On July 10th 2015, Standard & Poor’s (“S&P”) revised the outlook on Malta to positive from stable.
Malta maintained its overall rating as S&P reaffirmed its BBB+ Investment Grade (which means that Malta has adequate capacity to meet its financial commitments) and its A-2 short-term issue credit rating. S&P is an American Financial Services company. Its parent company is McGraw Hill Financial. S&P is considered to be one of the top three credit-rating agencies.
S&P stated that Malta’s economic growth prospects remain strong relative to its EU and ‘BBB’ rating category peers. S&P’s expectation is that budgetary consolidation will continue, and in turn lead to a net general government debt decline to 55% of GDP in 2018, from 59% in 2014. It is S&P’s belief that the events in Greece will not have a material bearing on Malta’s credit profile. The positive outlook reflects a one-in-three likelihood of an upgrade within the next two years if medium-term economic growth prospects are maintained and fiscal consolidation continues, while no bank or nonfinancial public enterprise related contingent liabilities or external risks materialize.
The following summarizes S&P’s rationale, which led to the positive outlook revision in July.
Malta’s real GDP grew by 3.5% in 2014, and it is projected to expand by 3% annually on average in 2015-2018. Malta’s economy is believed to continue to outpace the eurozone as a whole, mostly because of investments in the energy sector. Some of the investments include the laying of an interconnector cable to Sicily, the building of a liquefied natural gas terminal, a natural gas plant, and the conversion of an oil-fired plant to gas, which are all expected to be finalized in 2016.
In addition to this, further diversification of the economy could boost investments in information and communication technology and medical tourism, beyond 2016. The labor market has also seen positive developments, with rising wages and broader female participation. This, combined with the 25% reduction in electricity prices, should lead to an increase in domestic demand.
The tourism sector is expected to continue to perform well. This is backed by the favorable EUR/GBP exchange rate, the increased perception of terrorism-related risks in other countries in the Mediterranean and the current situation in Greece. The low corporate tax rate has attracted significant foreign investment in Malta’s banking, insurance, and gaming industries.
Standard & Poor’s revision on Malta’s outlook and S&P’s remarks in their report, shed light on Malta’s positive reputation in Europe. Malta is in a good position to build on the momentum to continue strengthening the country’s economy.