Scope Ratings says the decision by the Financial Action Task Force (FATF) to add Malta (A+/Stable) to its grey list will have limited immediate rating implications. The FATF added Malta citing structural deficiencies in the country’s anti-money laundering and combatting-the-financing-of-terrorism (AML/CFT) framework.

“Deficiencies in the AML/ CFT framework are already captured in the current A+/Stable rating through our qualitative assessments of financial stability risk,” says Thibault Vasse, analyst at Scope. “However, the grey listing could impact Malta’s sovereign ratings if associated reputational costs jeopardise the government’s ability to boost the economic recovery and support its fiscal consolidation.”

A prolonged grey listing could diminish Malta’s attractiveness as an investment destination and adversely affect its economic growth prospects, financial stability and ability to consolidate public finances. Important growth sectors such as e-gaming and financial services are vulnerable to delays of Malta’s removal from the FATF grey list.

Malta has made notable progress in strengthening its AML/CFT frameworks in recent years, devoting substantial resources to regulatory, supervisory and investigative agencies. The government ensured the adoption of new risk-based tools and undertook institutional reforms to improve enforcement. Funding and staffing for AML/CFT increased by 17% and 46% respectively over 2018-20. MONEYVAL, the Council of Europe’s expert monitoring committee, recognised Malta’s technical compliance with FATF standards in April.

"The government needs to show effective enforcement of newly strengthened oversight frameworks,” says Vasse. Malta’s action plan includes a political commitment to work closely with the FATF and MONEYVAL to address lingering institutional deficiencies in areas of transparency, beneficial-ownership information and financial intelligence.

“The government has demonstrated its willingness and ability to enhance financial oversight and regulatory frameworks in recent years” says Vasse. “This positive momentum must be maintained to ensure Malta’s robust growth potential of around 3,5% and solid public finances characterised by consistent primary surpluses and declining debt-to-GDP pre-Covid.”

“We expect the economy to recover quickly and public debt to return to a firm downward course from 2023,” says Vasse. “This, coupled with falling debt-servicing costs given current ECB policy, underpins the ratings at the A+ level and supports the Stable outlook.”

Scope last reviewed Malta’s sovereign ratings on 15 October 2021, leaving the ratings unchanged.