Malta currently enjoys a stable credit rating from all three leading Credit Reference Agencies. This particular choice of rating was already held for Malta by Standard & Poor’s and Fitch, whilst Moody’s took the decision to follow up and upgrade it from negative, earlier this quarter.
The reasons leading up to Moody’s decision for Malta’s rating to be upgraded were mainly threefold.
Firstly, based on the newly elected government’s pledge to reduce its deficit and debt accumulation, and in light of the gradual economic recovery, stabilisation of debt metrics is anticipated by the agency in the upcoming year.
Secondly, Moody’s moves on to mention Malta’s “lack of funding stress and limited contagion risk from the Euro area”. This was seen to be the case when Cyprus’ situation worsened earlier this year and only resulted in marginal impact on the sovereign’s debt market.
Thirdly, a feature also identified in the latest European Central Bank’s report on Banking Structures, is the resilience of the Maltese banking system. This element is supported by a well capitalised system, constituted of high deposit levels. Moreover, the banking system has proven itself further on this point through its overall performance during the financial crisis.
Malta’s economic strength and stability is on the rise and Moody’s report goes on to mention that further rating upgrades could be expected if there is a “significant improvement in the the Government’s balance sheet”. Nonetheless a downgrade would not be ruled out if fiscal consolidation is obstructed or if the financial system found itself in a position which would restrict itself from government funding.