DBRS keeps Malta’s ‘A’ rating but energy subsidies pose ‘challenge’



Rating agency DBRS has confirmed an ‘A’ (high) rating for Malta with a stable outlook, following a comparable assessment in December. The country has recovered quickly from the impacts of the pandemic, due to government support and a strongerthan-expected recovery in foreign tourism, the agency notes. “Malta recorded one of the quickest recoveries in the EU with GDP growth rates of 11.8% in 2021 and 6.9% in 2022... The labour market is tight, with strong job growth over the last three years and an unemployment rate at 3% (February 2023),” a report from the rating agency said. It describes the impact of the Ukraine war on Malta’s economy as “modest,” attributing this to the country’s limited economic and energy ties to Russia and the government’s decision to subsidise energy prices. The subsidies, however, remain a challenge for reining in government spending and reducing Malta’s deficit, which is projected to remain among the highest in the EU this year. The outlook for 2023 remains less favourable, with growth expected to slow due to a continent-wide slowdown and higher inflation. Despite this, Malta’s “still-moderate” levels of public debt and positive indicators for growth partly limit the risks associated with these factors, DBRS said. The agency criticised the government for being unclear about a strategy for reducing or stopping energy subsidies and said that should prices remain higher for longer globally, this could prove a challenge to balancing the country’s books. Encouraging factors for the country’s economy include the strong financial position enjoyed by Maltese households and the removal of the country from the FATF greylist in June, it says. Malta had also worked to improve its anti-money laundering measures and approach to good governance, which the agency notes should reduce the greylisting’s damage to the country’s reputation and as a destination for investment. Describing Malta as a “small financial hub” with a banking system large for its size, DBRS said that changes to tax laws internationally could affect its attractiveness as a tax destination for foreign companies. While noting that Malta has one of the lowest greenhouse gas emissions per capita in the union, the report said the island relies overwhelmingly on fossil fuels for energy. The country enjoys a temperate climate and relatively low energy needs in industry, however, only 12.2 per cent of its energy was supplied by renewables in 2021, the second lowest in the EU, the report noted. And despite making progress to narrow the income gap when compared to the EU average, the country’s GDP per capita is still lower than the highest-income countries in the bloc, a result of lower productivity, a high ratio of early school-leavers and one of the lowest research and development sectors in the union. While Malta was ranked at the EU average for accountability (84.1 percentile rank) and rule-of-law and government effectiveness (77.9 percentile rank in both cases), the country compares “weakly” for control of corruption (64.9 percentile rank) – something which, alongside rule-of-law, has been “deteriorating in recent years,” the report said. Nonetheless, the country enjoys a high level of respect for human rights and good access to healthcare and other basic services, with the agency noting that Malta ranks 26th among the 169 countries assessed in the 2022 Social Progress Index