Bangkok--22 Sep--Moody's
Moody's Investors Service says in a new report that its ratings outlook for the Taiwanese government's Aa3 foreign and local-currency is stable.
It also notes that the country faces several medium-term uncertainties derived from declining private investment and a structural inability to shift into higher value-added spheres of economic activity.
"Taiwan's ratings are based on Moody's assessment of 'high economic resiliency' and 'strong financial robustness," says Aninda Mitra, a Moody's Vice President and Senior Sovereign Analyst and author of the report.
"Although Taiwan has faced a deep external economic shock, its cyclical performance is rebounding strongly in line with regional trends, reflecting a proactive and flexible policy framework and competitive external sector," says Mitra.
"The country's institutional credibility and strengths are in line with Aa-rated peers, and in particular are supported by strong monetary management and improving supervision and governance," says Mitra, adding, "formal and institutionalized steps for improving cross-Strait relations may provide the economic and political space for facilitating much needed structural shifts required for strengthening medium-term economic growth."
The author highlights that Taiwan's fiscal deficits are set to increase sizably in 2009 and 2010, on account of falling tax revenues, stimulus spending, and a growing medium-term emphasis on public infrastructure.
This will also raise the government's debt burden in the next 12-18 months above its peer median.
However, the debt would be easily financed in view of the country's relatively high domestic liquidity, strong monetary management, and entirely domestic and long-tenor institutional source of funding.
Moreover, interest pressures within the budget and interest rates on the debt are also expected to remain within levels that would not undermine fiscal sustainability, says the report.
The report also elaborates on potential risks from local asset price volatility; contingent liabilities from the banking sector; and the implications of a setback, or another impasse, in relations with China.
Moody's sovereign credit report on Taiwan can be accessed at www.moodys.com .