S&P Global Ratings has affirmed Malta’s long- and short-term sovereign credit ratings at ‘A-/A-2’, maintaining a stable outlook that reflects a balance between an improving fiscal trajectory and expectations of moderating economic growth.
The country is on course to exit the European Union’s excessive deficit procedure as budgetary outcomes strengthen, driven primarily by robust revenue performance, the credit rating agency said. Despite several years of elevated deficits linked to an expensive fixed-price energy policy, public finances remain relatively stable, the agency noted.
Net government debt has hovered just below 40 per cent of GDP since 2020, a level expected to persist. This stability has been supported by exceptionally strong nominal and real GDP growth, which has offset the fiscal deterioration seen post-pandemic. Interest costs remain low by international standards, reinforcing the view that Malta’s debt burden is affordable and manageable.
The economic outlook remains comparatively strong by eurozone standards, although growth is expected to slow. The country benefited from an exceptional migration-driven expansion during 2021-2024, when average annual real GDP growth exceeded 8 per cent. As this wave subsides and the government tightens migration policy – particularly concerning lower-skilled, non-EU workers – annual growth rates are projected to ease toward 3.5 per cent in 2025 and settle around 3.7 per cent on average through 2028. This deceleration reflects a natural cooling following several years of rapid expansion and the constraints of an already highly populated and infrastructure-stressed island economy.
Nevertheless, underlying economic momentum remains solid. Employment growth is still strong, supporting consumption even during periods of statistical distortions, such as those related to adjustments in the measurement of financial intermediation services. Tourism continues to grow at an exceptional rate, and goods exports to the United States are benefiting from a favourable tariff environment, given Malta’s focus on semiconductor-related products exempt from most duties.
These factors underpin the country’s strong external position, reflected in sustained current account surpluses averaging nearly 6 per cent of GDP in the coming years. While rising imports linked to construction and increased income outflows to foreign investors affect the balance, these are more than offset by high service exports from tourism, iGaming, and other internationally oriented sectors, the agency said.
The stable rating outlook also reflects Malta’s progress in fiscal consolidation. The general government deficit, which averaged over 5 per cent of GDP between 2021 and 2024, is projected to fall to roughly 2.9 per cent by 2026. This improvement is primarily due to higher-than-expected tax revenues, driven by robust labour market conditions and strong corporate profitability, especially among internationally oriented firms.
However, expenditure has also grown materially, particularly following new wage agreements and efforts to harmonize compensation across various workforce categories. The resilience of revenue flows highlights Malta’s success in attracting and retaining foreign firms, though it also introduces concentration risks if these sectors face external pressures.
A central fiscal vulnerability stems from the government’s fixed-price energy subsidy. This policy, originally introduced to offset the expiration of a long-term natural gas contract, has shielded households and businesses from price volatility but at the cost of exposing public finances to fluctuations in global energy prices.
Although wholesale prices have declined significantly since 2022, easing fiscal pressures, the delayed effect of energy hedging means potential savings will materialize only gradually. Nevertheless, current budget projections do not yet incorporate the full benefit of lower energy costs, suggesting some upside potential for fiscal outcomes in 2025 and 2026.
Malta’s institutional environment continues to present challenges. Although the agency says that reforms have been undertaken following the 2017 public inquiry into the assassination of journalist Daphne Caruana Galizia, and despite improvements in judicial independence and supervisory effectiveness, international assessments continue to rank Malta poorly relative to other EU peers in areas related to corruption perception and rule of law.
This weighs on institutional credibility and contributes to the cautious tone in S&P’s evaluation of governance. Large and frequent revisions to national accounts also complicate economic interpretation and policy assessment, the agency said. These stem from difficulties in measuring service-sector investment and the lag between preliminary and final corporate accounts. Upcoming changes in the statistical treatment of aircraft leasing could result in a significant upward revision to historical GDP figures, adding further complexity.
Corporate taxation remains another important area of uncertainty. Malta has deferred full implementation of elements of the EU’s minimum taxation directive and is negotiating with the European Commission on permissible incentives such as qualified refundable tax credits. The country’s low effective tax rates, despite a headline rate of 35 per cent, have long been a major competitive advantage in attracting foreign investment.
Any material changes could influence the operating environment for internationally oriented firms and, by extension, Malta’s economic model. At the same time, recent developments – such as waning U.S. support for the OECD’s Pillar Two initiative – may reduce international pressure on Malta to adjust its corporate tax framework, although this reinforces the structural limitation that the country has less scope than peers to raise taxes without undermining competitiveness.
Externally, Malta maintains a strong net creditor position, with residents’ net claims on the rest of the world equivalent to roughly three-quarters of GDP, the agency said. However, the presence of special-purpose entities complicates the interpretation of external data, as valuation changes in large cross-border asset positions can have disproportionate effects on the overall external balance sheet.
The banking system remains liquid, well capitalized, and profitable, but its exposure to real estate and tourism – combined with reputational vulnerabilities – requires continued vigilance. Real estate price increases have so far remained aligned with fundamentals, particularly given past population growth, though future developments depend heavily on the success of the shift from migration-led expansion to productivity-driven growth.
Monetary policy transmission remains a structural weakness. Malta’s financial system holds substantial excess liquidity, and limited competition has resulted in a weak pass-through of European Central Bank policy rates to domestic lending and deposit rates. This disconnect reduces the effectiveness of monetary policy, contributing to potential economic volatility, since Malta may diverge from the broader eurozone cycle.
On balance, Malta’s sovereign credit rating is supported by its high income levels, strong external position, contained public debt, and ongoing fiscal consolidation. These strengths offset concerns related to governance, statistical transparency, energy-price exposure, and the challenges posed by slowing migration. Provided that fiscal consolidation continues and structural reforms progress, the stable outlook is likely to be maintained.
However, any deterioration in governance or erosion of Malta’s competitiveness as a financial and iGaming hub could exert downward pressure. Conversely, improvements in data reliability, stronger external balances, or a return to sustained budget surpluses could support a future upgrade, the agency said.
