Fitch Ratings yesterday maintained Taiwan’s “AA” sovereignty rating, with a stable outlook in light of its robust external finances, prudent fiscal management and competitive business environment.
The ratings agency also raised its GDP growth forecast for Taiwan this year to 4 percent, from the 3.2 percent it estimated in May, due to a surge in high-tech exports amid the global artificial intelligence (AI) boom.
US-bound exports jumped 62 percent annually in the first seven months of this year, as US technology giants have increased spending on advanced semiconductors and servers from Taiwan to develop AI technology and applications, Fitch said in a report.
Photo: EPA-EFE
Taiwan remains an indispensable powerhouse in the global semiconductor supply chain due to its cutting-edge manufacturing capabilities and specialized ecosystem, Fitch said.
These strengths enable Taiwan to benefit from solid demand for its high-tech exports, but the same advantages also render it vulnerable to external demand shocks and abrupt shifts in global trade policy that could affect the technology sector and supply chains, it said.
The government’s deficit would remain at a modest 0.8 percent of GDP this year and below the “AA” median deficit at 2.3 percent, Fitch said.
“Our forecast is narrower than the approved budget deficit of 2.1%, as we expect stronger tax revenue collection relative to budget assumption,” it said.
The government has collected a lot more tax revenue than expected in the past few years due to conservative budgeting practices to avoid shortfalls.
Gross government debt could fall to 30.5 percent of GDP next year, well below the projected “AA” median of 50 percent and down from 33 percent last year, Fitch said.
Meanwhile, Taiwan’s external balance sheet is among the strongest of Fitch-rated economies globally, underpinned by longstanding current account surpluses for more than four decades, it said.
“We forecast the current account surplus to remain high in 2024, at 13.6% of GDP, driven by windfall export receipts, and foreign-reserve buffers at roughly 17.3 months of current external payments, despite financial market volatility,” Fitch said.
Taiwan should maintain its large net external creditor position at 226.4 percent of GDP this year, compared with 20.9 percent for the “AA” median, it said.
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