita projections, but Fitch believes Malta’s per capita income will continue converging to the EU average.

In its statement, Fitch said that it believed that Malta will continue upholding its fiscal rules targeting a balanced budget in structural terms (net of International Investment Programme receipts) and ensuring that expenditure growth does not exceed the economy’s potential growth rate.