Taiwan's credit rating may be downgraded as the nation's fiscal and economic reforms continue to be weakened by its policy paralysis, Standard & Poor's said in a report released yesterday.
The report, titled Taiwan's fiscal, economic reforms crippled by worsening policy environment, comes at a time when President Chen Shui-bian's (陳水扁) government has been distracted from its reform agenda by corruption allegations against several government officials and members of Chen's family.
"Although there is no immediate impact on the sovereign credit ratings on Taiwan, continued deterioration in its fiscal situation and investment spending has hurt the island's growth prospects and raised concerns of weakening creditworthiness," Kim Eng Tan, a Standard & Poor's credit analyst, said in a statement.
"If reforms to arrest this steady decline are delayed for much longer, Taiwan would eventually face a rating downgrade," the Singapore-based analyst said.
S&P downgraded Taiwan's sovereign credit outlook in November 2004 to "negative" from "stable," citing the nation's record budget deficit and tense relations with China.
Taiwan has a debt rating of AA-, the fourth highest of 10 investment grades at S&P.
The new report said Taiwan urgently needs major changes in economic and fiscal policies to improve its growth prospects.
Capital investment, for instance, has in recent years suffered partly as a
result of the government's stance toward cross-straits economic
relationship, S&P said.
In addition, Taiwan's weak public finances are likely to result in another
fiscal deficit amounting to 4 percent of GDP this year, resulting in general
government debt rising to about 50 percent of GDP, S&P said. Tax reforms are
required to arrest this decline, and to lift government receipts above the
current 17 percent of GDP level, it added.
"In the short term, Taiwan's credit standing should still remain supported
by its entrepreneurial economy, high domestic savings rate, and strong
external balance sheet,” Tan said. “However, the risks to its credit
ratings will escalate for as long as the necessary reforms are delayed.”
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