Standard & Poor’s (S&P) Ratings Services yesterday affirmed its “AA-” long-term and “A-1+” short-term credit ratings for Taiwan and said the outlook of the nation’s sovereign ratings remained “stable,” because the results of the presidential and legislative elections on Saturday were not likely to affect the progress of cross-strait relations.
However, the international rating agency said that high government debt and excessive competition in the banking system pose a potential risk to the nation’s rating strength.
The S&P’s move came after President Ma Ying-jeou (馬英九) won a second term in office and the Chinese Nationalist Party (KMT) retained its majority in the legislature.
“The KMT victory suggests the Taiwanese public’s acceptance of closer economic integration with China,” S&P said in a statement.
The ratings agency in June 2010 raised Taiwan’s sovereign credit rating outlook to “stable,” from “negative,” which it had assigned in April of the same year, citing the nation’s improving economic prospects.
Two other international ratings agencies have yet to disclose their rating outlooks for Taiwan following the elections.
Moody’s has an “Aa3” foreign and local currency sovereign rating for Taiwan with a “stable outlook,” while Fitch Ratings Ltd gave Taiwan an “A+” rating for long-term foreign currency, an “AA” -short-term foreign currency rating and an “AA-” rating for long-term local currency, with a “stable outlook” for these ratings.
S&P said yesterday in the statement that because it appeared that the outlook for the global economy would be tepid over the next one or two years, China would likely become more important for export-oriented Taiwan.
“We believe President Ma will continue his policy of fostering close economic ties with China and that cross-strait relations will remain stable,” it said.
Credit Suisse’ Hong Kong-based economist Christiaan Tuntono yesterday said Ma’s victory indicated that there would be a continuation of the current government policies over the next four years.
“On top of the list is Taiwan’s cross-strait policy, through which we think Taipei will continue to facilitate a pragmatic rapprochement with mainland China,” Tuntono said in a report.
Moody’s Analytics associate economist Katrina Ell agreed that closer ties with China would likely set the pace for Taiwan’s development over the next four years, but she said that this should not be the “dominant focus” for the KMT government.
“In the lead-up to the election, it was a close battle. This should be a wakeup call for Ma that domestic issues are important, too,” she said in a statement, referring to increasing inequality, rising unemployment and weak income growth.