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maltatoday, SUNDAY, 27 AUGUST 2017 News MATTHEW VELLA THE Canadian credit ratings agency DBRS has confirmed Mal- ta's 'A' credit rating, with the trend on ratings changed to positive. The rating was supported by the country's solid external position, a favourable public debt structure, and the robust financial position of households. However, Malta's contingent li- abilities remain a source of vul- nerability, its economy is exposed to external shocks, and pressures from the rising age-related costs, if unaddressed, could pose a con- cern for the pensions system. "The positive trend reflects DBRS's view that the important improvement in the fiscal position over the past three years is likely to be sustained. A sound budget po- sition, together with solid growth, is expected to lead to the further reduction in the public debt ratio," DBRS said. Finance minister Edward Sci- cluna welcomed the latest rating. "Four years ago, we had promised to work on upgrading Malta's credit rating which would make our country more attractive to foreign investors. In contrast with the past deteriorating state of public finances, with ballooning deficit and debt ratios, we directed our efforts to addressing such is- sues, bringing about an upgrade to Malta's rating, and hence honour- ing our promise." After 2016, both headline and the structural deficits turned into surpluses, and the government debt ratio, already 12 percentage points lower than its 2011 peak, fell below 60% of GDP. This im- provement was driven by strong revenues as well as moderation in expenditure, and supported by a strengthened fiscal framework. The fiscal "over-performance" also meant that Malta complied with the budget balance rule, the debt rule, and the expenditure benchmark of the EU Stability and Growth Pact in 2016, DBRS said. The agency also said Malta's economy is among the fastest growing in the Euro area and its growth prospects look favourable. Malta's solid external position was another credit strength. Al- though imports remain high, this has declined as the economy be- comes more service-oriented. Malta's public debt composition was also strengthened, when the Treasury lengthened the maturity of government debt to an average maturity of nine years, comparing favourably with other European economies. On the private sector, Maltese households enjoy high levels of savings and moderate indebted- ness. Household net financial assets are large at 182% of GDP. Household debt, mainly in the form of mortgages, has increased but it remains moderate. DBRS however said that liabili- ties from large state-owned en- terprises (SOEs), though reduced, continue to pose a risk to govern- ment finances. "The degree of concentration in the domestic financial sector could also be a source of contin- gent liabilities. Although the re- structuring of some of the SOEs has reduced risks to the public sector balance sheet, and the overall financial condition of the core domestic banks looks strong, the public sector remains vulner- able to debt shocks. After remain- ing above 60% of GDP for decades, public debt has been declining since 2014 and is forecast to fall below 53% in 2018," DBRS said. Malta's tourism sector and other industries that rely on foreign de- mand also expose the economy to unfavourable external develop- ments. "Tourism benefits from a mar- ket of wealthy European econo- mies, but it could be adversely af- fected by an economic downturn in the region. Malta is exposed to a slowdown in the UK economy, as British tourists account for 25% of Malta's total tourists. Shocks to external demand could also have an impact on domestic real estate prices, with potential adverse im- plications for household finances. The increasing diversification of the economy, nevertheless, helps mitigate some of the external risks," the agency said. Additionally, pressures from age-related costs present another challenge for Malta. Healthcare costs and pension liabilities, while still below EU averages, have in- creased rapidly in recent years. While labour-market participa- tion is rising, as a result of recent reform efforts, it remains among the lowest in the EU, particularly among women and older workers. Pension reform measures are be- ing implemented and this should help secure the long-term sustain- ability of the system. Balanced budget bolsters reduction in national debt DBRS rating agency confirms Malta rating at 'A', trend changed to 'positive' Liabilities from large state-owned enterprises, though reduced, continue to pose a risk to government finances Finance minister Edward Scicluna