Bleak investment future with Labour
The Labour Party was in an upbeat mood yesterday as it
looked ahead with optimism, in the belief that next Sunday will turn
out to be a sure victory for them.
If the soundings turn out to be true then one should expect Malta to
face a bleak future, with three respectable credit rating agencies stating
in no uncertain terms that Maltas credit rating would be lowered
as a result a sign that would lead to less investment across
The credit ratings are linked to Maltas accession to the European
Union, but they also look at the government strategy in fighting the
The reports and analysis were carried out before the final decision
by the Labour Party to do away with Lm81 funding from the EU, and an
additional Lm9 million. Added to this is the fact that Lm25 million
would have to be removed from the revenue flow in the first two months,
The latter being the MLPs electoral commitment to pardon two months
income tax for practically the entire working population,
Labour leader Alfred Sant has shot down concern about the importance
of credit ratings, describing them as reports rolling out like cheesecakes.
Nonetheless, the conclusions in many of the reports have been used by
many of his faithful lieutenants to illustrate the deficiencies in the
governments fiscal deadline implementation.
A report by Standard & Poor's Ratings Services had reaffirmed its
A/A-1 foreign currency and AA-/A-1+ local currency ratings on Malta,
saying the outcome of the referendum in favour of EU membership "reflects
expectations that fiscal consolidation and progress with structural
reforms will continue". The outlook is stable.
"The first true test of popular support for EU membership, the
referendum result, not only gives increased legitimacy to the government's
structural reform agenda but also creates an opportunity to quicken
the pace of reform," one Standard & Poor's credit analyst said.
"Further measures to deregulate, liberalise and privatise key sectors
of the Maltese economy are central to safeguarding external competitiveness
and strengthening the economy's capacity to adjust to economic shocks."
The agency observed that the government and the opposition, however,
remained polarised over the issue of EU membership.
"Although the referendum result has lent additional political weight
to the government's pro-EU stance, the next general election will give
the MLP and the rest of the no lobby an opportunity to reverse the result,
which is non-binding: the vote in favour of membership was only achieved
with a 54 per cent majority on a 91 per cent turnout.
"EU aspirations have provided an important anchor to the government's
increasingly prudent macroeconomic policy approach, which has allowed
for continued progress with structural and institutional reforms. Should
an MLP government be elected and withdraw Malta from the EU accession
process, the pace of reform could slow."
Another credit rating agency, Fitch, said that staying out of the EU
could lead to Malta's international credit rating being downgraded.
A no vote was likely to initially lead to a negative rating watch, and
a "very possible" downgrade within months or a year, according
to Fitch's sovereign ratings managing director and Malta analyst.
He did point out, however, that giving the thumbs down to EU membership
would not automatically lead to a downgrade. Likewise, membership would
not mean an automatic upgrade.
"But it's obvious that the EU membership process has led to the
modernisation of the economy. And the reintroduction of protectionism
would be very bad news," he told the press.
Other rating agencies, like Moody's, have also in the past closely linked
Malta's credit rating and investor outlook to the island's EU accession
Credit ratings show the government's willingness and ability
to meet its financial obligations.
A spokesman said the London-based said the rating agency was treating
each candidate country on its own merits.
"Should you turn down membership, then we would need to know what
the alternative policies are. Is the island capable of luring investment
outside the EU?" he asked.
He doubted whether the EU would have much appetite to mould a special
agreement with Malta.
"The EU doesn't seem to be interested in going into new negotiations
with Malta. Let's be honest. Malta is a very small country and I doubt
what negotiating clout it will have," he said.
The spokesman said Fitch would not look favourably at Malta if it retained
its trade barriers, even if it claimed to want the best possible relationship
with the EU.
He said the reintroduction of levies would be a bad move, especially
considering neighbouring countries like Tunisia were eliminating them.
"Malta would be going in reverse - and that would certainly bring
Protectionism, he insisted, led to inefficiency and less productivity.
On the other hand, as an EU member Malta would have an excellent opportunity
to lure foreign investment and give the economy the necessary thrust,
It was after all evident that the adoption of the EU's acquis had enhanced
the Maltese economy's efficiency and competitiveness.
However, he said, it was ultimately up to Malta to exploit its position
as an EU member. Countries like Ire-land got their house in order in
impressive manner with entry into the EU.
The better known rating agency Moody hasnt changed on membership
According to a Moodys senior analyst speaking to The Malta Financial
and Business Times, Maltas EU membership application has significantly
enhanced Maltas credit rating and if the application were to be
withdrawn, such a move would be "very damaging" to the countrys
According to Kristin Lindow, Moodys sovereign analyst responsible
for Malta, "The prospect of EU accession is pulling up Maltas
ratings, as membership is seen as providing a motive for fundamental
"If it were thought that Malta were to retract its application,
it would be thought that a reduction in incentive within the country
would take place, as the idea of reform seems to be so unpopular. It
is thought that such a move would result in large structural and economic
"The fact that there is a total lack of consensus between Maltas
political parties on the issue [of EU membership] coupled with the fact
that the General Workers Union is so opposed to membership, if
there had to be a marginal shift in the political sphere, it is unclear
what Dr Sant would do.
"It would be very damaging for Malta if its application were to
"Malta stands to make or break its future by failing to reach agreement
on an issue of such importance to the future of the nation."
While affirming that economic growth at the end of last year and at
the beginning of this year has appeared to be stronger, Mrs Lindow expressed
concern over the compilation of economic data and points to discrepancies
from varying sources.
Moodys is the world-leading provider of independent credit ratings,
research and financial information to the capital markets. Moodys
reports are closely followed by the world-wide investing community.
Despite the fact the Moodys, in its annual report, had praised
Malta for the governments economic reform programme, which has
narrowed the countrys fiscal deficit and aims to further reduce
it through the sale of state-owned enterprises, it also gave dire warnings
of a possible disruption to the process.
Moodys states in its report on Malta, "Domestic political
opposition will likely mobilise against both structural reform and the
governments EU accession plans, throwing the smooth implementation
of these initiatives into doubt.
"Should the progress of reform be interrupted and macroeconomic
imbalances persist in the long term, the negative outlook on Maltas
ratings could progress to a review for downgrade in Maltas debt
and bank deposit ceilings, as well as BoVs and HSBCs deposit