Evaluating the feasibility of diversifying borrowing sources : a critical examination of Malta’s public debt management

Abstract

Malta’s sovereign debt has historically been financed primarily through domestically issued Malta Government Stocks, supported by local demand, alongside a material non-resident holding share through cross-border settlement arrangements. In a tighter euro-area financial environment, this dissertation assesses whether Malta can feasibly broaden its investor base through calibrated engagement with international capital markets and, crucially, under what conditions such diversification would enhance resilience without undermining domestic market stability. The analysis frames feasibility as a cost–risk and market-access problem, with particular attention to refinancing pressure, investor-base concentration, and institutional readiness. The study combines stakeholder interviews with a scenario analysis. Interviews with policymakers, regulators, market infrastructure actors, and financial institutions elicit assessments of benefits, constraints, and implementation requirements. In parallel, a scenario analysis of Malta’s gross financing needs for 2025–2038 compares alternative borrowing requirements under different fiscal adjustment strategies over a medium-term perspective. These scenario figures were compiled for this study by the Economic Policy Department using the European Commission’s Debt Sustainability Analysis template populated with Maltese data; the analysis discusses GFN paths across scenarios as the decision relevant indicator. Whilst the scenario analysis uncovers structural macroeconomic constraints the qualitative analysis of stakeholder interviews covers agency and institutional behaviours. By combining quantitative elements with the qualitative thematic analysis of structured interviews, institutional decision-making dynamics in international public debt issuance can be triangulated with fiscal risk modelling. Findings indicate that a gradual, well-governed move toward international issuance could broaden demand beyond domestic absorption limits, improve liquidity, and price discovery, and increase refinancing optionality as financing needs evolve. Stakeholders emphasise tradeoffs, including greater exposure to global risk sentiment, more demanding disclosure and rating scrutiny, and potential spillovers to domestic financial stability if sequencing is mismanaged. The evidence highlights feasibility conditions centred on disciplined medium-term strategy, explicit risk limits, strengthened institutional capability, and an institutionalised investor relations function that complements Malta’s domestic funding strengths. Overall, the dissertation concludes that international market issuance is feasible and potentially advantageous when pursued proactively, sequenced credibly, and anchored in sustained fiscal discipline. It contributes a Malta-focused small-state euro-area perspective on how investorbase diversification can shape sovereign resilience, credibility, and policy space.