TEXT-Fitch: no short-term rating risks from Malta government's fall

Tue Dec 11, 2012 11:44am EST

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Dec 11 - The fall of the Maltese government does not pose short-term risks
to Malta's 'A+' rating, Fitch Ratings says. Any impact on 2012 budget outturns
should be minimal, and recent fiscal data suggests that the government deficit
will be 2.6% of GDP this year, in line with our forecast.

In our most recent rating review, we highlighted the risk that the 2013 budget
might not pass, and that in the event of early elections, fiscal slippage in
2012 was likely to be wider than our baseline, as the government would need to
adjust expenditure in H212. But the review of ministerial spending allocations
in H112 and the good revenue performance should ensure that our forecast, which
already incorporates moderate fiscal slippage compared with the government's
revised target of 2.3%, should be met.

The impact could be more significant in 2013. With no budget approved, the 2012
budget will apply for no more than four months, with expenditure allocations
equivalent to one-third of the 2012 budget. This should ensure expenditure
restraint in the first quarter of 2013.

We forecast a general government deficit of 2.2% of GDP in 2013, which would be
consistent with Malta's rating. The 2013 budget targeted a deficit of 1.7% of
GDP. Our forecast assumes that the election outcome will not disrupt the
medium-term objective of fiscal policy, which is to balance the central
government budget and stabilise the public debt ratio. Should post-election
fiscal policy significantly fail to achieve this, it could have negative rating
implications.

The Labour Party - the main opposition party that appears to be the favourite to
win the next elections - has announced it will maintain the 2013 budget
measures. This stance should give certainty to European partners and investors
about Malta's commitment to fiscal consolidation.

The Maltese government failed to pass the 2013 budget Monday. As a result, the
budget is unapproved and Parliament is likely to be dissolved on 7 January 2013
with elections on 9 March. The government lost the budget vote after Franco
Debono, a member of the ruling Nationalist Party, voted against it.

Fitch affirmed Malta's rating at 'A+' with a Stable Outlook on 25 September
2012. This reflects the resilience of Malta's economy and financial sector, a
strong budgetary position, and a secure domestic investor base for fiscal
funding. With a headline budget deficit below 3% of GDP and our forecast for a
primary budget surplus in 2012-2014, the government debt to GDP ratio is
projected to fall from 2013.


The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.

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