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 19 February 2024.

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.

Key rating factors

For the updated Rating Report accompanying this review, click here.

The Republic of Malta’s long-term A+/Stable ratings are underpinned by the following credit strengths: i) strong growth potential; ii) prudent fiscal management, supported by strong growth and reflected in its good record of pre-crisis fiscal consolidation; and iii) robust external position, with a large net international creditor position, further bolstered by euro area membership.

Malta is projected to maintain strong economic momentum. Scope expects real GDP to increase by 4.5% in 2024, after 6.2% in 2023, and 4.0% in 2025, driven by private consumption and service exports. Public investment is expected to be supported by the EU Recovery and Resilience Facility following a payment request in December 2023 to the European Commission for EUR 58.9m in grants (net of pre-financing). Over the coming years, strong economic momentum should drive the gradual convergence of real GDP per capita (EUR 24,650 in 2022) with the euro area average (EUR 31,790).

The fiscal deficit is projected to remain wide, at 4.5% in 2024, from 5.0% in 2023, reflecting large subsidies (3.3% of GDP) to maintain economic and social stability. Even so, the deficit is projected to moderate to 4.3% of GDP in 2025 and 3.5% of GDP in 2026 due to strong nominal GDP growth and the phasing out of subsidies. Malta’s moderate public debt is projected at 56.2% of GDP in 2028, from 52.7% in 2023, reflecting the government’s commitment vis a vis revised EU fiscal rules.

Credit challenges relate to: i) an externally dependent and resource constrained economy which poses some long-term risks to the stability and sustainability of Malta’s growth model; ii) fiscal risks related to increasing age-related cost pressures, high reliance on corporate income taxes and contingent liabilities; and iii) lingering, albeit improving, institutional and administrative challenges.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) continued implementation of structural reform support greater diversification into higher-value added, more sustainable economic 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 ratings/Outlooks 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 iii) 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, 29 January 2024) 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 Thomas Gillet, Director

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