Despite the recent spate of corruption scandals, Fitch Ratings yesterday affirmed Taiwan's sovereign rating of "A+."
The ratings agency warned, however, that the deteriorating state of public finance could pose a bigger threat to maintaining the country's ratings.
Fitch affirmed Taiwan's long-term foreign and local currency issuer default ratings (IDRs) at "A+" and "AA," respectively. It also affirmed the short-term foreign currency IDR at "F1" and the country ceiling at "AA." The outlook on the ratings remains "stable."
The ratings have not been changed since November 2001.
"Taiwan's ratings are supported by its strong external financial position, but there is a need for improvement in public debt ratios if the ratings are to be maintained," Vincent Ho (
"Government debt is already high compared to the rating peer group, and any further increase would likely prompt a review, particularly of the local currency IDR," Ho said.
Fitch forecasts Taiwan's general government deficit to narrow to 2.8 percent of GDP this year from 3.7 percent last year. The level, however, is still higher than the "A" median, Fitch said.
The agency expects general government debt to rise to 46.9 percent of GDP, which would be a historical high and well above the forecast peer median of 31.8 percent.
The agency indicated that official medium-term budget forecasts appeared unambitious as a balanced budget was not envisaged until 2011 at the earliest.
Taiwan's "A+" sovereign rating, which was the same as South Korea's, ranked in the middle compared with its regional peers. It was lower than Singapore's "AAA" and Hong Kong's "AA-" but higher than China's "A" and Thailand's "BB," Fitch said.
A series of corruption scandals and allegations and recall motions against President Chen Shui-bian (陳水扁), or even Chen's resignation, would not lead to a downgrade of the sovereign rating, unless the political shakeup affected the nation's fiscal policy, which could worsen an already weak public finance, James McCormack, head of Fitch's Asia-Pacific sovereign team, said in a teleconference yesterday.
If the leadership issue could not be resolved constitutionally and peacefully, there could be a negative impact on Taiwan's creditworthiness, McCormack said.
Meanwhile, Fitch expects cross-strait issues to weigh on Taiwan's ratings through the medium term, as any potential instability would affect the nation's economic environment and thus public finance situation, he added.
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