Fitch affirms Malta at ‘A+’; outlook stable

Fitch Ratings has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.

Key Rating Drivers

Rating Strengths and Weaknesses: Malta’s rating is supported by robust growth performance, high per capita income, and EU and euro area membership. These strengths are balanced against significant deterioration in World Bank governance ranking, the small size of its economy, which is highly vulnerable to external shocks, and substantial, albeit declining, budget fiscal deficits, which have led to an increase in the public debt burden.

Very Strong Real Economy: Malta has one of the strongest growth performances among Fitch-rated sovereigns. The economy has grown by a cumulative 86% since 2015, compared with 14% in the eurozone. Annual average GDP growth over this period is 6.5%, well above the ‘A’ three-year current median of 3.8%. Per capita GDP, measured in purchasing power terms, already exceeded the EU average in 2023 (107%), compared with 83% in 2004, when Malta joined the EU.

The strong economic growth contributed to a surge in employment, Fitch reports. The number of employees grew to about 320,000 in 2024 from 180,000 in 2015. Most of these came from abroad, boosting net immigration, while the domestic unemployment rate has been broadly stable at a low level. Malta’s 3.1% unemployment rate also compares favourably with the peer median of 6.3%. The information and communication technology, tourism and financial sectors provide the key momentum to the economy.

High Potential Growth

Potential growth estimates from the IMF and European Commission are around 5%, well above regional peers, and supported by dynamic population growth. Our GDP growth forecast is 4.3% in 2025 and 2026 following 6% growth in 2024. The slowdown is due to a declining contribution from labour as immigration regulations are tightened.

Deteriorating Governance Indicators: Malta’s World Bank governance indicators have deteriorated significantly since 2013, from the 86th percentile to the 71st. Government effectiveness and control of corruption rankings have declined particularly strongly, more than 20pp over the same period.

Growth Supports Fiscal Consolidation

Fitch estimates the budget deficit fell below 4% of GDP in 2024 from 4.6% in 2023. We forecast a continued deficit reduction to 3.5% in 2025 and 3% in 2026. The government can reduce the budget deficit without implementing outright fiscal consolidation measures, given the revenues generated by the strong economic growth, Fitch reports.

EU Fiscal Adjustment

The European Commission opened excessive deficit procedures (EDP) against Malta based on the 2023 fiscal deficit. In light of the strong growth momentum, the government is on track to bring the deficit back to 3% over the next two years, faster than the standard four-year adjustment horizon envisaged in the European framework. According to Malta’s medium-term plan that was endorsed by the EU Council in January 2025 6% net expenditure growth over 2025-2027 would be consistent with exiting the EDP in 2027.

Stable Debt Trajectory

Gross general government debt is forecast to stabilise at around 50% of GDP in 2024-2026, below the ‘A’ current median of 57% and well below the 60% EU threshold. Over the medium term, the gradual narrowing of the primary budget deficit and strong growth should facilitate a declining debt trajectory. Financing risks are low, with ample liquidity in the domestic banking sector and a strong domestic investor base. The average maturity of the public debt was close to eight years and the weighted average yield is around 3%.

Solid External Finances

Eurozone membership mitigates external risks for the very small, open Maltese economy. The net international investment position is large and estimated to have exceeded 80% of GDP by end-2024, while the current account is forecast to have large surpluses averaging 6% of GDP in 2024-2026. The net external creditor position (wide definition) was almost 950% of GDP for end-2023 (according to IMF data), making Malta one of the largest net external creditors in our sovereign universe, following a recent extensive data revision. External assets are inflated by multinational activity in the financial, maritime and aviation sectors, which have limited links to the domestic economy, but engage in tax optimisation strategies with their associated foreign entities through their Maltese subsidiaries.

Sound Banking Sector

The Maltese banking sector continues to be characterised by ample liquidity, sound capitalisation and manageable exposure to non-performing loans (NPLs). At end-September 2024, according to EBA data, the Maltese banking industry had one of the lowest loans to deposit ratio (60% vs. the EU average of 107%) and an above-average common equity Tier 1 ratio (21% vs. 16%). The NPL ratio of 2.1% was broadly in line with the EU average of 1.9%. Maltese banks’ profitability benefited significantly from rising interest rates, given their large excess liquidity and low deposit rates. However, profitability largely relies on net interest income and will come under pressure as interest rates fall in the eurozone.

ESG – Governance

Malta has an ESG Relevance Score (RS) of ‘5[+]’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Malta has a high WBGI ranking at 71.4, reflecting its long track record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a relatively low level of corruption.