Taiwan's 2015 credit rating remains unchanged

2015-04-13

Taiwan’s long- and short-term unsolicited issuer credit ratings were left unchanged April 9 at AA-minus and A-1 plus by New York-based Standard and Poor’s Ratings Services.

The result balances a strong net external asset position, ample monetary flexibility and dynamic private-sector companies with a moderate level of government debt, S&P said, adding that the stable outlook reflects expectations of sustained economic growth helping consolidate the debt position.

S&P commended the ROC Central Bank for demonstrating sound monetary management and flexibility while keeping inflation stable and among the lowest in Asia.

Although some risk of deflation is suggested by the recent negative trend in consumer prices, S&P expects Taiwan’s 2015 inflation rate to remain positive with price rebounds later in the year.

The nation was lauded as a strong net external creditor by S&P, with liquid external assets projected to exceed gross external debt by more than 75 percent of current account receipts during the 2015-2017 period. “The healthy coverage ratio reflects large projected trade surpluses and an increasing contribution from tourism.”

Taiwan’s highly competitive information communications technology sector remains a strong performer and is expected to continue serving as a significant source of employment, according to S&P.

While Taiwan’s small, open economy is vulnerable to global economic volatility, S&P said deep foreign exchange reserves and monetary flexibility effectively offset adverse external economic scenarios.

The main credit constraints for Taiwan lie in modest prosperity and government debt burden. S&P estimates Taiwan’s gross domestic product per capita at US$23,500 for 2015, with net general government debt at slightly above 42 percent of GDP by year-end.

Although the government is committed to fiscal consolidation, S&P believes Taiwan will gradually face growing pressure in this area over the long term from a rapidly aging population.

S&P said it may raise Taiwan’s rating if the government implements structural reforms, further diversifying the economy and lowering the country’s budgetary and off-budget shortfalls in a sustainable manner.

Source: Taiwan Today (http://taiwantoday.tw/ct.asp?xItem=229170&CtNode=413)