Fitch Ratings, an international rating agency, affirmed yesterday its A+ sovereign rating for Taiwan and its AA rating for the local currency, citing a positive outcome of the legislative elections with regard to maintaining the cross-strait status quo.
Although retaining a stable outlook for Taiwan -- the same view it held before Saturday's legislative elections -- Fitch Ratings expressed concern over a legislative stalemate on fiscal reform.
The legislative elections saw the pro-independence pan-green camp led by President Chen Shui-bian (
"The electoral results also imply a continued legislative stalemate on any new fiscal reform, including potential tax and entitlement reform," Fitch Ratings said in a statement yesterday. "As a result, Taiwan's public indebtedness of 36.2 percent of GDP at the end of 2003 could rise above 40 percent of GDP by 2006."
Fitch Ratings, which incorporates political and cross-strait risk into its sovereign rating for Taiwan, also said the election outcome has created a political setting that is unlikely to favor the controversial NT$610.8 billion military procurement budget.
Still, the agency warned of increased pressure on the local currency rating over the long run in the face of rising public indebtedness. This takes into account the recent approval of a special NT$500 billion budget for public infrastructure projects over the next five years, as well as an apparent lack of urgency by policymakers to exercise fiscal consolidation.
Another international ratings agency, Standard & Poor's (S&P), said it will maintain a negative outlook for Taiwan for the time being, given that no positive outcome is expected for the nation's fiscal reform in the short term.
Philippe Sachs, S&P's credit analyst, said he doesn't expect Taiwan to achieve a fiscal balance by 2010, a Chinese-language newspaper quoted him as saying yesterday.
On Nov. 30, before the legislative elections, S&P downgraded Taiwan's outlook to negative from stable, citing the nation's weakening fiscal flexibility and rising tensions with China.
Sachs said the negative outlook also reflects the Taiwanese population's gradual shift away from unification with China over the past four years, which does not bode well for cross-strait relations.
JPMorgan Chase Bank yesterday also said the outcome of Saturday's elections would help ease the risk premium not only for the Taiwan market, but for the Greater China region as a whole.
"In short, the election was a significantly positive event for the Greater China markets," said Grace Ng (吳向紅), an economist for JP Morgan Asia Economic Research.
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