Malta Maintains Positive Currency Outlook

by Robert Lee, Tax-News.com, London

12 July 2004

International ratings agency Fitch has maintained its positive outlook for Malta’s long-term currency ratings, and stated its belief that the country’s bid to join the euro in 2008 is an attainable goal.

Malta is planning to meet the Maastricht criteria by 2006 to enable it to adopt the single currency by 2008. However, this is dependent on the government’s ability to reduce the budget deficit to below 3% of GDP. Last year, the deficit stood at a figure of 9.7%.

Nonetheless, Fitch believes that Malta is now in a better position to rationalise its welfare state and bring down total public expenditure from 50.5% of GDP to 44.4% by 2007.

Furthermore, the ratings agency believes that the four-year economic growth forecasts for the island as stated in Malta’s Convergence Plan, approved last week by the EU, have been under-estimated at an average 1.8%.

“Tourism and electronics exports have certainly been badly hit in the last three years, but there is considerable doubt that GDP has declined, as official data suggests, and growth could well return to 3% to four per cent as euro-area demand recovers,” argued Fitch.

Should this be the case, and provided the government sticks to its tax and spending plans, Fitch reckoned that the deficit could be brought down as low as 2% of GDP.

“This is an entirely plausible scenario,” the agency's analysis argued, although it cautioned that the deficit was unlikely to dip below 3% until 2006.

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