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maltatoday, WEDNESDAY, 25 MAY 2016 11 Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way Moody's forecast 4.1% economic growth in 2016 Malta will likely see economic growth of 4.1% in 2016, on the back of solid consumer spending and investment, says Moody's Investors Service in a new report. Moody's report, entitled 'Government of Malta – A3 Stable: Annual Credit Analysis', also confirms the decline in the manufacturing sector but highlights a diversified services-based economy. The share of manufacturing in the total gross value added declined to around 10% in 2015 from 24% in 2000. "While we expect economic growth to moderate this year, our forecast remains strong compared to its peers in Europe. Key drivers of Malta's economy are domestic consumer demand and investment, with tourism rising 6% in 2015," Evan W o h l m a n n , an analyst at M o o d y ' s , said. W h i l e there are p o t e n t i a l u p s i d e s that could b o o s t M o o d y ' s 2 0 1 6 f o r e c a s t for Malta, various factors will continue to constrain economic growth, including challenges related to resource allocation and the small size of the domestic market, with a population of just over 400,000. In Moody's view, Malta's government has also made significant progress on reforms in the energy sector and the labour market, in line with recommendations from the IMF and the European Commission. However, it is too early to conclude that these policy initiatives have met their intended objectives. Moody's notes that while a credit challenge is Malta's relatively high general government debt burden, fiscal consolidation is progressing. Moody's expects debt-to-GDP to fall below 60% by 2017, based on the fall in Malta's fiscal deficit to 1.5% of GDP in 2015 and a likely further decline in the deficit in 2016-17. Another key credit constraint is Malta's reliance on domestic sources of funding, which makes it vulnerable to the health of the banking system. However, the rating agency assesses risk emanating from the banking sector as 'low', balancing the system's significant size against the low contagion risk between constituent segments, with international banking activities largely insulated from the domestic system. In addition, Malta's energy sector reform has moved ahead, which should allow the government's material contingent liability risks to public utilities to decline in the c o m i n g years. The island's previously loss- making energy service provider, Enemalta, is the most prominent source of contingent liability risk, although the firm's ongoing restructuring and the progress achieved as part of the broader energy reform should allow the company to become financially viable. Welcoming the report, Finance Minister Edward Scicluna said he was pleased that more foreign institutions expect Malta's economic growth to remain robust. "This is thanks to various reforms and initiatives undertaken by this government to boost private consumption and investment," Scicluna said. Worldwide governance indicators point to 'very high' institutional strength Malta has a very high ranking in the WGIs, and outperforms its rating peers. According to the WGI 2014 Survey, Malta reached 73rd, 81st and 74th percentile among all sovereigns rated by Moody's for government effectiveness, rule of law and control of corruption, respectively. This positions Malta above the median for Moody's A-rated sovereigns and significantly above its rating peers – Poland (A2 stable), Latvia (A3 stable) and Slovakia (A2 stable). Malta's justice system has suffered from a number of shortcomings which have been the target of a major reform p r o g r a m m e started in 2014 aiming to improve the quality and efficiency of the judicial s y s t e m . Efforts to reform the quality of the system have included m e a s u r e s to reduce b u r e a u c r a c y and delays in the civil courts, while the parliamentary bill in early 2016 focuses on simplifying civil procedures to improve judicial efficiency. This has led to notable improvements, including an increase in the rate of resolving administrative cases, although the EC notes that Malta still lags behind all other EU countries in this regard. Furthermore, Malta continues to suffer from more inefficient insolvency procedures than the rest of the EU (it takes three years to resolve an insolvency case compared to the EU average of two years), which is being addressed as part of a working group to improve Malta's legislation on insolvency and bankruptcy. Improvements to the insolvency framework would also help to alleviate the high share of non- performing loans in the banking sector, which mostly reflects legacy problem loans. The credit rating agency expects Malta to benefit from strong economic growth this year and next Google's Paris offi ces raided in tax probe French fi nance offi cials yesterday raided the Paris headquarters of US internet giant Google as part of a tax fraud investigation. Reports say some 100 tax officials entered Google's offices in central Paris early yesterday morning. Police sources confirmed the raid, but Google itself has so far made no comment. Google is accused of owing the French state €1.6 billion in unpaid taxes. The tax arrangements of international companies have come under close scrutiny recently. Several have been accused of using legal methods to minimise their tax bills. In Google's case, its tax structure allows it to pay tax in the Republic of Ireland, even when sales appear to relate to the UK. In January, it struck a deal with UK tax authorities to pay an extra £130m in tax for the period from 2005, but that deal was heavily criticised. Europe's competition authorities have been examining whether some deals struck by big companies with national tax authorities amount to illegal state aid. In April, the EU unveiled plans to force large companies to disclose more about their tax affairs. They will have to declare publicly how much tax they pay in each EU country as well as any activities carried out in specific tax havens. The rules on "country-by- country reporting" would affect multinational firms with more than €750m in sales. 0.56% rate of infl ation registered in April According to the National Sta- tistics Office, the monthly infla- tion rate registered in April was 0.56%, down from 0.66% regis- tered in March. The main upward impacts on annual inflation were recorded in the Beverages and Tobacco Index (0.26 percentage points), the Food Index (0.21 percentage points) and the Housing Index (0.15 percentage points). This was mainly due to higher prices of cigarettes, restaurant services (including cafeterias and the like) and costlier products related to house maintenance respectively. The Transport and Communication Index (0.47 percentage points), the Clothing and Footwear Index (0.25 percentage points) and the Water, Electricity, Gas and Fuels Index (0.04 percentage points) were the main downward impacts on annual inflation, mainly reflecting price reductions in the prices of fuel, garments and gas respectively. The twelve-month moving average rate was 0.95%.