Fitch affirms Malta’s ‘A’ rating

Bernard Gauci  -  14/March/2014

Fitch Ratings affirmed Malta’s long-term foreign and local currency Issuer Default Rating (IDRs) at ‘A’. The issue ratings on Malta’s unsecured foreign and local currency bonbds have also been affirmed at ‘A’.

According to Fitch, the affirmation and the stable outlook reflected several key rating drivers:
"The Maltese economy is on the road to recovery. In 2013 the economy grew by 2.4%, better than 2012 (0.9%) and higher than the eurozone average (negative 0.4%), but still some way short of the 'A' median of 3.3% over five years. Fitch expects Malta's GDP growth to continue outperforming the eurozone average in 2014-15.

"At 6.5% the unemployment rate is in line with the 'A' median and well below the eurozone average, while the employment rate has risen, underpinned by the increasing female labour market participation rate.

"Public finances remain a sovereign rating weakness. However, while public debt/GDP continues to exceed the 'A' median, positive budget outturns for 2013 indicate that the general government deficit (GGD) is converging to the rating median (2.6%). Fitch estimates the GGD declined to 3% of GDP in 2013, from 3.3% of GDP a year earlier. Recent data points to significant growth in both indirect and direct tax receipts in the 11 months to November 2013. Positive labour market dynamics and corporate profitability have underpinned growth in income tax receipts, despite changes to the income tax brackets.

"Stronger revenues contrast with rising expenditure, reflecting significant underlying pressures in the Maltese economy. Fitch estimates general government expenditures increased to 44.2% of GDP in 2013 from 43.4% of GDP in 2012. Significant increases in compensation of employees, social benefits' expenditures and capital expenditure have only been partially offset by expenditure reduction at ministerial level. However, total expenditures relative to GDP remain well below the eurozone average."

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