Malta will likely see economic growth of 4.1% in 2016, on the back of solid consumer spending and investment, says Moody's Investors Service in a new report.
Moody's report, entitled "Government of Malta -- A3 Stable: Annual Credit Analysis" is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.
"While we expect economic growth to moderate this year, our forecast remains strong compared to its peers in Europe. Key drivers of Malta's economy are domestic consumer demand and investment, with tourism rising 6% in 2015," says Evan Wohlmann, an Assistant Vice President -- Analyst at Moody's.
While there are potential upsides that could boost Moody's 2016 forecast for Malta, various factors will continue to constrain economic growth, including challenges related to resource allocation and the small size of the domestic market with a population of just over 400,000.
In Moody's view, Malta's government has also made significant progress on reforms in the energy sector and the labour market, in line with recommendations from the IMF and the European Commission. However, it is too early to conclude that these policy initiatives have met their intended objectives.
Moody's notes that while a credit challenge is Malta's relatively high general government debt burden, fiscal consolidation is progressing. Moody's expects debt-to-GDP to fall below 60% by 2017, based on the fall in Malta's fiscal deficit to 1.5% of GDP in 2015 and a likely further decline in the deficit in 2016-17.
Another key credit constraint is Malta's reliance on domestic sources of funding, which makes it vulnerable to the health of the banking system. However, the rating agency assesses risk emanating from the banking sector as 'low', balancing the system's significant size against the low contagion risk between constituent segments, with international banking activities largely insulated from the domestic system.
In addition, Malta's energy sector reform has moved ahead, which should allow the government's material contingent liability risks to public utilities to decline in the coming years.
The island's previously loss-making energy service provider, Enemalta, is the most prominent source of contingent liability risk, although the firm's ongoing restructuring and the progress achieved as part of the broader energy reform should allow the company to become financially viable.
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