Analysis on the DBRS rating of Malta

Following the recent DBRS sovereign rating announcement on Malta, the below is the analysts' take on the sovereign rating of the country.

DBRS expects Malta to remain one of the euro area’s top growth performers in the next couple of years. Although Malta’s medium-term prospects remain solid, DBRS expects economic activity to decelerate gradually as infrastructure bottlenecks and labour shortages become more evident. Major risks to the outlook stem from an escalation of protectionist trade measures hurting global trade and growth as well as the impact on tourism from Brexit.

DBRS is of the view that Malta’s public finances will continue to improve in coming years. Given the difficulty in predicting the proceeds from Malta’s Individual Investors Programme or IIP, DBRS considers appropriate the authorities’ intention to comply with the government’s Medium-Term Objective, net of the IIP. DBRS expects the debt ratio to continue declining related to the primary surplus and the favourable debt snowball effect.

The Stable trend reflects DBRS’s opinion that further upgrades are unlikely in the absence of: (1) a sustained material reduction in the public debt ratio to low levels driven by sound fiscal management and economic performance; or (2) a significant increase in Malta’s income per capita levels, fully converging to the European Union (EU) average.

While DBRS’s baseline factors in a relatively positive economic and fiscal outlook, a deterioration in the trajectory for public debt in the medium term could exert downward pressure on Malta’s ratings. This could derive from: (1) a deterioration in growth prospects, (2) a relaxation of fiscal discipline, or (3) the materialisation of contingent liabilities.

See the DBRS ratings report here.