Moody’s affirms Malta’s A2 rating which ‘reflects the economy’s capacity to sustain strong growth’

Moody's Ratings has affirmed Malta’s long-term local and foreign currency issuer ratings at A2 with a stable outlook, explaining that tis reflects the economy's capacity to sustain strong growth.

It said the economy also contained inflation through successive external shocks, balanced against constraints from its small size, high trade openness and institutional challenges, Moody’s said.

It noted that the country has high income levels and a service-oriented economy spanning tourism, financial services, remote gaming and information and communication technology.

“The economy's diversification partly offsets its small size and vulnerability to changes in external demand. Growth remained strong at 4.7 per cent in 2025 and averaged 4.4 per cent in the first half of 2026, supported by private consumption, government consumption and investment. We forecast real GDP growth of 4.1 per cent in 2026 and 3.7 per cent in 2027, with domestic demand remaining the main contributor,” it said.

“Malta's moderate and stable government debt burden, strong debt affordability and reliable domestic funding base also support the rating.”

But it noted that continued untargeted energy subsidies and increases in other current expenditure “will widen the fiscal deficit from its 2025 level and limit the restoration of fiscal space.”

It said that Government support has contained the effects of volatile energy prices on households and companies. “Harmonized inflation averaged 2.2 per cent during the first nine months of 2026, well below the euro area average of 2.8 per cent. We forecast inflation of 2.3 per cent in 2026 and 2.5 per cent in 2027, consistent with the government's decision to continue energy subsidies through 2027, but factoring in some pass-through of second round effects from food and transportation. However, the subsidies transfer energy-price risk to the government's balance sheet which limits the restoration of fiscal space.”

That said, Malta's fiscal strength remains an important rating support, it added. “The fiscal deficit narrowed to 2.1 per cent of GDP in 2025 from 3.5 per cent in 2024, enabling Malta to exit the EU's excessive deficit procedure in June 2026, ahead of the 2027 deadline. We project deficits of 2.8 per cent of GDP in 2026 and 2.7 per cent in 2027 as continued energy support, higher social security spending, as well as higher public investment increase expenditure.”

Regarding the Budget, it said that energy subsidies will cost about €400 million in 2027, equivalent to approximately 1.4 per cent of GDP. Major revenue measures announced in the 2027 budget speech include increases in tourist contributions and higher work permit fees. If implemented effectively, these will partly offset spending increases, it added

Malta's government debt burden and debt-affordability metrics remain consistent with the A2 rating. “We forecast government debt to rise modestly to 46.8 per cent of GDP in 2026 from 46.3 per cent in 2025 and remain at that level in 2027, as strong nominal GDP growth offsets primary deficits.”

The ratings agency said that the stable outlook reflects balanced risks at the A2 rating level.

“The stable outlook reflects our expectation that strong growth, moderate government debt, affordable debt-service costs and low financial and external vulnerability will continue to balance Malta's institutional constraints. We expect the fiscal deficit to remain below 3 per cent of GDP and government debt to remain broadly stable, notwithstanding continued energy support and other expenditure increases. Political stability and a reliable domestic funding base further support policy and financing continuity.”

It also noted that the banking system has strong capital and liquidity, stable deposit funding and low non-performing loans, “although rapid credit growth and a high concentration in property-related lending warrant monitoring.”