Moody’s Investors Service yesterday maintained its “Aa3” foreign and local currency sovereign rating for Taiwan with a stable country outlook on the back of strong government and institutional financial strength and low susceptibility to risks from financial, economic and political surprises.
The ratings agency’s latest assessment of Taiwan’s sovereign ratings came after Fitch Ratings on Sept. 13 kept Taiwan’s “A+” and “AA-” long-term foreign and local currency issuer default ratings with a stable outlook. Standard & Poor’s Ratings Services on Aug. 8 maintained 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 economy has proven flexible in past downturns, although its GDP growth prospects this year and next year are clouded by the eurozone debt crisis and a slowdown in China, Christian de Guzman, an assistant vice president and analyst at Moody’s sovereign risk unit, said in a report.
Guzman attributed the resilience to a high degree of government effectiveness, strong competitiveness and a sound institutional framework.
“Although we expect the ongoing debt crisis in the eurozone and slowing growth in China to crimp Taiwan’s real GDP growth to 1.2 percent this year, we believe its trade-dependent economy will start to recover in early 2013,” the analyst said in the report.
While Taiwan’s government debt levels have risen in the past few years, prompting concerns over the government debt ceiling, the authorities have responded with measures aimed at narrowing its deficits through an expansion of government revenues, Guzman said.
Nevertheless, the government debt ceiling or total indebtedness is low when compared with many industrialized countries, she said.
“Given Taiwan’s ease of financing and healthy maturity profile, an increase of its government debt ceiling would not necessarily be credit negative, particularly as it has limited room to adjust both expenditures and revenues,” Guzman said.
Although Taiwan claims contested territories in the South and East China Seas, it has not been a significant party in the escalation of territorial disputes, and thus the risks for Taiwan remain unchanged at a moderate level, she said.