Fitch Ratings has affirmed Malta’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook. The rating is supported by high per-capita income and a pre-pandemic record of strong growth and sizeable debt reduction. However, the small size of Malta’s economy, which is highly vulnerable to external developments, and a recent deterioration in public finances with large fiscal deficits, have led to a sharp increase in the moderate public debt burden.

The Maltese economy expanded rapidly at 6.9% in real terms in 2022, outperforming the rest of the EU. Growth came mainly from investments, which were heavily impacted by the acquisition of imported aircraft equipment. Private consumption remained sound, supported by the accumulation of past savings and favourable labour market conditions. Key sectors driving growth were online gaming, information and technology (ICT), and professional services, while construction contracted quite sharply. Recovery in the tourism sector continued narrowing the gap of tourist arrivals relative to 2019 to around 17% in 2022.

Fitch forecasts growth to slow to 3.5% in 2023, due to the projected economic slowdown in Malta’s main trading partners and as evidenced by a moderation in economic indicators. Growth will be close to potential in 2024, reaching 3.7%. The lifting of international travel restrictions has helped support the return of foreign workers, further uplifting domestic consumption and potential growth while somewhat easing structural labour supply shortages.

Overall, Fitch estimates that Malta’s fiscal deficit narrowed to 5.8% of GDP in 2022 from 7.5% in 2021. While sizeable energy and food subsidies weighed on the budget balance, these were offset by the government’s ad-hoc spending review during the summer and the continued phasing out of Covid-19 expenditure. The 2023 deficit is projected to reach 5.4% of GDP, close to the government’s budget target of 5.5% but exceeding the ‘A’ median of 4.1%. The European Commission has yet to approve the bailout package for state-owned airline Air Malta, and the timing and total cost of any state aid to the airline remains unknown, although some restructuring costs are already priced into the budget at close to 0.4% of GDP for 2022/23.

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