Fitch Ratings has affirmed Malta’s long-term sovereign credit rating at ‘A+’ with a Stable Outlook, pointing to the country’s strong economic growth, high income levels and euro area membership, while continuing to flag deteriorating governance indicators as a key weakness.

In its latest assessment, the international credit rating agency said Malta’s rating is supported by “robust economic growth, high per capita income, and EU and euro area membership”. However, these strengths are balanced by a significant deterioration in governance indicators over the past decade and the economy’s small size, which leaves it particularly exposed to sector-specific shocks.

Economic growth to remain just below 4 per cent

Fitch expects Malta’s economy to continue expanding at a comparatively strong pace, forecasting real GDP growth of slightly below 4 per cent in both 2026 and 2027, following growth of 4 per cent in 2025.

The agency expects some moderation as tighter immigration regulations reduce the contribution of labour to economic growth.

Nevertheless, Malta remains one of the strongest-performing economies among sovereigns rated by Fitch. The economy has expanded by a cumulative 90 per cent since 2015, compared with 16 per cent across the eurozone.

Average annual GDP growth over that period stood at 6.5 per cent, while GDP per capita in purchasing power terms reached 110 per cent of the EU average in 2025 – 11 percentage points higher than a decade earlier.

Tighter immigration rules expected to weigh on labour contribution

The labour market has been a major contributor to Malta’s economic expansion over the past decade.

The number of employees increased from 198,000 in 2015 to 330,000 in the first quarter of 2026, according to Fitch. Around 100,000 of that increase came from foreign workers, while approximately 30,000 resulted from higher participation among the Maltese population.

Malta’s unemployment rate stood at 3.1 per cent in 2025, significantly below the 6.3 per cent median among comparable countries.

Fitch identified information and communication technology, tourism and financial services as key sources of momentum for employment and economic growth.

The agency’s expectation that tighter immigration regulations will reduce labour’s contribution to growth is particularly significant given the extent to which Malta’s expansion over the past decade has coincided with a substantial increase in foreign employment.

Deficit forecast to remain around 2 per cent

Malta’s fiscal position has also improved, with Fitch forecasting the budget deficit to remain at around two per cent of GDP over its forecast horizon.

The deficit declined to 2.2 per cent of GDP in 2025, allowing Malta to exit the EU’s excessive deficit procedure. This followed deficits of 3.4 per cent in 2024 and 4.4 per cent in 2023.

Fitch attributed much of the improvement to higher Government revenue, supported by strong economic and employment growth.

Government debt, meanwhile, is forecast to stabilise at around 46 per cent of GDP between 2026 and 2028. This remains below both the current 57 per cent median for ‘A’-rated sovereigns and the EU’s 60 per cent threshold.

Fitch also pointed towards favourable financing conditions, supported by ample liquidity in Malta’s domestic banking system and a strong local investor base.

Energy subsidies could cost €230 million this year

One fiscal pressure highlighted by Fitch is Malta’s continued policy of subsidising energy prices.

The agency estimates that energy support measures could cost around €230 million in 2026 – almost one per cent of projected GDP – before remaining at approximately €200 million in 2027, based on its assumptions for global oil prices.

Malta’s subsidy system effectively keeps electricity and fuel prices fixed for the domestic private sector, shielding households and businesses from movements in international energy prices.

While Fitch acknowledged that the policy mitigates inflationary pressures, it warned that the system discourages energy savings and carries a “sizeable fiscal cost”.

Governance indicators continue to deteriorate

Governance remains one of the more notable weaknesses identified in the assessment.

Fitch said Malta’s World Bank Governance Indicators have “deteriorated significantly” since 2013, falling from the 84th percentile to the 71st percentile in 2024, the latest year for which data is available.

All six governance subcomponents declined significantly over the period, according to the agency, with control of corruption recording the largest deterioration at almost 20 percentage points.

Addressing these weaknesses could ultimately contribute towards a higher sovereign rating. Fitch said significant progress on governance, alongside further improvements in GDP per capita towards the median of ‘AA’-rated countries, could support an upgrade. A significant decline in the Government debt-to-GDP ratio could also lead to positive rating action.

Conversely, a severe external shock – including regulatory or taxation changes that negatively affect Malta’s labour market, economic performance and Government revenues – could put downward pressure on the rating. A sharp upward trajectory in Government debt could similarly result in a downgrade.

Banking sector remains resilient

Fitch also gave a broadly positive assessment of Malta’s banking sector, describing it as resilient and pointing towards strong capitalisation, abundant liquidity and solid asset quality.

The sector’s non-performing loan ratio declined to 1.7 per cent at the end of 2025, broadly in line with the EU average, while the common equity Tier 1 capital ratio remained around 20 per cent.

The agency nevertheless noted the banking sector’s significant exposure to construction and real estate. It said tight underwriting standards mitigate this vulnerability, although “pockets of risk remain”.

Bank profitability is expected to moderate further as interest margins normalise, although double-digit credit growth and modest growth in fee income should provide some support.

Overall, Fitch’s assessment leaves Malta firmly within investment-grade territory, with the Stable Outlook indicating that the agency does not currently anticipate a change to the rating.