Current Affairs
UPDATED: Fitch credit agency confirms Malta with countries with A+ rating

The international Fitch Ratings agency has confirmed Malta with countries with an A+ rating and with stable prospects. The uncertainty by Fitch in the forecast for Malta in the previous update has now been changed to one with the economists stating that whilst there are still risks of growth, these are now more balanced. At the same time, they are forecasting that the economic trend for Malta this year will be 2.1% better than the average for eurozone countries.

The report by Fitch Ratings was made in the context of the effects of the pandemic on economies worldwide. Restrictions on travel and the effects of Covid-19 on tourism led to the agency reviewing its forecast for the Gross Domestic Product.  Whilst up to two months ago it had been forecasting the GDP would be reduced by 5.9%, it is now forecasting that the reduction will be 6.9%.

The agency also remarked on the impact on the tourism industry in the second quarter of this year, after the airport had been closed to commercial flights for over three months. The agency expects that for the rest of the year the sector will continue on the road to recovery, albeit at a slow pace. It is forecasting that for another two years tourist arrivals and hotel accommodation will remain below the results experienced by Malta in the tourism sector last year. It also remarked that vouchers being distributed by the Government to incentivise spending in internal tourism will have a limited effect, as tourism from overseas represents 97% of tourist accommodation.

Despite the dependence of the Maltese economy on tourism, Fitch Ratings economists are forecasting that the impact of the pandemic on Malta will be less than that on countries in the eurozone. They say the economic trend this year will be 2.1% better than the average for the eurozone. As expected because of the pandemic, the balance in public funds will be negative as a result of reduced income for Government and additional expenditure on financial packages implemented by the Government to help family incomes and businesses. Fitch is calculating that from a surplus situation last year, Government will have a 9.2% deficit in the Gross Domestic Product this year.

According to Fitch, the support from the Government in extraordinary circumstances which developed as a result of the pandemic exceeds more than 10% of the national wealth. The agency’s economists are forecasting that within two years economic activity will have improved enough for the created deficit to return to the level stipulated by Maastricht rules. The high liquidity of Maltese banks is viewed by Fitch experts as positive, as they consider it a sign of the strength of the financial system.

Whilst Malta has remained in the category of A+ countries, since the pandemic Fitch has reduced the UK rating from AA to AA- with negative prospects, reduced Slovakia’s rating from A+ to A, and reduced the prospects for France, Belgium, Latvia and Romania from stable to negative.