Fitch revises Malta's outlook to stable; Moody's affirms A2 rating

21st April 2020 • News

Fitch Ratings has revised Malta’s Outlook to Stable from Positive,  while Moody’s has affirmed the country’s A2 rating.


Fitch said its outlook revision reflects the significant impact of the global coronavirus pandemic on Malta’s economy and public finances.


Fitch said it forecasts real GDP to contract 5.9% in 2020, reflecting the health crisis shock to the global economy and tourism, and the government’s containment measures, as both firms’ and households’ spending is put on hold.


Growth in public consumption will provide some limited cushion, on the back of increased spending in the healthcare sector. Growth is projected to rebound to 3.6% in 2021, but below 2019’s 4.4%.


The tourism sector is expected suffer a sharp contraction in 2Q20, before recovering slowly in 2H20. “Overall, we believe hotel occupancy in 2020 to be close to 50% of 2019 levels, with the remaining sectors dependent on tourism to be harshly affected as well. Travel and tourism accounted for about 16% of GDP in 2019 (excluding indirect effects), according to the World Travel & Tourism Council.”


The government has responded swiftly to health risks associated with Coronavirus, Fitch said. The authorities mobilised the healthcare system and implemented comprehensive containment and mitigation measures, including full suspension of inbound flights, social distancing and closure of non-essential shops and services and the lockdown of vulnerable pockets of population.


The impact of the shock on the domestic economy will be partially softened by proposed government relief measures to combat the disease and support the economy.


Fitch estimates the general government balance to deteriorate to a deficit of 8.2% of GDP in 2020, from a surplus of 0.8% in 2019, based on the operation of automatic stabilisers and the direct budget impact of close to EUR600 million (4.5% of GDP) from the government measures. Lower spending and a rebound in economic activity would partly shrink the deficit in 2021 to 5% of GDP.


General government debt is expected to increase to 55.7% of GDP in 2020, from an estimated 43.4% in 2019.


In spite of the external shock, Fitch projects Malta to maintain a current account surplus of 2.9% of GDP in 2020, albeit markedly down from 2019 (8.1%), as the contraction in imports would not be sufficient to offset the weaker service exports.


Meanwhile, Moody’s has affirmed Malta’s credit rating at A2 stable.


The government debt-to-GDP ratio declined rapidly from 2011 to 2019 but the outbreak of the coronavirus will lead to a significant deterioration of growth and fiscal metrics in 2020, it said.


While institutional challenges related to the rule of law, control of corruption and anti-money laundering supervision remain, the government has embarked on a reform process to tackle some of these issues.


Moody’s said the stable outlook on the rating reflects its expectation that although the outbreak of the coronavirus will cause a significant economic and fiscal shock in 2020, it expects the outbreak to have limited lasting, negative impact on Malta’s economy or public finances.


“The stable outlook is also based on our expectation that efforts to address institutional challenges will be maintained and that systemic risks emanating from the financial sector, including those related to money laundering and the financing of terrorism, will be contained.”


“I am pleased to note that Moody’s, along with the IMF, are both expecting the economic impact of Covid-19 to be relatively less pronounced on the Maltese economy than other neighbouring countries, and that growth is expected to fully recover to healthy levels in 2021. This outlook reflects the trust that these international institutions have in the country’s government and its people, who are both being proactive in the health and financial areas,” stated Minister for Finance and Financial Services Edward Scicluna.