UPDATED: Fitch Ratings has affirmed Malta's long-term 'A+' and said the outlooks are “stable”. However it said that the government debt of 72% of GDP is Malta’s main rating weakness and the main long-term threat to the public finances is the unreformed pension system. It also noted that the government’s “parliamentary majority is fragile and there is a risk that the budget will not pass”.
“The agency's baseline assumes that the government will pass the budget and that there will not be early elections. However, its parliamentary majority is fragile and there is a risk that the budget will not pass. In the event of early elections the fiscal slippage in 2012 is likely to be wider than Fitch's baseline. A budget deficit in excess of 3% of GDP would increase the risk of a negative rating action as it would undermine confidence in near-term stabilisation of the government debt to GDP ratio,” Fitch said in its report on Malta.
“Fitch's baseline envisages that the election outcome will not disrupt the medium-term objective of the fiscal policy, which is to realise a balanced central government budget and stabilise the public debt ratio. If there is material fiscal slippage this year or the post-election fiscal policy fails to deliver this, it could have negative rating implications.”
The A+ rating and stable outlook reflects the demonstrated resilience of Malta's economy and financial sector; relatively strong budgetary position and secure domestic investor base for fiscal funding. The current account deficit has narrowed significantly in recent years and the economy is a net external creditor. Moreover, with a headline budget deficit below 3% of GDP - Malta is one of the few Euro Area Member States not subject to the Excessive Deficit Procedure under the Stability and Growth Pact - and Fitch's forecast for a primary (excluding debt interest payments) budget surplus in 2012-14, government debt to GDP ratio is projected to fall from 2013.
Government debt of 72% of GDP (89% of GDP including guarantees) is Malta's main rating weakness. However, the public debt ratio is close to stabilisation depending on the government's fiscal consolidation efforts. At 72% of GDP in 2011, public debt is not a standout by eurozone standards. However, it remains high for a small country with a large banking system. Fitch expects public debt to peak at 74% of GDP in 2013 and to decline gradually
The main long-term threat to the public finances is the unreformed pension system, Fitch warned.
In a statement in reaction to this rating, the Labour Party said Fitch has confirmed that whoever is in government will have a credible plan to keep the finances sustainable. This bursts the bubble created by GonziPN which is expressing doubts on a new government.
Labour said Fitch did not take seriously the words of the PN delegate Simon Busuttil who said that a new government would seek a financial bailout after two years.
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