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NEWS 16 maltatoday | SUNDAY • 13 NOVEMBER 2022 MATTHEW VELLA CREDIT rating agency Moody's has affirmed Malta's long-term ratings at A2, changing its out- look from negative to stable. Moody's said Malta's swift exit from the FATF greylist reflected a firm and steady commitment from the local authorities to comply with international stand- ards and enhance the country's institutional setup. "The exit is likely to improve the business climate by significantly reducing the reputational risk attached to the grey listing, shifting the fo- cus towards Malta's traditional strengths such as a competitive tax environment, an existing en- trepreneurial ecosystem and the widespread use of English." Moody's said Malta had a wealthy, fast-growing econo- my and solid debt affordability that placed it at par with peers on institutions and governance strength and fiscal strength. Malta's real GDP is expected to expand by 6% in 2022, with a rebound in tourism, jobs and in- vestment growth supporting do- mestic demand. Moody's said record-high la- bour shortages reflected a strong labour market, mainly in con- struction, transportation and professional services. In the context of the military conflict in Ukraine, high gas and oil prices, rising food, non-ener- gy industrial goods and services inflation, are negatively affecting household incomes and corpo- rate margins, albeit to a lesser ex- tent than in most other European countries. Moody's forecasts Malta's av- erage inflation to reach 5.9% this year, mainly driven by services prices as governmental measures neutralise the rise in energy pric- es on the price index. To date, public measures have been instrumental in keeping Malta's inflation (7.4% in Octo- ber) the third lowest in the euro area. For 2023 and 2024, Moody's ex- pects Malta's real GDP growth to reach 3.0% and 3.5%, respective- ly, below the economy's potential of 3.5% to 4%. In parallel, aver- age inflation is expected to reach 3.8% and 2.7% in 2023 and 2024, respectively. Investment will benefit from the European Recovery and Re- silience Facility (RRF): under the RRF, Malta is set to benefit from €258.3 million (1.8% of GDP in 2021) of grants, which should support the economy's decar- bonization and enhance electri- cal connectivity with the rest of the EU, amongst others. Moreo- ver, Malta is allocated €838 mil- lion (5.7% of GDP in 2021) of Co- hesion Funds. Malta had built fiscal buffers in the runup to the coronavirus pandemic, with three years of fis- cal surpluses between 2016 and 2019 which led the debt-to-GDP ratio to drop significantly, from 66.4% of GDP in 2013 to 40.7% of GDP in 2019. However, the large deficits re- corded in 2020 (9.4% of GDP) and 2021 (7.8% of GDP) brought the debt-to-GDP ratio to 56.3% at the end of 2021. Malta's general government deficit could contin- ue to narrow over the two years and reach 5.8% of GDP in 2022, 5.6% of GDP in 2023 and 4.7% of GDP in 2024 under its baseline scenario. However, Moody's believes that there is a risk of higher budget deficits considering the elevat- ed uncertainty and the govern- ment's comprehensive policy approach to smooth the impact of the military conflict in Ukraine on energy prices for consumers and businesses. Moody's affirms A2 rating for Malta with swift FATF greylist exit