Fitch Ratings has affirmed Malta's long-term foreign and local currency issuer default rating at 'A', with a stable outlook. The issue ratings on Malta's senior unsecured foreign and local currency bonds have also been affirmed at 'A'.

The agency also affirmed Malta's short-term foreign-currency IDR at 'F1' and the country ceiling at 'AAA'.

Fitch said the Maltese economy was outperforming its eurozone peers. It estimated real GDP grew by 3.4 per cent in 2014, better than in 2013 (2.5 per cent) and higher than both the eurozone average (0.9 per cent) and the 'A' median of 3.1 per cent over five years.

Fitch expected potential growth to average three per cent in 2015-16, continuing above the eurozone average.

The agency expected domestic demand to be the main engine of growth. Private consumption would be supported by a moderate increase in real disposable income, underpinned by falling energy prices and a buoyant labour market.

Private investment was supported by the construction of a new power plant. A weaker euro was expected to support exports of goods and services. At 5.9 per cent in December, the unemployment rate was below both the 'A' median and the eurozone average, while the employment rate rose, underpinned by the increasing female labour market participation rate.

Public finances remained weaker relative to the 'A' median but were improving.

Fitch estimated that in 2014 the general government deficit declined to 2.3 per cent of GDP from 2.7 per cent in 2013. This was the result of revenue growth outstripping expenditure growth.

Stronger revenues contrasted with rising expenditure, reflecting significant underlying pressures. Public finances would follow a similar path in 2015.

The agency noted that continued rises in public expenditure could pose a risk to debt reduction if revenues underperformed in the future.

General government gross debt (GGGD) was forecast to have declined to 68.8 per cent of GDP in 2014 from 69.5 per cent in 2013. The decline was underpinned by a repayment of arrears by Enemalta, the public energy utility, and a primary budget surplus of 0.4 per cent of GDP.

However, Fitch pointed out that the government’s deal with Shanghai Electric Power Company reportedly had the potential to enhance Enemalta's profitability over the medium term and reduce its debt.

 

Fitch also noted that the three Maltese banks directly subjected to the ECB's Comprehensive Assessment passed it unscathed.