Credit agency DBRS confirms Malta’s A (high) rating despite fiscal pressures

DBRS Morningstar has confirmed Malta’s Long-Term Foreign and Local Currency-Issuer Ratings at A (high) and its Short-Term Foreign and Local Currency-Issuer Ratings at R-1 (middle), with a stable outlook. This reflects a balanced view of the risks to Malta’s credit ratings.

The agency noted that Malta’s economy is expected to grow at a strong pace, with real GDP growth forecasted to ease from 6.0 per cent in 2024 to 4.0 per cent in 2025, driven by domestic employment and service exports like tourism. However, downside risks include global trade tensions and geopolitical issues.

Despite strong economic growth, fiscal pressures remain significant. The general Government budget deficit is projected to narrow gradually, reaching below 3 per cent by 2026, supported by new fiscal measures and strong revenue growth.

Malta’s public debt is moderate and favourable compared to other Euro area countries. It is expected to remain stable, providing fiscal space for economic support if needed.

DBRS said that the banking sector has strong capital and liquidity buffers, but it is vulnerable to external shocks due to its small and open nature. Improvements in the AML/CFT framework are crucial for maintaining the banking sector’s international reputation.

The agency identified a material improvement in the public debt trajectory or increased economic and fiscal resiliency as key drivers for a rating upgrade. On the other hand, a downgrade could result from a significant deterioration in the public debt trajectory or a reversal of improvements in financial crimes and institutional quality reforms.

The analysis by DBRS found that economic growth is expected to remain strong, driven by service sector exports and private consumption. However, risks include geopolitical tensions and higher US tariffs, which may have a limited impact on Malta’s service-driven economy.

The fiscal deficit is projected to narrow gradually, supported by strong economic growth and new fiscal measures. However, higher-than-expected energy prices and infrastructure spending pressures pose downside risks.

In terms of public debt, this is expected to remain moderate, providing fiscal space for economic support. The interest burden is projected to remain low, with stable funding sources.

Meanwhile, domestic banks have strong capital buffers but are exposed to concentration risks from the housing market. Improvements in the AML/CFT framework are crucial for maintaining the banking sector’s reputation.

Malta’s current account surplus is strong, driven by a large surplus in the services balance. However, the operations of special purpose entities and multinational companies impact external finances.

DBRS also noted that Malta benefits from strong national and EU policy frameworks but has room for improvement in governance, particularly in controlling corruption and enhancing judicial effectiveness.

The agency further pointed out that Malta’s GDP per capita has caught up to the EU average, reflecting broad-based economic growth. Respect for human rights is high, with widespread access to healthcare and basic services.

Malta ranks broadly in line with the EU average in governance indicators but has room for improvement in government effectiveness and control of corruption, it said.

Overall, Malta’s credit ratings are supported by its Euro area membership, strong external position, and moderate public debt. However, the small and open nature of its economy renders it vulnerable to external shocks, and further improvements in governance and financial crimes reforms are crucial.