The government recently said it would improve public finances as the debt ratio is approaching the legal ceiling, but Moody’s said the government should be concerned that consumer spending is being crowded out by lower welfare spending and falling tax revenues.
The Cabinet last month approved a revised central government budget for next year, including a plan to borrow a record NT$516.2 billion (US$16 billion) in loans — more than NT$455.8 billion this year — to finance its economic stimulus spending and post-Typhoon Morakot reconstruction work.
Total government debt is expected to reach NT$4.635 trillion by the end of next year and Minister of Finance Lee Sush-der (李述德) said last week the government would work to prevent the level of debt, as a percentage of GDP, from reaching the 40 percent ceiling.
The debt ratio, however, could reach 40.1 percent by the end of this year from 35.5 percent last year, the Council for Economic Planning and Development said in a statement on Sept. 29.
That is higher than a median of 32 percent in Taiwan’s Aa-rated peers and a median of 35 percent for the A-rated sovereigns, Moody’s Investors Service said.
“The legal limit of 40 percent is conservative compared to the European Union’s 60 percent limit and the debt levels of Taiwan’s neighbors,” Tine Olsen, an economist at Moody’s Economy.com based in Sydney, said in an e-mailed statement on Friday. “Instead of worrying about a legal boundary for government debt, authorities should be concerned about the effects the higher debt has on the economy.”
Despite the government’s distribution of shopping vouchers valid until Sept. 30, consumer spending in Taiwan was still restrained by the slow economy, as retail sales in the year to August contracted 1.65 percent from a year ago, data from the Ministry of Economic Affairs showed on Sept. 22.
Meanwhile, unemployment rate reached a record high of 6.13 percent last month and nominal wages dropped 6.72 percent to NT$39,872 in July from a year ago, indicating that consumers are more inclined to increase their savings than spend money.
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