The international agency Moody’s has reaffirmed Malta’s A2 rating. This is a rating that our country was awarded in July 2019 and remains the best rating achieved since September 2011. The rating has been retained even though since July 2019, Malta went through a change in administration due to political developments, a major economic and fiscal shock due to a pandemic that decimated tourism, and a decision by FATF to put Malta under enhanced monitoring.
At the same time, Moody’s has changed the outlook for the rating to negative. It should be noted that when Malta was facing a much less severe economic challenge – the European debt crisis – Moody’s downgraded Malta’s rating twice, first in September 2011 and then in February 2012. The February 2012 rating of A3 Negative was Malta’s worst ever rating, and was only changed in October 2013, after a change in administration and its improved fiscal plan.
In their current assessment of Malta, Moody’s experts note that while the national debt increased due to the pandemic, this effect is “mitigated by the government’s strong affordability metrics”. Which means that this burden remains sustainable and shows how important Malta’s past fiscal track record is. In addition, Moody’s press statement also says that its decision to reaffirm the rating “reflects the relative resilience of the non-tourism-oriented parts of the Maltese economy, the resilience of the banking system to the pandemic shock as well as the government’s efforts to address some of Malta’s longstanding institutional challenges”.
While the national debt increased due to the pandemic, this effect is “mitigated by the government’s strong affordability metrics”.
Moody’s is predicting that the government’s strong support for businesses and their workers will lead to the Government’s deficit remaining sustained in the immediate term and thus the national debt will continue to grow. This may be a somewhat pessimistic assessment since by June 2021, Government revenue was already back to the levels observed in 2019 before the pandemic. Moreover, the continued fall in unemployment and dependence on social benefits, combined with Government’s announcements of a tapering of the wage supplement suggest that expenditure may be more contained in the coming months.
Moody’s are also somewhat pessimistic in their economic forecasts, making the most conservative forecast for 2021’s economic growth. This because they are concerned on the fact that tourism numbers will remain low, as only vaccinated tourists can visit Malta. Since the majority of source markets are failing to equal Malta’s progress in vaccination, this creates issues. While this is true, allowing in unvaccinated tourists in a small densely populated country like Malta could put other industries at risk.
The current situation in the UK is seeing a rise in cases, leading to large amounts of workers having to quarantine, resulting in considerable disruptions in economic activities. By contrast in Malta the decline in active cases, combined with the new quarantine rules for vaccinated persons, means that disruptions will be much more contained.
As regards the FATF decision, the Moody’s report notes the importance of Malta building a track record of effectiveness as regards the major reforms that have taken place in recent months. Moody’s assessors point out how “both FATF and the Council of Europe’s anti-money laundering MoneyVal have recognised the progress made to date in strengthening the supervisory framework in Malta”. They add that the focus now needs to move to enforcement. This has been recognised by Government which has committed to devote more resources to this area.
While the Opposition continues to claim that Malta is a Mafia state, according to Moody’s, our country has a “very strong governance profile”. The report states that “on the whole, the country benefits from a strong institutional environment”. It also goes so far as to point out that the decision to reaffirm Malta’s A2 rating “reflects the efforts undertaken by the Maltese government since 2020 to address some of the country’s institutional shortcomings”.
The confirmation of the rating by Moody’s also follows the decision of credit rating agencies Fitch and DBRS which also confirmed Malta’s strong rating, while both the European Commission and the IMF have revised upwards their forecasts for Malta’s GDP growth.