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15.12.2015

Positive Outlook for Malta's Fiscal Deficit

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Summary

Moody@s Rating Agency predicts positive outlooks for Malta@s fiscal deficit

cONTINUE rEADING

A Positive Outlook for Malta's Fiscal Deficit

The rating agency Moody’s have issued an Analysis Report for Malta last week stating that fiscal consolidation and the resilient economic conditions will support Malta's public finances throughout next year, highlighting a positive outlook for Malta’s fiscal deficit.

Key Estimates

Moody’s estimate a growth of the real GDP for the year 2015 of 4.3% which has been supported by domestic factors such as private consumption and capital formation. Thorsten Nestmann, Vice President and Senior Analyst at Moody's, stated that the rating agency is expecting exports to gradually recover in 2016 as demand increases from Malta's main trading partners in the EU. While Malta's government expenditures are high, Moody's estimates that Malta's solid economic growth will translate into higher tax revenues. This factor combined with lower funding costs will likely transpire into a  fiscal deficit drop to 1.7% of GDP in 2015 and to 1.2% in 2016.

Overcoming indicators of risk

The Report stated that government debt remains relatively high, at 68.3% in 2014, however this can be counteracted by the repayment of tax arrears related to Enemalta, and improved economic growth, reducing  the debt ratio to 65.9% of GDP in 2015.

The rating agency cited Malta’s banking system as a potential risk given its large size and because traditionally, the Island’s funding source depends on the health of this sector. However, the sector's on-shore focus and adequate capitalisation limit the risks it poses to the sovereign. The soundness of Malta’s banking system ranked in 15th place out of 140 economies in the latest World Economic Forum for 2015/2016.

Government Reaction 

The Government of Malta have welcomed this positive outlook for Malta’s fiscal deficit and noted that such outlooks are expected to attract more foreign investment to the country. Such reports certify Malta's healthy economy. The Government principally noted that Moody's had declared that “fiscal consolidation is on a good footing” and that “the budget targets appear to be realistic as they are built on reasonable macroeconomic assumptions and measures that appear socially acceptable for key stakeholders”.

 

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