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Fitch Ratings keeps an eye on Taiwan developments

Fitch Ratings yesterday said that the nation's presidential election result could help improve cross-strait relations and spur economic and financial reforms.

"[A unified government] could help address some of Taiwan's major rating constraints, such as tense cross-strait relations and slow reforms related to the banking system and public finances," Vincent Ho (何永燊), associate director of Fitch's Asian sovereign ratings team in Hong Kong, told a teleconference yesterday morning.

The rating agency expressed concerns over president-elect Ma Ying-jeou's (馬英九) proposed "i-Taiwan 12 infrastructure projects," valued at NT$4 trillion (US$133 billion), or 29 percent of this year's GDP, over the coming years.

These infrastructure projects, together with the dual impact of tax cuts and a minimum defense spending of 3 percent of GDP each year, will bode uncertainty for ongoing improvements in the nation's public finances, Ho said.

Taiwan achieved its fiscal goal of balancing the central government's budgets in 2006, five years ahead of schedule, but "it is unclear whether the incoming government will maintain this objective," he said.

James McCormack, Fitch's head of Asia-Pacific sovereign ratings, said that public finances have been a concern for Taiwan's sovereign ratings.

He said that debts, on average, accounted for 40 percent of the nation's GDP, which is relatively high compared with 30 percent for other countries.

He said that the rating agency has no plan to revise its sovereign credit rating for Taiwan despite high expectations for the next administration's capability in boosting local demand by forging closer ties with China.

Policies need to be implemented before Fitch can make any revisions to its sovereign credit rating on Taiwan, McCormack said.

Fitch has maintained its sovereign credit rating on Taiwan at "A+" with a stable outlook for seven consecutive years.

The rating agency, nevertheless, slightly revised its forecast for the nation's GDP growth upward this year from 4.4 percent to an estimated 4.5 percent and 5.2 percent next year, Ho said.

However, he warned that Taiwan is facing growing inflationary pressures, predicting that the nation's consumer price index (CPI) will jump to 3.5 percent this year before slowing to 2.8 percent next year.
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