Taiwan’s country risk and long-term foreign currency bond ceilings were upgraded from Aa3 to Aa2 by Moody’s Investors Service Oct. 9, reflecting a strong national external liquidity position and the strength of improving cross-strait relations.
In a statement, Moody’s said the upgrades were supported by Taiwan’s low external debt, ample foreign exchange reserves, high domestic savings rate and a strongly positive net international investment position.
The sovereignty rating and stable outlook were maintained at Aa3, which reflects that Taiwan’s economic fundamentals and its policy flexibility make it resilient to major external economic and financial shocks, Moody’s said.
Describing Taiwan as a dynamic and highly competitive economy, Moody’s said the country ranked 12th out of 148 countries, according to the World Economic Forum’s 2013-2014 Global Competitiveness Report.
In addition, Moody’s believes Taiwan’s growth outlook for the next five years will be robust, a view supported by the International Monetary Fund’s forecast of real gross domestic product growth averaging 3.9 percent between 2013 and 2018, higher than the average of 2.2 percent over the same period for leading economies.
Moody’s said that aside from concluding the Cross-Straits Economic Cooperation Framework Agreement (ECFA) with mainland China, Taiwan has entered into and is negotiating other free trade agreements that will help it gain better access to global markets and boost inbound investment.
The ROC Ministry of Finance welcomed Moody’s assessment, describing it as reflecting well on the government’s commitment to developing the local economy while keeping a healthy balance sheet.
“The MOF will launch a fiscal improvement project by the end of the year to adjust the country’s public finances and exercise strict debt controls to improve overall fiscal performance,” an MOF official said.
Although Moody’s is bullish on Taiwan’s prospects, it also highlighted the country’s susceptibility to geopolitical risks, namely the military threat from mainland China, as well as ongoing tensions in the South and East China Seas.
Another key challenge is the government’s need to undertake fiscal consolidation to help rein in rising government debt, which is likely to increase from 34.7 percent to around 45 percent of GDP next year, Moody’s added.
Although Taiwan’s fiscal and debt positions are weaker than those of its counterparts in the Aa category, Moody’s acknowledges key features that support the country’s overall sustainability, including very low and stable funding costs, as well as a favorable debt structure characterized by long maturities and zero foreign currency exposure. (SFC-JSM)
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