Fitch
Ratings has affirmed Malta's long-term foreign and local currency issuer
default ratings (IDR) at 'A' with a positive outlook.
The issue
ratings on Malta's senior unsecured foreign and local currency bonds have also
been affirmed at 'A' and 'F1', respectively.
The country
ceiling has been affirmed at 'AAA' and the short-term foreign and local
currency IDRs at 'F1'.
The agency
said Malta's ratings reflected its high national income per head compared with
the 'A' median, robust economic growth and a large net external creditor
position.
The ratings,
it said, were constrained by ongoing structural bottlenecks as captured by the
weak World Bank ease of doing business indicator.
The positive
outlook reflected the agency’s view that the public debt/GDP ratio was on a
downward trajectory and that economic growth would keep outperforming
similarly-rated peers.
Economic
growth remained strong in 2016 at 3.9% year-on-year over the first three
quarters, boosted by robust private consumption.
“We forecast the Maltese economy will keep
growing at a faster pace than the 'A' median at an average 3.3% over 2017-2018,
supported by strong employment growth, rising disposable income due to
continuous wage appreciation and the launch of new investment projects in the
health, education and transport sectors.
“Strong
export performance in the pharmaceutical, remote gaming, financial services and
tourism sectors will help maintain a solid current account surplus over
2017-2018 despite higher import-intensive investments related to the new EU
funding cycle.”
Malta's
external position compared favourably with 'A' rated peers, with a net
international investment position estimated at 47% of GDP at end-2016.
Real GDP
growth was revised up by 4.9pp in 2014 and 1.3pp in 2015, following national
accounts revisions published by the National Statistical Office in December
2016.
This was
mainly due to upward revisions to non-residential construction and machinery
and to service exports, notably from the gaming industry.
This led to
a substantial improvement in the public debt/GDP ratio and to an upward
revision of potential GDP growth to 5.4% in 2016, reflecting higher estimates
of total factor productivity.
Malta's
gross general government debt fell to an estimated 59% of GDP at the end of
2016 from 60.8% in 2015 due to high revenues from excise duties, income tax and
the International Investor Programme (IIP).
“We expect it to decrease to 56% in 2018, on
the back of an improved primary surplus and strong nominal GDP growth, still
higher than the 'A' median of 52% of GDP.
“We project
the fiscal deficit to narrow in 2017 to 0.5% of GDP from an estimated 0.7% in
2016.”
The agency
said robust economic growth and additional indirect tax measures would boost
tax revenues and offset more moderate revenue from the IIP, increased expenditure
related to the EU presidency and lower tax on pensions.
The agency
noted that no further capital transfer had been budgeted for Air Malta as the
government expected private investors to take a stake in the company this year.
“We believe
the deficit will remain stable in 2018 as higher absorption of EU funds enables
lower public investment, while revenues from the IIP decrease.
Government-guaranteed
liabilities, it said, remained among the highest in the European Union at 14.8%
of GDP at the end of 3Q16, although they were set to decrease to 11.9% of GDP
at end-2017, when the temporary guarantee granted to ElectroGas for the
construction of a new power station expired.
Most
guarantees related to profitable companies, including the utility company
Enemalta, Freeport Group Corporation and Malta Industrial Parks.
Malta's
banking sector remained profitable, liquid and well capitalised, albeit highly
concentrated, with core banks representing 219.5% of GDP as at the end of
September 2016.
Asset
quality improved with non-performing loans decreasing to 5.6% of total loans at
end-September 2016, and the agency expected it to improve further.
A sharp
correction in the housing market constituted the main domestic risk to
financial stability given the large exposure of the banks to the sector through
mortgage lending and real estate collateral.
However, the
rise in house prices had moderated and the pace of mortgage lending decreased
to 6.2% as at the end of September 2016 from 11% a year earlier.
The agency
noted that future developments that could individually or collectively, result
in positive rating action include:
- A
longer track record of consolidating the public finances that led to
a lower government debt/GDP ratio.
- A
significant decline in contingent liabilities or a low likelihood that
these contingent liabilities materialised.
- Progress
in addressing key weaknesses in the business environment.