Moody’s Investors Service yesterday maintained its “Aa3” foreign and local currency sovereign rating for Taiwan, with a stable country outlook.
“The rating is based on Moody’s assessment of very high-to-high economic resiliency,” Christian de Guzman, an assistant vice president and analyst in Moody’s sovereign risk unit, said in a report.
The improving economy’s growth prospects amid closer trade integration with China helped support Taiwan’s economic strength, while many of Taiwan’s rating peers were undergoing major structural adjustment processes, Guzman said.
The international ratings agency evaluates a nation based on four factors — economic strength, institutional strength, government financial strength and susceptibility to event risk — on a scale ranging from “very high” and “high” to “moderate,” “low” and “very low.”
Taiwan’s institutional strength and government financial strength were given a “high” scale as well.
“High scores for institutional strength underscore the performance of the government’s crisis management framework, reflecting an appropriate degree of policy flexibility that has reinforced Taiwan’s resilience to large external shocks,” Guzman said.
In addition, the finance-ability and affordability of government debt also remains anchored by Taiwan’s strong external position and high savings rate, Guzman said, adding that this enables it to meet its borrowing requirements entirely in local currency and at an extremely low cost.
As for the sector of susceptibility to event risk, Moody’s said Taiwan scored “moderate to low,” with manageable risks.
Moody’s stable outlook for Taiwan balances the likely resumption of fiscal consolidation against the considerable headwinds to growth posed by an uncertain external environment.
However, Guzman said a significant erosion of Taiwan’s structural external surplus could undermine the balance with which the government finances its deficit and services its debt.
Fitch Ratings Ltd, a rival of Moody’s, downgraded Taiwan’s long-term local currency rating to “AA-” from “AA” earlier this year, while affirming its long-term foreign currency rating at “A+” and maintaining its “AA” short-term foreign currency rating.