Standard & Poor's Ratings Services (S&P) yesterday confirmed that Taiwan's credit ratings would remain unchanged at "AA-/A1+" with the outlook still negative.
The ratings balance reflects Taiwan's exceptionally robust external position with its increasingly challenging policy environment and weak financial sector, which is over-banked and unprofitable, an S&P press statement said.
Credit analyst Tan Kim-eng (
He attributed the low interest rates to the nation's sizable foreign reserves, which S&P estimated would reach US$272 billion at the end of this year, and current account surpluses that have averaged about 7 percent of GDP in recent years.
"Another source of credit strength has been Taiwan's dynamic and entrepreneurial information technology firms, which should help maintain economic growth at its current 4 percent pace," Tan said.
But he warned that the current political paralysis might hinder the government's capabilities of reversing its deteriorating debt trajectory and improving acrimonious cross-strait relations.
The government's indeterminant policies on independence and constitutional reform have provoked China and contributed to an investment-to-GDP ratio of 20 percent, well below that of Taiwan's peer credits, the report said.
A negative outlook indicates that downward pressure on the rating exceeds upward pressure, the report said.
“If problems in the banking sector deepen, if the primary fiscal deficits
markedly worsen, or if relations with China deteriorate further, Taiwan's
ratings could fall,” Tan said.
S&P estimated the country's government debts would rise to an equivalent of
46.4 percent of the nation's GDP this year from less than 45 percent in
2003.
“On the other hand, if the executive and legislative branches improve their
relationship enough to make some progress on Taiwan's credit weaknesses, we
would expect the ratings to stabilize at their current level,” Tan said.
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