Fri, Jan 23, 2009 - Page 11 News List

Central bank rebuts Fitch report

By Kevin Chen  /  STAFF REPORTER

The government’s blanket guarantee on all depositors’ savings will not increase the burden on public finance and its debt management is appropriate, the central bank said in a statement late on Wednesday.

The central bank’s remark came after Fitch Ratings Ltd on Monday lowered its outlook on Taiwan’s AA long-term local currency rating to negative from stable, citing concerns over a fiscal deterioration this year and next.

The central bank said that the government’s announcement on Oct. 7 of a blanket guarantee to cover all local savings had met its goal of boosting public confidence in the banking system and solving the liquidity problem at the time.

“It [the blanket guarantee] will not increase the government’s fiscal burden” as Fitch had forecast, the central bank said in the statement.

The monetary authorities also dismissed Fitch’s warnings of a rising fiscal deficit in Taiwan, saying the estimated general government debt — including outstanding debt in central and local governments — would reach 39.4 percent of the nation’s GDP and 221 percent of fiscal revenue this year.

That was lower than Fitch’s estimate that the general government debt would hit an all-time high of 47 percent of GDP and 280 percent of fiscal revenue this year.

The nation’s debt burden — or debt-to-GDP ratio — is also lower than that in other countries this year, such as the US’ 78.1 percent, the UK’s 63.6 percent, the euro zone’s 73.2 percent and Japan’s 174.1 percent, the central bank said, citing data from the Organization for Economic Cooperation and Development.

But Taiwan’s debt-to-GDP ratio is higher than South Korea’s 31.5 percent, the bank added.

“Owing to deteriorating economic conditions, individual countries have one after another introduced massive economic stimulus packages [to address their problems], making it an international trend of rising fiscal deficit,” the bank said in the statement.

Under the impact of the ongoing global economic downturn, Fitch on Wednesday predicted that Taiwan’s economy would contract by 2.1 percent this year, which was a downward revision from the agency’s forecast of a 1.7 percent contraction made in November.

The government in November said that it expected a GDP growth of 2.12 percent this year.

The central bank on Wednesday said the country would continue to post a current account surplus and the balance of payments would remain in positive territory.

The bank also reiterated Taiwan’s international payment ability, saying the nation has the world’s fourth-highest foreign currency reserves, which hit US$291.71 billion at the end of last year

Taiwan also enjoys the world’s sixth-biggest net external debt position, which totaled US$466.6 billion at the end of 2007, the statement said.

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