Last Updated on Saturday, 7 August, 2021 at 10:39 am by Andre Camilleri
Moody’s Investors Service (“Moody’s”) has affirmed the Government of Malta’s long-term issuer and senior unsecured ratings at A2 but changed the outlook to negative from stable.
In a report on the Moody’s website, the key drivers behind the negative outlook on the A2 rating are listed as being:
1) The significant increase in Malta’s government debt burden, which Moody’s expects to be higher than for A2 rated peers, as well as the risks to the fiscal outlook stemming from the uncertainties tied to the broader economic recovery;
2) The risks to the post-pandemic recovery of the Maltese economy, stemming predominantly from risks associated with the recovery of the country’s tourism sector;
3) The addition of Malta to the “grey list” of the Financial Action Task Force (FATF) over concerns related to anti-money laundering supervision, and the broader risks this poses to the economic outlook and banking sector.
The decision by the intergovernmental Financial Action Task Force (FATF) in June 2021 to place Malta on its so-called grey list of jurisdictions under increased monitoring over concerns tied to anti-money laundering supervision, poses further risks to the economic outlook and the banking sector over the coming 12-18 months and beyond, Moody’s said.
Moody’s expects the decision will increase due diligence requirements for firms and banks in Malta and their international partners, and also further complicate some Maltese banks’ efforts to maintain stable correspondent banking relationships, above all for the clearing of US dollar transactions.
The Maltese government has agreed an action plan with FATF and targets the removal of the jurisdiction from the grey list by the end of 2022, Moody’s said. While both FATF and the Council of Europe’s anti-money laundering body MoneyVal have recognized the progress made to date in strengthening the supervisory framework in Malta, Moody’s expects that Malta will also need to build up a track record demonstrating the effectiveness of this framework in practice which it may not be able to do in 12-18 months.
Moody’s expects that the longer Malta remains on the grey list, the larger the broader impact on the economy and banking system will be, as enhanced regulatory burdens will increasingly weigh on the activities of Malta-based entities and their international partners. Ultimately, this increases the risk that some of these entities will reassess their current or future business operations in Malta.
Although the Maltese authorities over the past year have made significant reform efforts to remedy long-standing institutional shortcomings in areas such as the control of corruption, the rule of law and the supervision of money laundering risks, a failure to be removed from the FATF grey list within the next 12-18 months would also reflect negatively on Malta’s strength of institutions and governance, Moody’s said.
See the full Moody’s report here
In a statement, the government completely ignored the change from stable to negative, preferring to speak about how Malta was confirmed on A2 level.
The government noted that the national debt was on the rise because of subsidies given by the government as a result of the Covid-19 pandemic.
The experts say that Malta’s economy is on the rise after the first impacts of the pandemic, and this in spite of a tourism sector that is suffering the consequences of Covid-19.
Without mentioning the negative outlook given by Moody’s, the government said the agency noted the importance Malta is giving to building a track record via reforms that are taking place. “Both FATF and the Council of Europe’s anti-money laundering Moneyval have recognized the progress made to date in strengthening the supervisory framework in Malta”, the government said.
Malta has “a very strong governance profile” according to Moody’s and “on the whole, the country benefits from a strong institutional environment”. The A2 rating “also reflects the efforts undertaken by the Maltese government since 2020 to tackle some of the country’s institutional shortcomings”.
