Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of Malta’s long-term issuer and senior unsecured debt ratings at A+ in both local and foreign currency, with Stable Outlook. The short-term issuer rating has been affirmed at S-1+ in both local and foreign currency, with Stable Outlook.

Malta’s long-term A+/Stable ratings are underpinned by the following credit strengths: i) the robust economic momentum and strong growth potential relative to European peers; ii) a consistent record of fiscal prudence, declining budget deficits, and moderate government debt; iii) a strong external position enhancing resilience to external shocks, further bolstered by euro area membership; and iv) a robust banking sector.

Malta’s ratings are challenged by: i) an externally dependent and resource-constrained economy, which presents risks to the stability and sustainability of the growth model; ii) fiscal risks stemming primarily from energy subsidies, an unfavourable demographic outlook, and government guarantees issued to state-owned enterprises; and iii) lingering, albeit improving, institutional challenges, as well as lower governance metrics relative to rating peers.

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Key rating drivers

Robust economic momentum and strong growth potential relative to European peers. Real GDP growth is projected at 4.0% in 2025 (3.0% YoY in Q1), down from 6.0% in 2024, and 3.9% in 2026. The domestic economic momentum is expected to remain strong based on robust private consumption, supported by migration flows, real income growth, as well as public transfers, energy subsidies, and reform of the personal income tax bands. Net exports are projected to be driven by a strong tourism sector and financial services, whereas investment is constrained by structural bottlenecks (labour, energy supply), limited absorption capacity, and international uncertainties. In the long run, Malta’s real GDP growth is projected to remain significantly above the peer average, but below its pre-Covid trend (6.3% between 2010-19). This reflects the structural slowdown in key sectors such as gaming and real estate, the constraints on the manufacturing industry, and the moderation in net migration flows due to the high population density and resulting pressure on Malta’s infrastructure and public services (education, health, transport).

Malta has a relatively high GDP per capita and an estimated medium-term growth potential between 3.5% and 4.0%, significantly higher than rating peers. However, maintaining that potential over the medium term will depend on the successful rebalancing of the economy from domestic consumption towards net exports, as well as from lower to higher value-added sectors. Economic growth is expected to be supported by the country’s strategic positioning and investor-friendly regulations to establish businesses, including in niche sectors within ICT, financial services, and the blue economy. The disbursement of European funds (Recovery and Resilience Plan, EUR 328m in grants, 1.6% of GDP) until end-2026¹ is expected to contribute to enhancing Malta’s economic growth model.

The inflation rate has been declining but remains elevated at 2.7% in May 2025, reflecting elevated food and services inflation, the latter partly due to strong demand for tourism services and a relatively high inflation rate for airfares. The low unemployment rate of 2.7% contributes to upward pressure on unit labour costs, although the expected continued decline in inflation from 2.4% in 2024 to 2.2% in 2025 and 2.0% in 2026, as well as substitution of labour with capital, could ease pressure on nominal wage growth.

A consistent record of fiscal prudence, declining budget deficits, and moderate government debt. Even though the fiscal trajectory contrasts with the budget surplus recorded pre-Covid (1.8% on average between 2016 and 2019), a record of fiscal prudence underpins the projected reduction of the deficit to 3.3% of GDP in 2025 and 2.9% in 2026, down from 3.8% in 2024. Fiscal targets are regularly exceeded, reflecting prudent fiscal planning based on conservative elasticity assumptions and buoyant tax revenue growth. The government is strongly committed to containing net expenditure growth². As a result, Scope expects Malta to exit the European Commission’s excessive deficit procedure in 2026-27.

Government revenues are expected to remain robust, supported by growth in tax receipts. Indirect taxes and social security contributions are underpinned by robust growth in domestic consumption and in nominal wage growth, respectively. Growth in direct tax revenue is set to be dynamic, partly driven by strong corporate income tax revenues, which are supported by Malta’s attractive tax regime. The personal income tax reform in 2025 is expected to have a moderate budgetary impact. A possible reform of the corporate tax system could enable the gradual implementation of the EU Minimum Tax Directive by 2029. Scope notes that the citizenship by investment programme is planned to be reformed, although its contribution to government revenues remains moderate.

Government expenditures are primarily driven by a relatively large, albeit stable, public sector wage bill (10% of GDP) reflecting collective public sector agreements (education, healthcare), a tight labour market and rising private sector wages. Social transfers (8%) and subsidies (2.5%) account for a large share of expenditures. The government plans to maintain existing energy subsidies, though the associated costs could rise sharply if international oil prices were to increase. In 2024, one-time capital transfers were made to set up a new national airline company through equity participation and the purchase of aircraft. While total government’s guarantees stand at 4.8% of GDP, Scope understands that no further capital transfers to state-owned enterprises are planned. Capital expenditures (5% of GDP) are significantly lower than current spending (32%), and the frequently better-than-expected budgetary performance indicates structural bottlenecks and limited absorption capacity.

The general government debt is projected to stabilise below 50% of GDP by 2030, after 48.6% in 2024. This trajectory is underpinned by the decline in the primary deficit, robust economic growth, well-anchored net interest payments (averaging 4.3% of government revenues between 2025 and 2030), and limited stock flow adjustments in Scope’s baseline scenario. Public gross financing needs are projected to be well above pre-Covid levels but remain manageable at EUR 1.5bn in 2025, down from EUR 1.8bn in 2024. A long weighted average maturity of around 7 years, euro denominated debt, fixed interest rates and strong domestic savings (26% of GDP) mitigate refinancing risks on local financial markets. A sound banking sector enables regular auctions and the issuance of retail bonds for households. Refinancing risks are further mitigated by concessional financing from the European Investment Bank (AAA/Stable), the Central Bank of Malta acting as a market maker, and the government’s financial assets of around 10% of GDP.

A strong external position enhancing resilience to external shocks, further bolstered by euro area membership. Malta benefits from a robust external performance anchored by dynamic export-oriented sectors. The current account surplus is projected to remain above 6% of GDP on average by 2030. This reflects strong exports driven by services (tourism, financial services), and limited direct exposure to international uncertainties through the trade channel. Moreover, sustained current account surpluses underpin a positive net international investment position (82.1% of GDP in 2024) driven by the net creditor position of households and financial corporates. Malta’s resilience to external shocks is further underpinned by its membership of the euro area and EU, which provides access to the European Central Bank’s asset purchase programmes and refinancing operations, as well as the broader European economic governance framework.

A robust and resilient banking sector, despite large exposure to the real estate sector. The banking sector displays robust capitalisation (CET1 at 22.9% in Q4 2024), solid asset quality (2.0% in Q1 2025), and healthy profitability and liquidity (LCR at 357% in Q1 2025). Credit growth has remained strong (7.5% YoY in March 2025) due to the robust economic momentum. Banks maintain ample liquidity, supported by private sector deposits, enabling local financial institutions to play a critical role in channelling net savings toward government retail bonds and auctions. Asset quality is not expected to be materially impacted by the gradual economic slowdown thanks to households’ strong financial positions. Risks associated with a potential deterioration in the real estate market (with resident lending to mortgages, construction and real estate accounting for almost 70% of the banks’ resident loan portfolios) are mitigated by a sectoral systemic risk buffer of 1.5%. Local banks have shown resilience in past crises, demonstrating a robust shock absorption capacity due to conservative capital and risk management practices.

Rating challenges: a resource-constrained economy; contingent fiscal risks; institutional and administrative shortcomings.

First, Malta is a small, open, externally dependent, and resource constrained economy. High dependency on exports (around 120% of GDP in 2024), energy imports, foreign workers (with about 30% of the population foreign-born) and significant external financial flows (among which special purpose entities) increase the sensitivity to shocks. A contraction in external demand from European trading partners and higher unit labour costs could weigh on exports, while commodity price volatility could weaken external and fiscal outlooks. High turnover in foreign workers, especially in low-value-added sectors, presents a challenge due to the country’s high population density and strain on local infrastructures and public services. Malta’s scarce resources in terms of land, water and energy, its relatively limited potential for cost-effective renewable energy and its declining native population size³ could pose long-term risks to the country’s growth model.

Second, Malta faces contingent fiscal risks such as rising spending pressures due to age-related costs, public sector guarantees, and relatively concentrated tax revenues. The European Commission estimates the total fiscal costs of ageing to increase by 8.9pps of GDP over 2024-70⁴, compared to an EU average of 1.2pps, reflecting a low and declining fertility rate pressuring the financing of the pension and health systems. Additional risks for public finances stem from the government guarantees to state-owned enterprises, accounting for 4.8% of GDP. Finally, Malta displays one of the lowest tax-to-GDP ratios within the EU and is highly reliant on corporate income tax, which expose public finances to potential changes in international tax regulation. Dependence on the gaming industry (around 7% of 2024 Gross Value Added in 2024)⁵, in which companies could relocate outside Malta, along with foreign investment driven by tax planning strategies, also presents downside risks.

Third, Malta faces lingering, albeit improving, institutional and administrative challenges. Institutional shortcomings have been identified by the European Commission⁶, as well as by the Court of Justice of the European Union⁷ about the investor citizenship scheme. Even so, Scope notes that the government is actively pursuing improvements in judiciary independence, judicial proceedings, control of corruption, fraud and financial irregularities through its National Reform Programme, its Recovery and Resilience plan and its National Anti-Fraud and Corruption Strategy. Safeguarding the rule of law is also high on the agenda of Malta’s Presidency of the Council of Europe from May to November 2025⁸.

Rating-change drivers

The Stable Outlook represents the opinion that risks for the ratings are balanced over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. Structural reforms are implemented to improve the resilience of the country’s growth model, resulting in greater economic diversification into higher-value added and sustainable economic activities;
    
2. Continued fiscal consolidation returns public debt-to-GDP to a firm downward trajectory.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Structural deterioration in the growth outlook;
    
2. Fiscal outlook weakens significantly;
    
3. Institutional fragilities re-emerge and threaten Malta’s economic attractiveness and competitiveness.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a+’ for Malta, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives 1) a one notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘aa-’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Malta’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope has identified QS relative credit strengths for Malta: i) growth potential and outlook. Conversely, the following credit weaknesses have been identified in the QS: i) macro-economic stability and sustainability; ii) environmental factors; and iii) governance factors. On aggregate, the QS generates a one-notch negative adjustment for Malta’s credit ratings and indicate long-term foreign- and local-currency ratings of A+.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

For environmental factors, Malta’s score is above the SQM average for euro area countries for carbon emission intensity, despite slow progress to transition towards climate neutrality. Malta’s service-based economy, as well as its geography, demographics and expanding GDP make further gains in emission reduction more challenging. Malta performs below euro area peers in terms of natural disaster vulnerability and ecological footprint of its consumption relative to the available biocapacity. Malta also tends to lag its peers in environmental taxation, particularly on carbon price, while subsidies for fossil fuel energy lead to price distortions and reduce incentives for investment in renewables. Renewable energy represented 15% of final energy consumption in 2023, against 11% in 2020⁹. As a small island-state, the country is vulnerable to severe storms, floods, heatwaves, water stress, and coastal erosion, but it is also exposed to resource risks, generating the need for large imports of goods and energy. This drives Scope’s ‘weak’ assessment for environmental factors.

For social factors captured under the SQM, Malta benefits from strong labour force participation, a below average old age dependency ratio, but slightly above average inequality levels compared to euro area countries. Given the robust economic growth, the country maintains a high level of employment and low numbers of people not in employment, education or training. However, some groups face less favourable working conditions, as reflected in the gender employment gap which remains above the EU average. Moreover, parts of the workforce face skill mismatches and low levels of basic educational attainments, weakening labour productivity and competitiveness. The share of people at risk of poverty or social exclusion remained close to the EU average, but with some heterogeneity among different groups. This drives Scope’s ‘neutral’ assessment for social factors.

Under governance-related factors captured in the SQM, Malta scores below euro area countries’ average on a composite index of five World Bank Worldwide Governance Indicators. Malta is implementing a series of structural reforms to address its lingering institutional and governance weaknesses aimed at strengthening the independence and effectiveness of the judiciary system, as well as the capacity of tackling corruption and money laundering. However, important institutional deficiencies have been regularly highlighted by the European Commission, the Council of Europe, and the European Court of Justice. This drives Scope’s ‘weak’ assessment for governance-related factors.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. Recovery and Resilience Facility, March 2024 
2. Council Recommendation, February 2025 
3. Central Bank of Malta, Policy Note, May 2025 
4. European Commission, 2024 Ageing Report 
5. Malta Gaming Authority, 2024 Annual Report 
6. European Commission, 2024 Rule of Law Report 
7. Court of Justice of the European Union, April 2025
8. Maltese Presidency of the Committee of Ministers of the Council of Europe, May 2025 
9. European Parliament, Malta’s Climate Action Strategy, March 2025 

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Thomas Gillet, Director
Person responsible for approval of the Credit Ratings: Eiko Sievert, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 9 November 2018. The Credit Ratings/Outlooks were last updated on 2 August 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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