Ratings agency warns of Malta’s energy spending, but notes positive economic performance

Ratings agency Morningstar DBRS has highlighted Malta’s energy sector spending, but also noted the country’s positive economic performance in its latest rating.

Morningstar DBRS has kept Malta’s long-term credit rating at A (high) with a stable outlook. It said that risks to the rating remain balanced.

The ratings agency also noted that Malta’s budget deficit is likely to widen this year, as energy subsidy costs rise and spending by the Government put pressure on finances. Total Government expenditure rose by 17.1 per cent in the first six months of the year, compared to the same period the previous year.

Finance Minister Clyde Caruana had said during a pre-Budget conference that energy subsidies were expected to cost the country €400 million this year, and the same next year.

The ratings agency noted that higher energy prices and the Government’s intention to keep the energy subsidies posed a longer-term risk to the country’s finances.

But the agency also took note of Malta’s GDP growth, which grew by 4.4 per cent in the fist six months of this year, compared to a year earlier. The ratings agency noted that Malta’s debt remained relatively low, standing at 45.9 per cent of GDP in March. It said that current debt levels provide valuable space for the Government to support the economy if necessary.

A concern it raised was about Malta’s labour growth, and it warned that continued rapid growth could increase infrastructural pressures.

Regarding banks, the agency noted that the local sector is financially strong, but flagged their heavy exposure to the property sector as a potential source of risk.

Regarding Governance, DBRS said the country is generally in line with the EU on some indicators, such as rule of law. However, DBRS found Malta remained weak when it came to the control of corruption.