Two extremely important statements made by the credit rating agency Fitch in its report, which saw an upgrade in Malta’s sovereign credit rating from A to A+ with a stable outlook, have been ignored by the local press and politicians.
The positive outlook issued by an international credit rating agency is always met with great enthusiasm by the Government of the day. Unfortunately, the PN Opposition is either too focused on its leadership contest, which has turned sour, or its speakers on finance are enjoying a post-election defeat holiday.
It is true that the Fitch report, just like the one issued earlier this quarter by Standard and Poors, depicts a rosy financial scenario which includes a positive forecast if a surplus in our finances is retained and if the economy continues to grow at a steady pace. However, Fitch make two statements which, if ignored, may result in a bleak outcome for 2019.
According to the international credit agency, “No further capital transfer has been budgeted for Air Malta as the government expects private investors to take a stake in the company this year.” This piece of news is paramount to the future of Air Malta and its employees but it also depicts a situation whereby government is basing part of its economic success in 2018, and beyond, on the unavoidable reality that a strategic partner and investor is to be found today before tomorrow.
If the Ministry of Finance gave reassurance to a credit agency of the likes of Fitch that an investor is about to inject cash into Air Malta by the end of the year, than a deal must be in the offing and about to be announced. If this is the case, than government needs to come clean with all the stakeholders, employees first, and tell us what Minister Konrad Mizzi, who now heads the airline along with former Labour Finance Minister Charles Mangon, is up to.
The other unnoticed but important statement made by Fitch in its report on Malta concerns the housing market. Fitch declares that “a sharp correction in the housing market constitutes the main domestic risk to financial stability given the large exposure of the banks to the sector through mortgage lending and real estate collateral.” The agency goes on to recognise that property price hikes have somewhat slowed down yet it still believes that the high exposure on banks in this sector may constitute a long-term problem should real estate take a dip. What Fitch is essentially saying, in broader terms, is that it is increasingly evident that the Maltese lifestyle and liquidity is becoming even more dependent on the property market. When analysing the rental market, or shall we call it rental bubble, one needs to ask if people are living beyond their means like there’s no tomorrow.
A dip in the rental market may be caused by several factors. Fitch explains how the gaming industry has become a prime contributor to Malta’s economy, particularly in bringing down the gap between exports and imports. A slowdown in the gaming sector, which could be caused by excessive EU lobbying, would immediately impact the rental market which, in turn, would affect loan repayments on properties sustained by the rentals. This is one possible scenario. An international crisis could trigger lower tourist arrivals which again will impact the rental business now that even our tourist figures have become highly dependent on short-term holiday rentals.
One may question the scope of this editorial. It is not an exercise of doom and gloom. Government has to be lauded for the steady growth in our economy, but, and this is where the Opposition is failing miserably in offering a constructive criticism based on facts. The fact that, according the Fitch’s analysis the only pseudo-industry, or shall we call it money generator, created by Joseph Muscat’s administration was the sale of Maltese citizenship (which as per Fitch’s report is on the decline) is worrisome. Past PN administrations, particularly that led by Gonzi, created new industries that are bearing fruit today. What future industries is the Labour government working on? It was successful in lowering energy tariffs while creating enough supply to shoot up the local energy demand, thus billing more that when tariffs were higher under PN. Yet, as positive as that resulted to be, should the price of gas begin to rise, the country is in for a shock, particularly now that we hedged for 18 years with Electrogas.
In the meantime, the promised push for solar is barely mentioned by this government and take-up for domestic grants on PV installations is at its lowest. So what are the country’s plans to sustain the A+ credit ratings in the years to come? The Prime Minister glossed over the issue by telling us that Fitch’s positive outlook will result in better credit terms. Granted, but what else? The politicians of this country must have a better understanding of where we’re heading and what industries we need to attract. Interestingly, one of the PN leadership hopefuls, Adrian Delia, who is undergoing a barrage of internal criticism, had the audacity to suggest that like other nations, Malta needs a fifty-year development plan. One hopes that if Government is too occupied to listen, the Nationalist Party takes on this suggestion and builds on it.