Taiwan retains very strong credit ratings, stable outlook at S&P

Taiwan's long- and short-term unsolicited issuer credit ratings were upheld at AA minus, very strong, and A-1 plus, extremely strong, respectively, with its outlook remaining stable, according to New York-based Standard and Poor's Ratings Services April 21.

The results reflect Taiwan's robust net external asset position, strong monetary flexibility and dynamic private-sector companies against a moderate level of government debt, S&P said, adding that the stable outlook factors in expectations that cross-strait relations are conducive for a continued recovery in the local economy.

S&P said Taiwan has demonstrated generally effective policymaking in recent years to promote sustainable public finances and balanced economic growth. It commended the Republic of China (Taiwan) Central Bank's sound monetary management in keeping inflation stable and among the lowest in Asia, and added that the relatively flexible exchange rate of the New Taiwan dollar also helped cushion economic and financial shocks.

But S&P said Taiwan is facing challenges on several fronts. These include potentially destabilizing differences in public opinion regarding cross-strait ties, one of the world's fastest aging populations and rising business costs stemming from recent labor law amendments.

Against this backdrop, S&P forecasts Taiwan's real gross domestic product per capita will gain 1.8 percent to US$23,600 in 2017 and increase 2.3 percent to 2.5 percent annually in the following three years. This is attributed largely to growing exports by the country's robust and highly competitive information and communication technology firms.

At the same time, Taiwan's real investment growth is estimated at 2 percent to 2.5 percent per year from 2017 to 2020, with unemployment remaining in check at 3.3 percent to 3.5 percent and the consumer price index hovering between 1.5 percent and 1.8 percent.

S&P said it may raise Taiwan's ratings if structural reforms lead to greater economic diversification and fiscal reforms to lower budgetary shortfalls. Conversely, the country's ratings may be downgraded in the event of widening fiscal deficits and heightened geopolitical risks.

S&P's Long-Term Issue Credit Ratings comprise 11 categories, with AAA the best and AA the second best in terms of an obligator's capacity to meet its financial commitments. The Short-Term Issue Credit Ratings are made up of six categories, with A-1 the best.

Source: Taiwan Today