Hot Features
Premium
Register to chat with like-minded investors on our interactive forums.
Fitch Ratings has downgraded Malta’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘A’ from A+. The Outlook is Stable. The ratings agency has simultaneously affirmed Malta’s Country Ceiling at ‘AAA’ and Short-term foreign currency rating at ‘F1’.
In a statement Fitch said “There has been significant fiscal slippage. Malta’s general government deficit was 3.3% of GDP in 2012, well above both the government’s target (2.2%) and Fitch’s September 2012 forecast (2.6% of GDP). This slippage has carried over to 2013, when Fitch forecasts a deficit of 3.6% of GDP, compared with 2.7% in the original 2013 budget”.
The European Commission has re-opened the excessive deficit procedure (EDP) against Malta, with the deadline for correcting the excessive deficit set for 2014. In its previous rating review (September 2012), Fitch identified material fiscal slippage in 2012 as a negative rating trigger.
KEY ASSUMPTIONS:
In its debt sensitivity analysis, Fitch assumes significant fiscal adjustment in 2014 with the general government deficit improving to 3% from 3.6% of GDP in 2013. This implies the government will reach a balanced primary budget in 2014. The agency assumes the government will maintain a primary surplus from 2015 onwards. Under this baseline, the debt/GDP ratio could fall to 73% by 2020, assuming an average primary surplus of 0.6% potential growth of 1.7% and GDP deflator of 2% over 2016-22.
An additional risk relates to government-guaranteed debt. Fitch does not assume any crystallisation of material amounts of contingent liabilities.
Fitch assumes that the banking sector’s performance remains resilient. Moreover the agency assumes that, in case of need, the government of Malta would only be predisposed towards supporting the core domestic banks, which are systemically important. The largest bank is Bank of Valletta, which accounts for 107% of GDP. For HSBC Bank Malta (90% of GDP), Fitch believes that the bulk of the support would come from its parent company.
In Fitch’s view, the Maltese government would be very unlikely to support the international banks (494% of GDP) and would probably not support the non-core banks (77% of GDP) either. If there were problems at any of these international institutions, according to the Maltese authorities, support would be the responsibility of the parent bank or the home government.
