DBRS affirms Malta’s credit rating at A and changes trend to positive

Independent credit rating agency DBRS has affirmed Malta’s credit rating at A while upgrading the trend on the ratings to positive

Finance Minister Edward Scicluna (left) at an Ecofin meeting
Finance Minister Edward Scicluna (left) at an Ecofin meeting

Following credit rating upgrades by Standard and Poor’s and Fitch, another independent credit rating agency, DBRS, has affirmed Malta’s credit rating at A while upgrading the trend on the ratings to positive.

DBRS acknowledged that Malta’s fiscal outturns came in better than expected in 2016 where decades of fiscal deficits were turned into surpluses. The credit rating agency also noted that in 2016, the Government debt ratio, which was already 12 percentage points lower than its 2011 peak, fell below 60% of the GDP.

DBRS attributed the improvement in public finances to “...strong revenues as well as moderation in expenditure, and supported by a strengthened fiscal framework.”

“Four years ago, we had promised to work on upgrading Malta’s credit rating which would make our country more attractive to foreign investors. In contrast with the past deteriorating state of public finances with ballooning deficit and debt ratios, we directed our efforts to addressing such issues, bringing about an upgrade to Malta’s rating, and hence honouring our promise,” finance minister Edward Scicluna said.

The report further notes how fiscal over-performance meant that Malta complied with the budget balance rule, the debt rule, and the expenditure benchmark of the EU Stability and Growth Pact in 2016.

DBRS said it expects that “the important improvement in the fiscal position over the past three years is likely to be sustained. A sound budget position, together with solid growth, is expected to lead to the further reduction in the public debt ratio.”

DBRS also acknowledged the government’s efforts to address structural and fiscal challenges including the restructuring of Enemalta and Air Malta, and measures to address tax evasion and informality.

However, age-related costs remain a challenge, in particular in pensions, noting that the government implemented various reforms to help secure the long-term sustainability of the system, including measures to discourage early retirement and lengthen the contributory period.