S&P Downgrades Malta's Local Currency Ratings

by Robert Lee, Tax-News.com, London

27 August 2003

Standard & Poor's has downgraded Malta's local currency sovereign credit ratings due to its deteriorating medium term fiscal outlook, the ratings agency said last week.

Consequently, local currency ratings have been lowered from AA-/A-1+ to A+/A-1. On a slightly more positive note however, S&P affirmed its a/A-1 foreign currency sovereign credit rating and classifies the outlook as 'stable'.

"The lowering of the local currency ratings reflects a deterioration in Malta's medium-term fiscal prospects," said Standard & Poor's credit analyst Mary Nnachi. "As a result of upward revisions to general government deficit estimates since 2002, the government's target of reducing the deficit to 3.1% of GDP in 2005 is unlikely to be met unless significant corrective measures are taken," she adds.

The S&P analysis also warns that a "sustained period of fiscal consolidation will be essential if Malta is to be among the first of the accession countries to join EMU."

"Failure to decisively address current trends in the fiscal deficit would undermine prospects of an early participation in EMU and weaken the government's credit standing," said Ms. Nnachi. "Policy-makers are expected to move to address the fiscal imbalance and stabilize the general government debt burden."

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