Moody’s Ratings and S&P Global Ratings have reaffirmed Taiwan’s sovereign credit ratings at “As3” and “AA+” respectively with a stable outlook on the back of high income and wealth levels, a strong institutional framework and robust external positions.
The affirmations came as Taiwan’s economy is gaining momentum after quarters of slowdown induced by stubborn global inflation and monetary tightening.
Taiwan’s strong fiscal and external buffers have improved relative to peers as evidenced by recent shocks linked to the COVID-19 pandemic and the ongoing US-China technology dispute, the two ratings firms said.
Photo: Ritchie B. Tongo, EPA-EFE
“Taiwan stands as the epicenter of the global semiconductor supply chain, accounting for over 60 percent of global production and the majority of manufacturing capacity of the world’s most advanced chips,” Moody’s said on Tuesday.
Such dominance in semiconductor production and the peripheral electronics sector has supported Taiwan’s economic competitiveness and resilience, with a near monopoly on the production of advanced chips, and promised stability and growth in an otherwise highly cyclical industry, it said.
Taiwan would benefit further from long-term prospects for the chip industry and take up the lion’s share of a growing pie as emerging technologies with commercial and military applications continue to demand more powerful and faster processing and memory capabilities, it said.
In addition, Taiwan has demonstrated economic stability, fiscal health and monetary flexibility through recent shocks, the two global ratings agencies said.
Taiwan’s fiscal policy effectiveness has strengthened as exemplified by its adherence to fiscal discipline and the lowering of its debt burden, when other similarly rated peers have seen their debts rising higher than pre-pandemic levels, Moody’s said.
Although the Taiwanese market is fraught with ample liquidity, the central bank’s sound monetary management has kept inflation at stable and relatively low levels, S&P said yesterday.
Taiwan has one of the lowest interest rates worldwide even though imported inflationary pressure has built up due to rising international prices for raw materials, S&P said.
The central bank’s rate hike in March would help keep inflation at 2.16 percent this year, although a weak local currency and recent hikes in electricity tariffs lend support to inflation expectations, S&P said.
Nevertheless, Taiwan’s longstanding sovereignty dispute with China would limit the chance of upside surprises, the two agencies said.
US-China tensions have grown from trade to technological competition and geopolitical influence. Taiwan’s unique position as a dominant player in the semiconductor supply chain increases its relevance to both superpowers, Moody’s and S&P said.
Volatile cross-strait developments would pose risks that constrain Taiwan’s credit profile, but the probability of a large-scale military conflict is low, they said.
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