Standard & Poor's Ratings Services (S&P) retained its "AA-" credit rating for Taiwan yesterday, citing the nation's frail fiscal condition and domestic investment environment.
S&P credit analyst Ping Chew (
The rating on Taiwan was released as part of S&P's semi-annual Asia-Pacific Sovereign Report Card, which includes detailed analysis on the credit trends of all 21 rated countries in the Asia-Pacific region.
The negative outlook on Taiwan reflects an ineffective policy environment -- which prevents much-needed reforms to promote a stronger domestic investment climate -- and a crowded and unprofitable banking sector, the report read.
The ratings services provider has not made any adjustment to its sovereign rating on Taiwan since 1997, when it downgraded the outlook rating to from "stable" to "negative."
The ratio of government debt-to-GDP rose to 46.4 percent last year, from less than 45 percent in 2003, with primary fiscal deficits averaging 1 percent during the period, S&P data showed.
However, rising exports should help to sustain real GDP growth at a respectable 4 percent rate this year, despite weaker domestic demand and fiscal health, S&P said.
The ratings firm expected exports to help bolster the nation's balance sheets and partly offset expected increases in fiscal deficits.
In the region as a whole, "sovereigns are expected to display continuing credit quality improvements in 2007, although these will occur at a more gradual pace than in 2006," Chew said.
Contributing to this outlook is the expectation of another year of healthy economic growth.
While such growth was likely to fall short of the sterling performance delivered last year, it would allow Asia-Pacific governments to push ahead with necessary reforms, Chew said.
With no immediate inflation threat, the region's central banks are likely to take a neutral stance on interest rate policy, he added.
Yet, the near-term risk facing Asian monetary policymakers could be appreciating currencies as a result of continuous capital inflows. This could force governments to intervene as central banks tend to favor low foreign exchange rates to boost exports, S&P said.
Other risks included resurgent oil prices, a disorderly unwinding of global economic imbalances and avian flu, it added.
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