‘Outlook Stable’ for Malta with an A+ Rating re-affirmed by Fitch

Fitch Ratings has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a ‘Stable Outlook’. Malta’s rating is underpinned by its high per capita income, robust growth rates and membership of both the EU and Euro area.

Strong Economic Momentum

The forecast for real GDP growth will average at 5.7% this year, significantly above the ‘A’ median and the Eurozone growth forecasts of 2.0% and 0.8%, respectively. Recent strong growth has been driven by the services sector, financial sector (due to higher interest margins) and tourism. Arrivals in the first half of 2024 surpassed pre-pandemic levels by 32% and growth forecasts have been revised up for 2025 and 2026 to 4.3% and 4.1%, respectively.

Malta’s statistical office adjusted nominal GDP at the end of 2023 6.3% higher which has positively impacted ratios that flow into the Sovereign Rating Model, including GDP per capita, which now stands at 91% of the Eurozone average.

Growth Set for Having High Potential

Potential growth estimates from the IMF and European Commission are between 4% and 5% for this year and next, well above regional peers, supported by dynamic population growth. However, potential growth is expected to gradually ease.

A Strong Labour Market

Malta’s labour market shows strong participation rates, robust employment growth and low unemployment. The forecast is that unemployment will average at 3.2% over the rating horizon, well below Malta’s Eurozone forecast of 6.5% and the pre-pandemic rate of 4.1% in 2019. Skills shortages in a rapidly growing economy remain structural challenges and increased hiring from abroad has only partially mitigated the issue.

Reducing Fiscal Deficits

The updated fiscal projections broadly align with the government’s new medium-term fiscal forecasts. It is now estimated that this year’s deficit at 4.0% of GDP, will decrease to 3.5% by 2025 and 3.0% by 2026. Forecasts take into account the higher nominal GDP base and lower energy prices (with the total cost of energy subsidies estimated at around 0.8% of GDP for 2024) and include the recently announced income tax cuts for the middle class. Malta’s government seems committed to keeping debt below 60% of GDP and aims to reduce the deficit to 3% within the next two years.”

Fiscal Reservations

Corporate tax revenues are a key income source for the government, helping offset the modest share of labour taxes and a sizeable VAT gap, but the government is taking steps to improve VAT collection and has begun addressing concerns over tax planning structures as part of its Recovery and Resilience Plan. The Citizenship for Direct Investment programme is expected to generate revenues amounting to 0.6% of GDP this year.

Debt Trajectory Improvement

The revision of national accounts has reduced Malta’s debt ratio to 47.3% of GDP at the end of 2023. However, with slower nominal GDP growth and moderate fiscal deficits, the debt ratio is expected to rise again, reaching 49.6% of GDP by the end of 2024 – still below the ‘A’ median of 53.3%. Financing risks remain low due to ample liquidity in the domestic banking sector and a strong domestic investor base with only around 18% of government debt held by non-residents as of July 2024.

ESG – Governance

Malta has an ESG Relevance Score (RS) of ‘5[+]’ for both Political Stability and Rights: for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the significant influence that the World Bank Governance Indicators (WBGI) has in the proprietary Sovereign Rating Model. Malta has a high WBGI ranking at 75.4, reflecting its long history of stable and peaceful political transitions, well-established rights for political participation, strong institutional capacity, effective rule of law and relatively low corruption levels.

Real Estate

We predict another positive and robust year for Malta’s property sector. Prices have been stabilising for some time, providing a realistic and opportune investment environment for all kinds of investors. Although we mainly sell to the local market which makes up more than 80% of our client base, foreign buyers are still a strong component that plays a significant role in the Maltese property market, driving demand especially in high-end and luxury real estate. Malta’s attractive residency programs, tax incentives and the Mediterranean lifestyle on offer also encourage many international investors. This at times can be challenging to locals, especially to first-time buyers who are eager to get on the property ladder. To assist with this, various incentives are available from the government plus first-time buyers can also benefit from our incredible First-time Buyers Package offer: go to https://franksalt.com.mt/our-offers/offers-for-first-time-buyers/ to find out more.