S&P Affirms Malta's 'A' Ratings

by Robert Lee, Tax-News.com, London

18 April 2005

Standard & Poor's Ratings Services has affirmed its 'A' long-term foreign currency and 'A+' long-term local currency sovereign credit ratings for the Republic of Malta.

At the same time, the 'A-1' short-term foreign and local currency ratings for Malta were affirmed, and S&P assigned a 'stable' outlook for the jurisdiction.

"With the successful EU entry in May 2004, the political focus has shifted back to fiscal consolidation and further structural reform," observed Standard & Poor's credit analyst Eileen Zhang.

"The government is continuing its public sector efficiency drive by extensively modernizing the state-owned entities and putting forward reform proposals for the pension and health care systems," she added.

Despite sluggish GDP growth, S&P noted that the general government deficit has started a turnaround since 2004, and is expected to decline to 3.8% of GDP in 2005. However, S&P warned that the current target of reducing the deficit to less than 3.0% of GDP by 2006 remains challenging unless tax collection is improved. However, the government is expected to implement additional corrective measures if the target is under threat.

S&P forecasts that the gradual reduction in the general government deficit would allow for membership of the European single currency as early as 2008.

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