Fitch Ratings on Friday affirmed Malta’s Long-term foreign currency and local currency Issuer Default ratings (IDRs) at ‘A+’ with Stable Outlooks. Fitch has also affirmed the Short-term IDR at ‘F1’and Country Ceiling at ‘AAA’, the common country ceiling for the euro-area.

“The rating affirmation follows Malta’s successful adoption of the euro on 1 January and reflects the sharp consolidation of the public accounts in recent years in advance of joining EMU and the government’s sponsorship of reforms to enhance growth and competitiveness,” says Chris Pryce, Director in the Sovereign Group. “The government is now expected to take advantage of its renewed electoral mandate to further constrain the growth of public spending while continuing its reforms in education and training. These are needed to enhance competitiveness and attract foreign direct investment which will remain central to the development of the economy.”

Malta’s ‘A+’ rating is supported by healthy governance indicators reflected in strong institutions, a well capitalised banking system and membership of the euro area which reduces exchange rate and external financing risks.

GDP per capita is in line with the ‘A’ range median of $17,500 but still well short of the average of $31,300 and $29,800 for the euro area as a whole and the ‘AA’ median respectively.

Public debt is still high relative to ‘A’ rating category norms but its continued decline assuages concerns, while recent structural reforms should help the economy to diversify, supporting medium term growth.

The recent improvement in Malta’s fiscal position has been quite dramatic. In the past four years the public spending ratio was cut from 47.8 per cent of GDP in 2003 to 42.5 per cent in 2007, at which level the agency now expects it to stabilise.

Over the same period revenue rose by just under 3 per cent of GDP and subject to cyclical developments will continue to rise albeit mildly for some years. The impact on the public debt ratio was equally pronounced. Having risen during the decade of fiscal laxity from under 40 per cent of GDP to top out at almost 73 per cent in 2004, it fell back below 63 per cent by end-2007.

Fitch detects no evidence of a slackening fiscal resolve now that Malta is a full member of EMU and the outlook is for a continuing fall taking the ratio below the Maastricht 60 per cent criterion within the next two years.

Economic growth recovered in 2005 from the downturn following the IT bust at the beginning of the decade and has regained the buoyancy it exhibited in the 1990s as the two staples, tourism and computer micro chip production, recovered.

The country is also developing new industries and services. These include the manufacture of pharmaceuticals and security paper, aircraft leasing and repair facilities, call centres and on-line gaming. These new sources of growth will be increasingly needed to bolster employment and earnings as the manufacture of computer chips moves eventually to low wage areas of Asia.

In contrast tourism, the other major source of foreign earnings, has been innovating to support recent growth. The government has also recognised the need to make the economy more flexible to cope with future shocks inside the currency union.

The banking system attracts a SAIR of ‘C’, roughly in line with the sovereign rating ‘A’ median and while exposure to the real estate sector is sizeable, the sector is well placed to manage a slowdown in the property market.

The sustainability of Malta’s long-term public finances has been increased by a major pension reform introduced in late 2006.