International ratings agency Fitch Ratings yesterday confirmed Taiwan's long-term foreign and local currency ratings at "A+" and "AA" in a statement. The outlook remains stable, it said.
The ratings reflect the nation's substantial liquidity and strong export performance, as well as the government's determination to push through financial reform, Fitch said.
The nation saw its foreign exchange reserves rise to a record US$233.01 billion (NT$7.9 trillion) at the end of last month, while export orders climbed 26.61 percent to a record US$19.5 billion from a year ago.
Such positive forces are likely to be offset, however, by a clear worsening in cross-strait relations with China, Fitch said, adding that the hostile relationship remains a primary obstacle for Taiwan's credit worthiness.
"Over the past year, outstanding external strengths and striking political risk have become more pronounced," Fitch said. "The ratings confirmation and stable outlook do balance these opposing credit trends, but Fitch will need to monitor political developments closely in light of the shifting dynamics of cross-strait relations."
Cross-strait relations have soured since pro-independence President Chen Shui-bian (陳水扁) was re-elected in March, and the situation may turn more tense if the pan-green coalition secures a majority in December's legislative elections, Fitch said.
"Additionally, China's more forceful stance of late has boosted the near-term possibility, albeit small, that miscommunication could result in a rapid escalation of military tensions," it said.
As the government's fiscal reform proposal appears to be sidelined this campaign year, Fitch said legislative approval of a NT$500 billion budget for public infrastructure projects over the next five years could widen the government deficit and increase public debt.
Public debt accounted for 36 percent of the nation's GDP at the end of last year, which remains in the modest "A" category, Fitch said.
With no urgency attached to fiscal consolidation by policymakers, Fitch estimated that public debt could rise to 40 percent of GDP next year, although government debt servicing continued.
In March, Standard & Poor's reported a stable outlook for Taiwan, with an "AA" long-term debt rating, the fourth-highest investment grade, and the highest "A-1+" short-term rating for both foreign and local currency debts.
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