Standard & Poor’s Ratings Service (S&P) yesterday raised Taiwan’s sovereign credit ratings outlook to “stable” — from the “negative” assigned in April — amid improving economic prospects.
In addition to the stable long-term credit outlook, S&P also affirmed its long-term “AA-” and short-term “A-1+” ratings on Taiwan.
“The revision in outlook reflects our expectations that the Taiwanese economy will build on its strong rebound from the recent slowdown to achieve sustained growth,” the rating agency said in a research update by its Singapore-based analyst Kim Eng Tan (陳錦榮).
That will help stabilize the nation’s public finances in the next three to five years by gradually bringing down the general government fiscal deficit, the report said.
S&P said Taiwan’s strong net external asset position bolsters its creditworthiness and mitigates weaknesses elsewhere in its credit quality, adding that it expected the nation’s foreign reserves to rise further.
Taiwan’s consistent current account surpluses, averaging close to 8 percent of its GDP in recent years, have helped keep domestic interest rates low and contributed to low government borrowing costs, as well as a high degree of overall fiscal flexibility, it said.
Low interest rates have, in turn, supported domestic demand and reduced Taiwanese banks’ cost of funds, it added.
Taiwan’s high tech-oriented export sector continues to be its credit strength, while its planned inking of an economic cooperation framework agreement (ECFA) with China, would help boost business investment and GDP potential in the medium term, Tan wrote.
An elevated debt burden, however, remains the government’s main credit weakness, he said, adding that net government debt, forecast at 43 percent of GDP at the end of the year, would be well above the projected median level of 16.5 percent for “AA” rated sovereigns.
Both loss-making state-owned businesses and the health insurance fund will put more fiscal pressures on the nation, which will require both revenue and expenditure-side adjustments to prevent further debt accumulation, the report said.
Taiwan’s crowded and fragmented banking sector is another weak point in its credit fundamentals, it said.
S&P yesterday also revised its outlook on Taiwan Power Co’s (Taipower, 台電) credit rating to “stable” from “negative” and affirmed the state-run company’s “A+” long-term rating.
“The outlook on Taipower mirrors that on the Taiwan government and reflects our view that strong government ownership and Taipower’s importance to the government underpins the power company’s credit profile,” S&P credit analyst Frank Fan (范維康) said in a separate statement.
ADDITIONAL REPORTING BY KEVIN CHEN
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