Taiwan’s sovereign credit profile appears resilient in the face of a sharp deterioration in the global economy and heightened stress in the financial system on the back of its strong financial flexibility and low public debt-to-GDP ratio, Fitch Ratings said yesterday.
The international ratings agency made the comments in a teleconference after conducting an assessment on the exposure of emerging Asian economies to the volatile global economy, highlighting their GDP growth, trade openness, stimulus capacity, liquidity exposure and currency performance.
Taiwan was given a “A+” rating for long-term foreign currency and a “AA-” rating for long-term local currency. The outlook is stable for both ratings, the agency said.
“Emerging Asian [economies’] exposure to a ‘sudden stop’ in external financing appears limited, with only Sri Lanka and India running deficits on their basic balances,” Fitch analyst Philip -McNicholas said.
Exposure to a sharp deterioration in global market liquidity appears greatest for Indonesia, South Korea and Malaysia and more limited for Taiwan, China and the Philippines, he said.
Thailand combines high exposure to a global slowdown with limited scope for monetary policy response given its negative real interest rates, McNicolas said.
Thailand was given a “BBB” rating for long-term foreign currency with a stable outlook, Fitch said.
By contrast, Indonesia combines a track record of resilience to external economic shocks with the most scope for a policy response, McNicolas said, basing the observation mainly on how the country withstood the previous global economic downturn. Indonesia was given a “BB+” rating for long-term foreign currency.
The “continental economies” of China and India are less -exposed to global growth shocks, -curtailing the room for policy stimulus if the government -considers intervention necessary, McNicolas said.
China, the destination of 40 percent of Taiwanese exports, was given a “A+” rating for long-term foreign currency with a stable outlook, Fitch’s special report said.
However, the country was given a negative outlook on its “AA-” rating for long-term local currency, weighed by Fitch’s concerns over its financial stability after a lending surge over the past three years, the report said.
Taiwan, which has positive real interest rates and a debt-to-GDP ratio that is rated near the middle of the spectrum, has room to initiate effective polices, the report said.
The government’s long-term debt last month stood at 34.67 percent of GNP, comfortably below the statutory ceiling of 40 percent, the Ministry of Finance said.
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