Scope completed a monitoring review of the Republic of Malta
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns, and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Scope completed the monitoring review for the Republic of Malta (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A+/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 14 March 2023.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with 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 favourable interest payment burden; and iii) a strong external position with a large net international creditor position, further bolstered by euro area membership.
Malta's economy has shown remarkable resilience amidst the pandemic and the ongoing Russia-Ukraine war. The Maltese government's decisive support measures have also played a crucial role in mitigating the impact on the economy. In 2022, Malta experienced robust economic growth of 6.9%, largely driven by domestic demand and net exports. The government has implemented energy price subsidies and social measures for households in 2023, with a budgeted cost of 3.4% of GDP and 0.4% of GDP in 2023 respectively, underpinning a still wide deficit of over 5% of GDP in 2023. Still, the country’s strong growth outlook, commitment to post-crisis fiscal discipline, and a stable interest payment burden despite the sharp rise in the debt stock since 2019 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.
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 reform support greater diversification into higher-value added, more sustainable activities, bolstering the resilience of the country’s growth model; and/or ii) post-crisis fiscal consolidation returns public debt-to-GDP 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) institutional fragilities re-emerge and threaten Malta’s economic attractiveness and competitiveness.
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) 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, Associate Director.
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