Fitch Rating affirmation of the Country’s Economic Direction

“Fitch’s country rating for Malta, wherein it reaffirmed Malta at ‘A’ with a stable outlook, confirms the country’s economic growth as sustainable and geared to keep outperforming other EU states on GDP growth and employment,” said the Minister for Finance, Prof. Edward Scicluna Welcoming Fitch’s country rating published on Friday 11th September, Prof. Edward Scicluna noted Fitch’s recognition that Malta’s robust economic growth continues to outperform the euro zone average, and is expected to keep doing so. Fitch observes that in 2013, “the economy grew by 2.9%, better than 2012 (1.1%) and higher than the euro zone average (negative 0.4%).”

Fitch also recognises the positive impact of the reduction in electricity tariffs on consumption, stating that economic growth was mainly driven by domestic demand underpinned by the reduction in electricity tariffs. Scicluna also welcomed Fitch’s forecast that Malta’s economic growth will continue to outperform the euro zone, averaging at 2.5% in 2015-16.

In its report, Fitch also recognises the success of the Government’s budget measures aimed at keeping unemployment contained by expanding the labour force through the make-work-pay principle, while also encouraging greater female participation.

The credit rating agency remarks that, “at 5.7% in July, the unemployment rate is below both the ‘A’ median and the eurozone average, while the employment rate has risen, underpinned by the increasing female labour market participation rate.” Fitch further observes that, “the decline in unemployment took place against the backdrop of a strong increase in the labour force.”

With regard to public finances, Fitch notes that Government finances are on an improving trend, and recognises the Government’s success in bringing “the General Government Deficit (GGD) under control over the course of 2013 following significant fiscal slippage in 2012.”

The credit rating agency further notes the Government’s success in reducing the deficit to below what was expected by Fitch at the time of the latest rating review, as the deficit-to-GDP ratio was projected by Fitch to decrease to 3 percent in 2013, while the Government reduced the deficit to 2.8 per cent.

“Fitch projects the deficit to decline further to 2.5% of GDP in 2014 and 2015. Nevertheless, Government is confident that Malta will again exceed various international institution’s expectations with regard to the deficit-to-GDP ratio, and we remain committed to reducing the deficit to 2.1 per cent as targeted in the 2014 Budget,” Prof. Scicluna said. With regard to general Government gross debt, Fitch forecasts that it will decline gradually in the medium term to 70 per cent of GDP by 2020.

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Fitch also notes how despite the pressure on public finances posed by the healthcare, social security and transport sectors, the credit rating agency does not expect these developments to compromise deficit reduction in 2014.
Fitch furthermore recognises Government’s commitment to ensure fiscal sustainability through the adoption of the Fiscal Responsibility Act, underlining that the milestone adoption of the Fiscal Responsibility Act can have a positive effect in this regard.

“Fitch’s rating report confirms that the country’s economic expansion is on a path which will continue to outperform on the basis of GDP growth and employment generation, while its public finances will similarly be expected to continue to improve over the coming years,” Prof. Scicluna said.

“This result has been boosted by the Government’s budget measures aimed at strengthening economic growth, generating quality employment, and ensuring the sustainability of public finances. The Government is looking towards the coming budget as an opportunity to build upon these successes,” he said.