Taiwan’s sovereign credit ratings have remained stable after they maintained the international competitiveness of their technology-intensive industries during the financial crunch, said the latest report by Rating and Investment Information, Inc (R&I), the largest credit rating agency in Japan.
In its statement released on Thursday, R&I affirmed Taiwan’s foreign and domestic currency issuers ratings at AA and its foreign currency short-term debts at a-1+, saying that the government’s conciliatory stance toward China seems to be a positive factor for economic recovery.
“Efforts to achieve such objectives [in focusing on strong economic relations with China] include negotiations to sign an economic cooperation framework agreement with China,” the agency said, adding that export industries will likely have more growth opportunities if tariffs and other regulations are abolished under the agreement.
The cross-strait trade pact is scheduled to be signed in Chongqing, China, tomorrow.
R&I said that Taiwan’s current account balance would remain in the black for the foreseeable future, supported by the trade surplus created by the strong international competitiveness of its industries.
However, the agency warned that as the manufacturing sector is moving more production to low-cost China, concerns over the outflow of technologies and industrial hollowing remain.
R&I said it would continue to pay attention to how the Taiwanese government tackles economic challenges, including measures to maintain domestic employment and preventing the hollowing-out of domestic industries while benefiting from high growth in China.
“Taiwan would face a challenge in fiscal terms as well because it will be necessary to strengthen its tax base over the medium and long term to address an expected increase in social security costs for the aging society,” R&I said, noting that the increase is expected to advance at a faster pace than in Japan.
Last year, fiscal deficit in the government sector — both central and local governments — expanded to 3.8 percent of GDP from the 1 percent in the previous year because of increased public spending in response to the economic slowdown, the agency said.
“The same level of fiscal deficit to GDP ratio is expected in 2010,” R&I said.
Responding to the report, the Ministry of Finance said in a statement on Thursday that the government is in the process of executing mid and long-term plans to enhance the soundness of the nation’s fiscal system by increasing tax revenues and cutting back on government expenses.
On June 11, Standard & Poor’s Ratings Service also raised Taiwan’s sovereign credit ratings outlook to stable, from the negative assigned in April, affirming its long-term AA- and short-term A-1+ ratings for the nation.
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