Fitch maintains Taiwan’s rating at ‘A+’ and forecasts 2.7% growth for this year

STABLE OUTLOOK::The ratings agency said Taiwan’s external finances provide it with ‘a robust buffer’ against shocks,’ although pre-2008 growth levels are unlikely

By Kevin Chen  /  Staff reporter

Thu, Jul 25, 2013 - Page 13

Fitch Ratings Ltd yesterday affirmed Taiwan’s sovereign credit rating of “A+,” its fifth-highest grade, and forecast the nation’s economy would grow 2.7 percent this year, from 1.3 percent last year.

The international ratings agency maintained its “A+” and “AA-” long-term foreign and local currency issuer default ratings respectively for Taiwan with a stable outlook, the ratings agency said in a report.

The London-based agency’s latest assessment of Taiwan’s ratings came after Moody’s Investors Service in October last year maintained its “Aa3” foreign and local currency sovereign rating for Taiwan with a stable country outlook. Standard & Poor’s Ratings Services in August last year kept a stable outlook on the nation’s sovereign ratings, affirming its “AA-” long-term and “A-1+” short-term unsolicited issuer credit ratings.

“External finances are Taiwan’s key rating strength, providing it with a robust buffer against external shocks,” Fitch said in a statement released yesterday, explaining its move.

Taiwan is one of the largest net external creditors in the world, with foreign exchange reserves totaling US$406.61 billion as of the end of last month, according to the central bank’s data.

The nation’s net foreign assets rose to 89 percent of GDP last year, which Fitch said was among the highest of its “A” and “AA” peers, while its net international investment position, which reached 169.1 percent of GDP last year, surpassed all other countries under “A” status, it said.

However, the international rating agency says that the nation’s economic glory days are past.

“The prospect of Taiwan revisiting pre-2008 growth rates of 5 percent to 6 percent per annum is remote, given the current uncertain global economic recovery and slower growth prospects in China,” Fitch said.

The agency said Taiwan’s five-year average GDP growth rate, which drifted down to 3 percent last year, is lower than the median estimate for “A”-rated countries.

Fitch’s 2.7 percent GDP growth forecast for Taiwan this year is higher than the official forecast of 2.4 percent that the government made in May, and compared with the 2 percent growth made by Daiwa Capital Markets and JPMorgan Chase Bank in their latest forecasts.

Nonetheless, Taiwan’s slower-than-expected economic growth this year is likely to postpone the stabilization of its public debt-to-GDP ratio by one more year than Fitch previously forecast.

Even so, Fitch said the health of Taiwan’s public finances is broadly in line with the “A” peer median, but weaker than the “AA” peer median, as the nation’s fiscal deficit rose slightly to 2.5 percent of GDP last year from 2.2 percent in 2011, while government debt edged up to nearly 50 percent of GDP from 49.2 percent the previous year.

Both metrics remain below the “A” peer medians of 3.6 percent and 51 percent respectively, it said.