Malta: Scope Assigns Malta First-Time Credit Rating Of A+ With Stable Outlook

Last Updated: 15 November 2018
Article by Finance Malta

Euro area membership, high economic growth, prudent fiscal management and a strong external position are credit strengths. Elevated contingent liabilities, unfavourable demographics, external vulnerabilities, and regulatory shortcomings remain challenges.

See the detailed rating report [pdf].

Scope Ratings GmbH has assigned the Republic of Malta a first-time A+ long-term issuer and senior unsecured local- and foreign-currency rating, along with a short-term issuer rating of S-1+ in both local and foreign currency. All Outlooks are Stable.

Rating drivers

Scope's first-time assignment of Malta's A+ rating reflects the country's euro area membership, high economic growth, prudent fiscal management and strong external position. The rating is challenged by contingent liabilities, unfavourable demographics, external vulnerabilities, and regulatory shortcomings of the financial sector.

Malta has shown buoyant growth rates during the recent decade with an average expansion of 4.3% since 2007, outperforming the EU average behind only Ireland. The main drivers of Malta's growing economy are high service exports (tourism, transport and gaming), and robust private consumption. For 2018 and 2019, Scope anticipates annual growth to reach 5.4% and 5% respectively on the back of record-low unemployment of 4%, strong employment growth due to migration and recovering investment, especially on the housing market. Growth is expected to continue to be driven by private consumption and higher investment, whereas the external sector provides less support compared to previous years.

The A+ rating is further underpinned by Malta's strengthened fiscal framework, together with a combination of faster fiscal consolidation, low interest payments and stronger GDP growth. The government has achieved consistent fiscal surpluses, supported by a broadening tax base, reflecting better monitoring compliance and increasing female labour participation.

Expenditures are below the euro area average but have picked up recently. Capital expenditures have increased strongly due to the acquisition of landing rights from Air Malta. Going forward, the Maltese government targets a general fiscal surplus of 1.3% of GDP for 2019, net of revenues from the Individual Investment Program (IIP) and including gross fixed capital formation of 3.5% of GDP. Fiscal expenditures in 2019 are expected to decline slightly from 38.4% to 37.8% of GDP, based on the one-time capital transfer to Air Malta in 2018 (EUR 57mn).

Malta's strong fiscal performance has led to a steady decline in its debt to GDP ratio from 2012 onwards, falling below the 60% Maastricht threshold in 2015. The last two years brought a further decline by almost 8 percentage points, thanks to exceptionally strong growth and a slightly positive fiscal balance. 

For 2018, government projections foresee a decline of the debt to GDP ratio to 46.9%, equal to 4 percentage points. Going forward, the government expects another 3 percentage points decline towards 2019 by assuming that the primary surplus of 2.7% exceeds interest rate expenditure (1.5%) and stock-flow adjustment (1.6% of GDP). Our baseline scenario, in line with the IMF forecast, foresees a continued, albeit less pronounced decline in debt over the projection horizon to around 30% of GDP, supported by positive primary balances and high growth.

Malta's A+ rating is further supported by the economy's robust external sector. Continuous current account surpluses led to a net international investment position of 62.6% at year-end 2017. This development is dominated by a boost in services exports, comprising transport, tourism and gaming. Although the country shows a negative balance on goods exports, the quality of exported manufacturing goods is above the EU average with 40% of the export value related to top quality. Going forward, we expect Malta to retain its current account surplus, albeit with lower surpluses towards 2019 but supported by rising import shares and its role as a financial centre.

Despite the relative strengths of Malta's rating, challenges remain. Malta's rapidly declining public debt ratio is still facing additional burden from elevated contingent liabilities of 9.6% of GDP (in 2017), resulting from financially weak state-owned enterprises (SOEs). These risks have decreased in line with higher growth but remain a credit risk over the forecast horizon.

Over the medium-term term, the country also faces supply side constraints, induced by the tighter labour market. Although the government initiated reforms of the labour market to reduce low skill attainment among young people and low tertiary education, the economy still faces a large gender employment gap and educational outcomes remain closely linked to socio-economic background. Infrastructure investment is projected to increase strongly with higher absorption of EU funds and expected investment in health-related projects.

With only 0.5m inhabitants, Malta's small open economy remains especially vulnerable to external shocks, in particular with its reliance on the export of business-cycle relevant services. Also, Malta is vulnerable to policy harmonisation risks and changes in EU corporate tax law. Finally, infrastructure bottlenecks and skills shortages are expected to weigh on the country's long-term growth potential.

Malta's economic strength is partly related to a booming gaming sector and large revenues from the IIP, which attracts foreigners who seek European citizenship. Financial inflows are more than tenfold the country's GDP, thereby remaining a source of uncertainty despite being mostly decoupled from domestic economic activity. Despite the implementation of several Anti-Money Laundering Directives to improve due diligence and transparency, the European Commission asked the government to take a stand on anti-money laundering measures following allegations related to Pilatus Bank whose banking license was revoked in November 2018 by the European Central Bank. 

In July, the European Banking Authority (EBA) pointed out that the measures taken by the Maltese Financial Intelligence Analysis Unit were not sufficient to satisfy the identified shortcomings, requesting further action to comply with the Anti-Money Laundering (AML) and Countering Terrorism Financing Directive (CFT). The Maltese authorities have responded by launching the AML/CFT Strategy, which includes an improvement of the supervisory framework and an increase of resources to strengthen legal enforcement. Scope recognizes that the recent events have no likely impact on public finances but may affect Malta's reputation of an emerging financial centre. 

Core Variable Scorecard (CVS) and Qualitative Scorecard (QS)

Scope's Core Variable Scorecard (CVS), which is based on the relative rankings of key sovereign credit fundamentals, provides an indicative 'AA' ('aa') rating range for the Republic of Malta. This indicative rating range can be adjusted by the Qualitative Scorecard (QS) by up to three notches depending on the size of relative credit strengths or weaknesses versus peers based on qualitative analysis.

For the Republic of Malta, the QS signalled credit weaknesses for the following analytical categories: 

i) economic policy framework;
ii) macro-economic stability and sustainability;
iii) market access and funding sources;
iv) external debt sustainability;
v) vulnerability to short-term external shocks;
vi) recent events and policy decisions;
vii) banking sector oversight and governance;
viii) financial imbalances and financial fragility. 

The combined relative credit strengths and weaknesses generate a 2-notch negative adjustment and signal a sovereign rating of A+ for Malta. A rating committee has discussed and confirmed these results.

For further details, please see Appendix I of the rating report.

Factoring of Environment, Social and Governance (ESG)

Scope considers ESG sustainability issues during the rating process as reflected in its sovereign methodology. Governance-related factors are explicitly captured in Scope's assessment of 'Institutional and Political Risk', for which Malta scores high according to the World Bank's Worldwide Governance Indicators. Qualitative governance-related assessments in Scope's 'geo-political risk' category of its QS are assessed as 'neutral' compared with Malta's sovereign peers. Socially related factors are captured in Scope's CVS in Malta's rapidly growing GDP per capita (USD 27,326 in 2017) and record-low level of unemployment but increasing old-age dependency ratio. Qualitative assessments of social factors are reflected in Scope's 'macroeconomic stability and sustainability', for which Scope assesses Malta as 'weak'. Finally, environmental factors are considered during the rating process but did not have an impact on this rating action.

Outlook and rating-change drivers

The Stable Outlook reflects Scope's assessment that the risks faced by Malta remain balanced at this stage. The rating could be downgraded in the event of: i) a significant slowing of growth; and/or ii) failure to increase investment spending. The rating could be upgraded if i) the government implements structural reforms, which raise the growth potential; ii) if there is continued fiscal consolidation; and/or iii) reforms to strengthen financial supervision are effectively completed.

Rating committee

The main points discussed were: i) growth potential; ii) economic policy framework; iii) macroeconomic stability and sustainability; iv) fiscal policy framework; v) public debt sustainability, debt structure and market access; vi) external debt sustainability and vulnerabilities; vii) banking sector oversight and governance; viii) political developments; and ix) peers.

Methodology - The methodology applicable for this rating and/or rating outlook, 'Public Finance Sovereign Ratings', is available on Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): A comprehensive clarification of Scope's definition of default as well as definitions of rating notations can be found in Scope's public credit rating methodologies on The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information  The rating was not requested by the rated entity or its agents. The rated entity and/or its agents did not participate in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party. The following substantially material sources of information were used to prepare the credit rating: public domain and third parties. Key sources of information for the rating include: Central Bank of Malta, Maltese Ministry of Finance and Treasury Department, Federal Statistical Office, Eurostat, European Central Bank, IMF, World Bank.  Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope's ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds upon which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures -  This credit rating and/or rating outlook is issued by Scope Ratings GmbH.  Rating prepared by Dr Bernhard Bartels, Lead Analyst Person responsible for approval of the rating: Dr Giacomo Barisone, Managing Director

Potential conflicts - Please see for a list of potential conflicts of interest related to the issuance of credit ratings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions