Fitch confirms Malta's A+ rating, notes lack of exit strategy on energy subsidies

Fitch Ratings has reaffirmed Malta's A+ rating with a stable outlook, indicating a positive assessment of the country's economic health and stability.

Malta's economic landscape, according to Fitch Ratings, boasts several strengths that contribute to its rating. Among these strengths are its high per-capita income. Additionally, Malta benefits from high potential growth rates, demonstrating its capacity for continued economic expansion.

According to the credit agency, the country has experienced a notable post-pandemic recovery, with GDP surpassing 2019 levels by approximately 17% as of the fourth quarter of 2023. 

Furthermore, Malta's tourism sector has shown resilience, fully rebounding from the pandemic-induced downturn. 

Tourist arrivals have not only recovered but have also exceeded pre-pandemic levels. However, capacity constraints, including those at the national airport, have emerged as potential challenges to sustained growth in tourism.

The strength of Malta's labour market is another positive aspect highlighted by Fitch Ratings. Unemployment is forecasted to remain below pre-pandemic levels, demonstrating the economy's ability to maintain a low unemployment rate.

Despite these strengths, Fitch Ratings also identifies certain weaknesses and challenges facing Malta's economy. One notable concern is the country's large fiscal deficits and the depleting of public finances. These deficits have contributed to an increase in the public debt burden, raising questions about the sustainability of Malta's fiscal policies in the long term.

Additionally, the lack of a clear exit strategy from the current fixed price policy on energy subsidies poses a fiscal risk, as future costs associated with these subsidies remain uncertain. Potential tax changes related to the EU's Minimum Tax Directive could also impact Malta's attractiveness for multinational companies, posing challenges to its economic competitiveness.

However, despite these challenges, Malta's governance indicators remain strong, with stable political transitions, strong institutional capacity, and effective rule of law.