* The dissolution of Malta's parliament on Jan. 7, 2013, will prevent a  2013 budget from being adopted until after the elections set for March 9,  thus raising questions about the government's ability to restore the  fiscal flexibility it has gradually lost, and resolving the recurrent  budgetary risks caused by loss-making state-owned enterprises.

* Gross general government debt has risen to just above 75% of GDP, and  could continue to increase on the back of weaker-than-projected growth or  stock-flow adjustments.

* We are therefore lowering our long-term sovereign credit rating on Malta  to 'BBB+' and affirming the short-term rating at 'A-2'.

* The outlook on the long-term rating is stable, reflecting our view of  Malta's relative resilience to the ongoing political, financial, and  monetary challenges in the eurozone.

Standard & Poor's Ratings Services yesterday lowered its long-term sovereign credit rating on the Republic of Malta  to 'BBB+'. At the same time, it affirmed its short-term sovereign credit  rating at 'A-2'. The outlook on the long-term rating is stable.

The announcement was first leaked through a section of the Maltese media and predictably raised a firestorm with PN and PL accusing each other of having caused the downgrade.

The S&P official statement was later said to be expected at around midnight but was then put on the S&P website at around 1.30pm.

This is the full text:

The ratings are supported by our view of Malta's strong political institutions  and its relative resilience. The ratings are constrained by our view of  Malta's sizable government debt burden; significant contingent liabilities  from what we view as permanently loss-making state enterprises; the external  vulnerabilities of the narrowly based economy; and structural issues such as  high private-sector indebtedness. Female labor force participation also  remains very low, despite recent improvements.

Given its high government debt burden, Malta possesses limited fiscal space to  counter prolonged periods of lower growth. We view its contingent liabilities  as relatively large. They stem from Malta's sizable financial system (banking  system assets are estimated at over 700% of GDP, although nearly 60% of these  belong to foreign institutions that have little interaction with the domestic  economy) and Enemalta, its ailing energy utility. Recent progress on  Enemalta's restructuring could reduce the amount of government guarantees and  reduce the overall stock of contingent liabilities.

However, we anticipate  that Enemalta will remain loss-making over the foreseeable future. Support for  Enemalta and other public-sector entities had led to general government debt  increasing at a rate above the government's reported budgetary deficit since  2009. The Maltese government guarantees debt worth almost 16% of GDP issued by  state-owned enterprises, on top of an estimated gross debt burden of 75% of  GDP in 2013.

Malta dissolved its parliament after an effective vote of no confidence was  triggered by a rejection of the 2013 budget bill. This will prevent a 2013  budget from being passed until the end of the first quarter, at the earliest.

While a fiscal rule that limits expenditures is in place, we expect that the  2012 deficit, at just under 3% of GDP, will exceed its target of 2.2% of GDP.  Malta has a high government debt burden (estimated at 75% of GDP in 2013) and  a significant proportion of entitlement spending; some 27% of total  expenditure between January and November 2012 was on social security benefits.

Given these factors, we consider that continuing to achieve sustainable  consolidation is increasingly important, especially considering the  longer-term impact of a rapidly aging population.

Downside risks to growth, stemming from continued poor external demand in  Europe and slow improvements in domestic demand are likely to keep real GDP  per capita growth lower than pre-crisis levels. Real GDP per capita growth is  also likely to remain below the government's budgeted growth projections,  which appear to us to be quite optimistic.

That said, the Maltese economy has displayed resilience against a poor  external environment, despite its openness and significant financial services  activity. Net exports of goods and services turned positive in 2010 and have  contributed to growth throughout the crisis.

The stable outlook balances our view of Malta's relatively wealthy and  diversified economy against risks stemming from a narrow economic base, slowly  adjusting public finances, and an uncertain growth outlook.

We could lower the ratings if we see the government's borrowing requirement  widening substantially beyond our expectations of close to 2.5% of GDP in  2013. We could also lower the ratings if the government's interest burden as a  proportion of government revenues were to continue to trend upward and surpass  10% for several years; to give this context, we estimate that this ratio was  8.2% in 2012.

We could raise the ratings if we saw contingent liabilities  decline, the government's debt burden begins to fall materially, and economic  growth strengthens without a return to the sizable current account deficits of  the pre-2011 period.