The well-renowned global ratings agency Fitch has reaffirmed Malta’s A+ with a stable outlook. Driving this positive development are Malta’s resilient labour market and strong GDP growth. These factors are indeed encouraging, especially when considering the context of the global economy which represents soaring inflation and an upcoming recession.
Fitch published its assessment and highlighted that Malta’s economy is expected to grow at a faster pace than forecasted. It is anticipated to grow by 3.4% in 2023. The factors contributing towards this expected growth include a high per-capita income, a significant net external credit position, a solid economic track record prior to the pandemic and the reduction of debt.
Although the economic standing of the country remains strong, there are elements that push forth against it. According to Fitch’s statement, these include the country’s debt which increased significantly, the small economy, exposure to external shocks and large banking sector.
One of the main concerns for Malta’s government ties to energy subsidies and for how long these will be needed. It is anticipated that energy subsidies will cost Malta six hundred and five million Euro, which translates to 3.5% of the country’s GDP. Compensating for this is the tax revenue which is expected to recover following the removal of restrictions related to the pandemic. It is important to note that considering how volatile the situation is, it is difficult to estimate how much government will need to spend to continue protecting the population from increased energy prices.
Fitch anticipates that Malta’s debt will continue to reduce. In 2022, it is expected that debt will drop to 5.8% of the GDP. This is an important consideration, especially when comparing the debt to that of 2021 which stood at 7.8%. In 2023, this is expected to further reduce to 5.2%. When considering the other countries that are rated ‘A’, the debt is still on the high side.
When describing Malta’s Budget programme, it is stated that various social measures are being pushed forward. These measures aim to address the impacts of the high inflation which have been detrimental to lower income earners.
According to Fitch’s assessment, if Malta manages to maintain its debt below sixty percent of its GDP in 2024, growth exceeds three to four percent and energy subsidies are no longer needed, government will not need to increase or introduce taxes.
Inflation is expected to be less aggressive next year. Wage inflation could however pick up and food prices are expected to stabilise as well. Malta’s labour market has also been praised by Fitch. It was stated that there has been seemingly no impact when the COVID-19 wage supplements were phased out back in May.
The government received the report well, interpreting it as an affirmation that Malta is on the right track.
