Fitch: Malta’s booming economy overshadowed by decade-long governance decline

Malta’s economy has almost doubled in size over the past decade, but the country has simultaneously suffered a “significant deterioration” in governance indicators, according to international credit rating agency Fitch.

In its latest assessment of Malta, published yesterday, Fitch confirmed the country’s long-term sovereign credit rating at A+ with a Stable Outlook, citing strong economic growth, high per capita income, and improving public finances.

Yet behind the positive headline rating, Fitch identified deteriorating governance as one of the weaknesses weighing on Malta’s credit profile.

The agency said Malta’s rating was supported by high per-capita income, strong growth and its membership of the eurozone. Still, these strengths were balanced by the country’s small economy and a “significant deterioration in governance indicators over the past decade”.

The assessment is particularly notable when compared with Fitch’s position several years ago.

In 2018, the same rating agency cited Malta’s strong governance indicators, including rule of law and government effectiveness, among the factors supporting its A+ rating.

Eight years later, governance deterioration is being listed among the factors constraining the country’s sovereign creditworthiness.

The warning comes despite an extraordinary period of economic expansion, boosted mostly by the importation of cheap labour and overpopulation.

According to Fitch, Malta’s GDP has increased cumulatively by around 90% since 2015, compared with approximately 16% across the eurozone. Economic growth averaged around 6.5% annually during the period, placing Malta among the fastest-growing economies rated by the agency.

Growth is expected to continue, although at a slower pace.

Fitch forecasts real GDP expansion of slightly below 4% in both 2026 and 2027, following growth of around 4% last year.

The government has highlighted the confirmation of Malta’s A+ rating as further evidence of the economy’s resilience.

In his immediate PR stunt, Prime Minister Robert Abela focused on Fitch’s positive economic assessment, including Malta’s growth performance and improvements in public finances.

However, Fitch also raised concerns over Abela’s administration continued policy of subsidising electricity and fuel prices.

The agency noted that keeping energy prices fixed has protected households and businesses from international price fluctuations and helped contain inflation, but warned that the policy provides little incentive for consumers to reduce electricity consumption.

The subsidies also remain a significant burden on public finances and expose the government to changes in international energy prices.

Malta’s small and highly open economy remains another structural weakness, leaving the country vulnerable to external shocks despite its rapid expansion.

Fitch’s governance warning follows years of international scrutiny over Malta’s institutional framework, the rule of law and its effectiveness in tackling corruption and financial crime.

The latest assessment means Malta retains a strong investment-grade rating and Stable Outlook, with Fitch not anticipating an upgrade or downgrade in the immediate future.

But its analysis presents a stark contrast between Malta’s economic and institutional trajectories over the past decade.

While the economy has expanded at a rate far exceeding that of the eurozone, the governance indicators that Fitch once cited as one of Malta’s strengths have moved in the opposite direction.