Morningstar DBRS Confirms Malta's A ratings, notes 'weak' corruption controls

Global credit rating agency Morningstar DBRS has confirmed Malta’s “A (high)” and “R-1 (middle)” for Long-Term Foreign and Local Currency-Issuer and Short-Term Foreign and Local Currency – Issuer ratings, respectively, but noted the country compared weakly with the rest of the EU on corruption scores. 

Malta’s trend on all ratings was judged to be “Stable.” The “Stable” trend is a reflection of the agency’s view that the risks to Malta’s credit ratings remain balanced. Malta’s economy had recovered strongly from the pandemic, with real GDP increasing by 18.0% between 2019 and 2023, compared to an increase of 3.3% for the Euro area. This was driven by a rebound in tourism and strong growth in other important service industries such as professional services, information and communication technology, gambling and trade. 

“On the expenditure side, private consumption was bolstered by high inflows of foreign workers and large fiscal support measures which cushioned the impact of inflation on households’ purchasing power. While the economy is exposed to downside risks such as an escalation of geopolitical tensions, the general growth outlook is favourable,” reads the report, going on to state that “the Central Bank of Malta (CBM) forecasts real GDP to expand by a still strong 4.4% in 2024 and by 3.6% in 2025.”

It was not all good news for Malta, however. “Although the strong economic recovery bolstered government revenues, fiscal performance has deteriorated markedly in recent years on the back of still sizeable fiscal support measures," the report states.

"The IMF estimates the general government budget deficit at 4.8% of GDP in 2023, reflecting the fiscal cost of freezing energy prices at pre-crisis levels and budgetary support measures for the restructuring of Air Malta," it said, noting the planned gradual reduction in the country's budget deficit to 4.0% of GDP in 2025 and to 3.5% in 2026. "Moreover, the projected narrowing of budget deficits is not based on a clear exit strategy for the untargeted energy subsidies but rather on the government’s expectation that a decrease in global energy prices will reduce the fiscal cost of subsidies. Therefore, higher-than-expected energy prices constitute a downside risk for public finances.” 

On governance, the ratings agency said Malta’s indicators were “relatively strong and broadly in line with EU averages but compare weakly in terms of control of corruption,” Morningstar DBRS said, noting that Malta had made “significant progress in improving its governance and its institutional framework in recent years, including implementing reforms to the justice system.” 

“However, Morningstar DBRS considers that there is room for further convergence toward other sovereigns with very strong assessments on the Political Environment building block, including more tangible evidence of enhanced efficiency, and effectiveness in the country’s judiciary and control of corruption. Policy continuity is high and Morningstar DBRS expects Prime Minister Robert Abela (Labour Party) to remain committed to improving the country’s institutional and governance framework during the current legislature.”

Prime Minister hails Malta’s stability and resilience 

In an official reaction tweeted by Robert Abela’s X account, the Prime Minister wrote “Another A (high) rating from DBRS Morningstar. remains an island of stability in a world of uncertainty. Since 2019 we have grown six times the euro area, protecting families and businesses from the pandemic and other shocks. Dynamic and resilient we will remain.”