Scope Ratings GmbH (Scope) reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate.

Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Malta (A+/Stable; S-1+/Stable) on 5 April 2022.

This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

For the updated rating report accompanying this review, click here.

Key rating factors

The Republic of Malta’s long-term A+/Stable ratings are underpinned by the following credit strengths: i) the country’s robust growth potential; ii) a record of effective fiscal consolidation, supported by strong growth, fiscal surpluses and a declining interest payment burden; and iii) a strong external position with current account surpluses, a large net international creditor position, further bolstered by euro area membership. Malta has managed to limit the structural impact of the Covid-19 crisis and has recovered with remarkable speed, growing by an estimated 9.4% in 2021. So far, the country has been relatively well insulated from the effects due to the war in Ukraine, given limited direct economic linkages with Russia and Ukraine and limited inflationary pressures thanks to forceful government intervention. A strong growth outlook, renewed commitment to fiscal discipline, and a stable interest payment burden despite the sharp rise in the debt stock underpin rating stability.

Challenges relate to Malta’s: i) externally dependent, resource constrained economy, which poses long-term stability and sustainability risks; ii) fiscal risks related to an ageing population and government guarantees; and iii) lingering, albeit improving, institutional and administrative deficiencies related to governance and oversight in the financial sector which constrain improvements in the country’s reputation as an emerging financial centre. Malta’s greylisting by the Financial Action Task Force has had a limited impact on the economy so far. Still, it could lead to a more adverse growth trajectory if Malta fails to implement the action plan in a timely manner and incur material reputational damage as a result. Initial assessments by the Task Force indicate effective implementation of the action plan and signal that timely removal from the greylist is within reach.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be upgraded if, individually or collectively: i) continued implementation of structural reforms raises the country’s growth potential and supports greater diversification into higher-value added activities; and/or ii) fiscal discipline is maintained, returning the public debt-to-GDP ratio to a firm downward trajectory.

Conversely, the rating/Outlook could be downgraded if, individually or collectively: i) there is a structural deterioration in the growth outlook; ii) the fiscal outlook weakens substantially and/or ii) authorities fail to effectively address lingering institutional deficiencies, leading to reputational costs for Malta’s position as an emerging financial centre.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thibault Vasse, Senior analyst.

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