Fitch Ratings recently affirmed Taiwan’s long-term foreign and local currency issuer default ratings at A-plus and AA-minus, respectively, with stable outlook, on the strength of the government’s foreign reserve position and its launch of a multiyear fiscal consolidation program.
External finances are Taiwan’s key rating strength, with net sovereign foreign currency assets equal to 89 percent of gross domestic product in 2013, while the rating median is 15 percent. Taiwan’s country ceiling is thus affirmed at AA.
According to Fitch, the nation’s public finances are a neutral factor in its credit profile relative to A range peers. Gross general government debt and deficit to GDP ratios are in line with the A group median at 49.8 percent and 1.9 percent, respectively.
The rating company predicts a declining budget deficit from a peak of 2.3 percent of GDP in 2014 to 1.5 percent in 2016, based on the NT$70 billion (US$2.3 billion) to NT$120 billion in tax increases envisaged in the fiscal consolidation program.
The consolidation strategy targets a budget deficit of below 1 percent of GDP by 2016 through implementing a combination of revenue and expenditure side measures.
The agency forecasts the gross debt to GDP ratio to remain broadly flat, at close to 50 percent in 2014 and 2015. The debt ratio could start falling in 2016 as consolidation progresses and fall to 40 percent by 2023 under a baseline scenario.
According to the Ministry of Finance, it is working on applying tax reform, tighter budgetary control and disciplinary action in financing to improve the nation’s fiscal health and reinvigorate the economy. (SSC-SDH)
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