Taiwan won a vote of confidence from Standard and Poor’s Ratings Services May 26 after its issuer credit ratings were left unchanged at AA-minus and A-1 plus, with outlook stable.
“Taiwan’s strong external position, sound monetary management and dynamic information technology companies in the private sector support the ratings,” S&P said in a statement.
In particular, S&P commended the ROC Central Bank for keeping inflation stable and among the lowest in Asia, adding that the strength and depth of the local debt capital markets also provide strong support.
Despite the robust external position, Taiwan’s moderate government debt and its small, open economy vulnerable to global economic volatility partially offset these positive fundamentals.
Another weakness identified by the credit rating firm is the country’s modest prosperity, as indicated by the 2013 gross domestic product of US$20,930 per capita.
“The stable outlook reflects our expectation that Taiwan will maintain its net external asset position and that sustained economic growth will help consolidate the government’s debt position,” it added.
According to S&P, Taiwan’s large current account surpluses have enabled the country to accumulate high foreign exchange reserves, which are projected to exceed US$430 billion by the end of the year, among the highest in the world.
As a result of growing tourism from mainland China, Taiwan’s service account has also emerged as a substantial contributor to its strong external position.
After struggling with languid growth of 2.1 percent in 2013, Taiwan’s export-oriented economy looks set to rebound on the strength of recovering demand from the Eurozone and U.S. this year, with S&P forecasting a GDP growth of 3.7 percent.
While the government is committed to fiscal consolidation, S&P believes that Taiwan will gradually face increased fiscal pressure in the long term from a fast-aging population.
S&P said it may raise its rating if the government implements structural reforms to diversify the economy and lower the country’s budgetary and off-budget shortfalls in a sustainable manner. (SFC-SDH)
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