Malta retains A (High) rating as strong growth offsets risks, governance concerns persist – DBRS

Morningstar DBRS has confirmed Malta’s long-term sovereign credit rating at A (high) with a stable trend, indicating that risks to the country’s economic and fiscal outlook are currently viewed as balanced. Short-term ratings were also maintained at R-1 (middle).

The assessment reflects a combination of continued economic resilience alongside emerging external risks. Malta’s economy expanded by 4.0% in 2025, a slowdown from 6.2% in 2024 but still comparatively strong by European standards. Growth has been driven largely by domestic demand and a robust services sector, particularly tourism, which saw a sharp increase in arrivals, the credit rating agency said. However, moderation in private consumption-linked to slower employment and wage growth-has contributed to the deceleration.

Looking ahead, growth is expected to remain solid, with projections of around 3.7% annually in 2026 and 2027. Household consumption is likely to stay resilient, supported by continued employment growth and planned income tax cuts. Nonetheless, the outlook is clouded by rising global uncertainty, particularly linked to energy market disruptions following geopolitical tensions in the Middle East. While Malta has limited direct exposure to that region, weaker global growth could reduce demand for its exports, while higher energy prices could have indirect inflationary effects, Morningstar DBRS said.

A key policy factor is the government’s decision to maintain fixed domestic energy prices. While this shields households from immediate price shocks, it creates fiscal pressure, as higher international prices translate into increased subsidy costs. This represents a potential downside risk to public finances if energy prices remain elevated for a prolonged period.

While downgrading other countries, DBRS Morningstar has confirmed Malta’s A rating.

Three reasons: our shielding of households from price shocks, continued growth of Government income despite tax cuts and our moderate debt which allows us space to intervene as needed. – RA

— Robert Abela (@RobertAbela_MT) April 11, 2026

On the fiscal side, Malta has shown improvement. The budget deficit narrowed to an estimated 3.0% of GDP in 2025, down from 4.4% in 2023, supported by strong tax revenue growth. Corporate tax receipts, in particular, have exceeded expectations due to both economic performance and improved tax collection efficiency. Further deficit reductions are projected in the coming years, although risks remain. These include continued subsidy burdens, rising infrastructure and climate-related spending, and potential changes to international corporate taxation rules, which could affect a significant revenue stream, Morningstar DBRS said.

Public debt remains moderate at around 46.5% of GDP, comparing favourably with many euro area peers. This provides the government with some fiscal space, although interest costs are expected to rise تدريجياً. Malta also benefits from stable funding sources, particularly domestic banks, even if the average maturity of debt has shortened somewhat in recent years.

The banking sector is considered a strength, with solid capital and liquidity buffers and low levels of non-performing loans. However, vulnerabilities exist due to a high concentration of lending in the real estate sector. Property-related loans account for a substantial share of total lending, exposing banks to potential risks if the housing market weakens. Measures to strengthen capital buffers are expected to improve resilience.

Externally, Malta maintains strong fundamentals, including a large current account surplus driven by services exports such as tourism and online gaming. The country also holds a significant net external creditor position. However, its role as an international financial centre results in very large gross external asset and liability positions, largely linked to multinational structures, which are not seen as posing immediate domestic risks, Morningstar DBRS said.

Malta’s euro area membership, stable political environment, and strong financial sector underpin its rating. However, its small and highly open economy remains vulnerable to external shocks. Toward the end of its assessment, Morningstar DBRS notes that while governance indicators are broadly in line with EU averages, there is still room for improvement-particularly in the area of corruption control. Continued progress in strengthening institutional effectiveness and transparency will be important to sustain confidence and support future rating stability, the credit rating agency noted.

RSS Feed Source: Independent Malta Malta retains A (High) rating as strong growth offsets risks, governance concerns persist – DBRS