31 May - 6 June 2001

Moody’s pessimistic outlook

The government should be quite concerned after reading the latest report on Malta by the global research agency Moody’s Investors Service. Although the report retains Malta’s A3 rating, it clearly states that this is solely pegged to the fact that Malta is in a strong position to join the European Union. This alone should be of concern to the government – failure to join the EU will seriously harm Malta’s interests and future ratings. The writing is on the wall and the government faces an uphill struggle to retain this rating even more so when the Opposition is adamant that EU membership is not for Malta. The Labour Party’s anti-EU sentiment is specifically mentioned by Moody’s in its report. Since February 1999, Moody’s has had a negative outlook on the country’s A3 rating – in May 1995, Malta had an A2 rating.
And Moody’s gives the reason for this: “Needed fundamental reforms are highly contentious in the domestic political context, and therefore potentially vulnerable to political pressures over the medium to longer term. This is particularly relevant to the ratings outlook since the Opposition has threatened to withdraw the country’s application to join the EU should they win the next election.” It adds, however, that the only factors keeping the ratings are “the country’s moderate external debt levels, adequate foreign liquidity, and most importantly, Malta’s status as a front-runner to join the EU in the next enlargement round”.
Thus, is our foreign currency ceiling rating at risk of becoming Baa1 or lower if we find ourselves out of the Union? Will our credit ratings and thus capabilities to compete globally suffer as a result? Will investors/banks look kindly on our economy or government if further borrowings are required?
Despite these risks, the Malta Labour Party is still adamant that Malta should not join the EU but opt for a closer relationship with the EU. Although it has clearly stated its reasons for not wanting EU membership – its anti-EU campaign has been more effective than any pro-EU initiative – the alternative proposed by Dr Alfred Sant is not an alternative at all!
Does the Labour Party not realise that its present policy is harming Malta’s interests? Are partisan politics more important than the future of the country? The EU will not willingly accept Malta’s application once again if Labour pulls us out of the race for membership.
“The anti-EU camp has led the public to believe that the tough economic adjustments are needed only to meet EU membership specifications, and therefore scepticism about joining has increased. The controversy needs to be fully resolved as soon as possible in order to remove the uncertainty surrounding Malta’s EU status and thereby improve the investment environment,” Moody’s says in its report.
The Labour Party continues to peg the necessary structural reforms to membership – which is not the case, restructuring is necessary whether we join the EU or not. Confusing the people will only create uneasiness among the voting public. If the Labour Party really wants to give the Maltese a true picture of the EU, it should do so by stating the facts and not by scaremongering, especially those who have no idea what politics and the EU is all about.
This brings up another important issue. Moody’s says in its report: “The pro-EU position is not well enough understood, due to the lack of a concerned effort to explain the benefits such as faster growth and enhanced macroeconomic stability that would result from trade integration. By contrast, the MLP-led anti-EU views have been more effectively presented through the media.”
Very true. The government is waiting for negotiations to be concluded before it begins its campaign for EU membership. Although the government may be correct in waiting till it has a clear picture of what is required, it cannot wait another two years to start informing the public. By that time the Labour Party’s propaganda machine would have reached its aim. The Iva Campaign and the Malta-EU information Centre are doing a lot to promote the EU but this is not enough. The people want information to come straight from the horse’s mouth. Unless the government tackles this issue immediately it risks losing the referendum and undoubtedly the next general election. Even Moody’s insists that the referendum for EU membership must be won. “The outlook for Malta’s ratings remains negative, which is primarily a reflection of the uncertainty regarding EU membership. Moody’s downgraded Malta’s foreign currency country ceiling from A2 to A3 in March 1998, but the expectation of eventual EU accession has been an important reason for keeping the rating in the ‘A’ rating range despite ongoing concerns about the economy’s fundamental weaknesses and sustainability of reform efforts.”
“Moody’s believes that the domestic political schism regarding the EU is a major worry for Malta’s economic prospects. In 1998, the EU welcomed Malta’s renewed bid for membership, but another withdrawal would likely be more devastating for Malta’s medium-term chances to join.”
And a disaster is something that this country cannot cope with.