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Outlook for nation's debt stays negative

Taiwan's sovereign credit ratings were reaffirmed by the Standard & Poor's Ratings Services yesterday, with the outlook for the nation's debt staying negative.

S&P maintained its AA- and A-1+ foreign and local currency sovereign credit ratings on Taiwan, the international ratings agency said in a statement released yesterday.

"The ratings reflect Taiwan's strong external position and robust economy in a challenging policy environment in which fiscal flexibility has weakened," S&P credit analyst Ping Chew (周彬) said in the statement.

The government has been working to maintain a strong external payments position to support its debt ratings, with its substantial net creditor position projected to exceed 142 percent of current account receipts this year, S&P said.

Despite decreased investment at home due to industry migration to China and the reluctance by companies and individuals to repatriate profits earned overseas, Taiwan still enjoys an ample international liquidity, underscored by its massive foreign exchange reserves, which stood at US$251.78 billion at the end of last month.

S&P forecast the nation's foreign reserve figures to exceed US$266 billion this year, a strong support to the ratings.

Ahead of the legislative elections last November, the agency downgraded Taiwan's outlook to negative from stable, citing the nation's weakening fiscal flexibility and rising tensions with China.

“The outlook is negative due to our expectation that the fiscal position remains vulnerable to politics and a lower growth trend,” Chew said yesterday.

“Fiscal reform measures are still insufficient to address longer-term budgetary pressure, given the low level of general government revenue at a projected 18 percent of 2005 GDP,” he added.

According to S&P, rising government debt, currently at around 49 percent of the nation's GDP, could escalate if tax initiatives fail due to “obstructionist politics.” “The ratings on Taiwan could be lowered if further fiscal slippages cause the debt burden to rise markedly,” Chew warned.

Another ratings agency, Fitch Ratings Ltd, last month affirmed Taiwan's sovereign rating with a stable outlook, citing cross-strait relations as a critical factor in the nation's rating level.
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