While Standard & Poor’s Ratings Services said the European Commission’s and the European Central Bank’s proposal to the EU Council that Malta (A/Stable/A-1) be allowed to join the eurozone in 2008 does not have any immediate impact on the sovereign ratings, the other credit rating service, Moody’s has upgraded Malta’s ratings from stable to positive.

“The expectation that both Malta and Cyprus will join the EMU in 2008 is already incorporated into the ratings on these sovereigns,” said Standard & Poor’s credit analyst Eileen Zhang. “As a result, the green light from the European Commission and the ECB has no impact on the ratings.”

S&P’s ratings on Malta are supported by strong political institutions that underpin progressive macroeconomic policy. This policy is demonstrated by the government’s willingness to pursue fiscal consolidation and the restructuring of the public sector. The ratings are constrained, however, by Malta’s small and open economy that is vulnerable to external shocks, as well as by the sizable, although declining, public debt burden.

The stable outlook on the ratings on Malta reflects Standard & Poor’s expectation that the government’s commitment to reversing budget imbalances will continue, leading to further fiscal reforms and a reduction in general government debt. In addition, the ongoing restructuring effort and the downsizing of the State’s presence in the economy are expected to improve the prospects for higher economic growth in the long run.

As progress unfolds, Malta’s creditworthiness is likely to improve. Conversely, significant setbacks in reaching the Maltese government’s fiscal targets, especially given the imperative for fiscal discipline within EMU, which Malta is expected to join in 2008, or setbacks in implementing the reform agenda, would undermine Malta’s creditworthiness.

Moody’s also announced it will be reviewing Malta’s ceiling as regards deposits in foreign currencies, following the European Commission’s recommendation.

Vice President and Senior Analyst Tristan Cooper said the agency considers Malta’s accession to the euro as a positive step because it eliminates currency risks.