Standard & Poor’s (S&P) Ratings Services yesterday affirmed Taiwan’s sovereign credit rating of “AA-,” its fourth-highest grade, and forecast the nation’s economy would grow 3.7 percent this year and see continued growth of between 3.8 percent and 3.9 percent from next year through 2017.
The international ratings agency said that it had kept a stable outlook on the nation’s sovereign ratings, affirming its “AA-” long-term and “A-1+” short-term unsolicited issuer credit ratings.
“Taiwan’s strong external position, sound monetary management and dynamic information technology companies in the private sector support the ratings,” S&P said in a statement.
“The stable outlook reflects our expectation that Taiwan will maintain its large net external asset position and that sustained economic growth will contain the government’s debt position over the next 24 months,” it added.
S&P has kept its “AA-” long-term and “A-1+” short-term ratings on Taiwan since 2003, saying the nation is a strong net external creditor in the world due to its solid current-account surplus and ample foreign-exchange reserves.
At the end of last month, the nation’s foreign-exchange reserves totaled US$421.5 billion, up from US$419.2 billion the previous month, while its current-account surplus was US$15.49 billion in the first quarter, up from US$11.33 billion the previous year, according to central bank data.
S&P expects the nation’s current-account surplus to remain about 9 to 12 percent of GDP in the medium term and its foreign-exchange reserves may exceed US$430 billion by the end of this year, among the highest in the world.
While the agency’s latest forecast of the nation’s GDP growth is higher than the Directorate-General of Budget, Accounting and Statistics’ 2.98 percent forecast made on Friday last week, Taiwan’s export-oriented economy has a close link to the growth in major developed markets and China.
Moreover, one of the nation’s main credit weaknesses is the issue of net general government debt, which S&P estimates will account for 45.3 percent of Taiwan’s GDP this year.
“We believe the government is committed to fiscal consolidation,” S&P credit analysts Phua Yee-farn (潘怡帆) and Tan Kim-eng (陳錦榮) said in the statement.
However, they said Taiwan would still face increased fiscal pressure from a fast-aging population in the long term.
“In our view, there remains a general lack of political will to expand the tax base substantially. Therefore, the main push behind deficit reduction is likely to come from GDP growth, which we deem plausible barring major external shocks,” they said.
S&P said it might upgrade its sovereign ratings on Taiwan if the government can implement structural reforms to diversify the economy and significantly raise per capita income.
Ratings would also move higher if government reforms could efficiently lower the nation’s budgetary and off-budget shortfalls in a sustainable way, leading to lower government debt, the agency said.
However, ratings may be downgraded in potential scenarios where fiscal deficits worsen and public-sector liabilities increase, China shows a hard-landing in its economy over a prolonged period, or the cross-strait relationship sharply deteriorates, it added.
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