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July 24 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Taiwan's Long-Term Foreign- and Local- Currency Issuer Default
Ratings (IDRs) at 'A+' and 'AA-' respectively. The Outlook is Stable. The agency also affirmed
the Short-Term Foreign-Currency IDR at 'F1', and the Country Ceiling at 'AA'.
Key Rating Drivers
The affirmation of Taiwan's sovereign ratings reflects the following factors:
-External finances are Taiwan's key rating strength, providing it with a robust
buffer against external shocks. Sovereign net foreign assets rose to 89% of GDP
in 2012, among the highest of 'A' and 'AA' peers, while Taiwan's net
international investment position surpassed all other 'A' peers in 2012,
reaching 169.1% of GDP. Resilient current account surpluses have been the main
driver behind the sustained accumulation of foreign-exchange reserves, which
rose to USD426bn or almost 16 months of current external payments at end-2012.
-Taiwan's public finances are broadly in line with the 'A' peer median, albeit
weaker than the 'AA' peer median. The general government (GG) budget deficit
rose slightly to 2.5% of GDP in 2012, while general government debt edged up to
almost 50% of GDP. Nonetheless, both metrics remain below the 'A' medians of
3.6% and 51% respectively.
-Fitch now expects public debt/GDP to stabilise one year later than it had
previously forecast, reflecting slower-than-expected growth in 2013. Details of
the 2014 budget have yet to be released. Fitch expects continued spending
restraint that will be conducive for sustained fiscal consolidation - given
strong political consensus and adherence to fiscal rules.
-The financial position of the non-profit special funds (NPSF) sector,
previously identified as a potential fiscal risk, has improved, as debt has
trended down in absolute terms (by 6.9% yoy in 2012) and as a share of GDP (to
5.5% of GDP in 2012 from 6.1% in 2011).
-The prospect of Taiwan revisiting pre-2008 growth rates of 5-6% per annum is
remote given the current uncertain global economic recovery and slower growth
prospects in China. The five-year average GDP growth rate drifted downwards to
3% in 2012, which is no stronger than the 'A' median. Fitch forecasts GDP growth
of 2.7% for 2013, up from 1.3% in 2012.
-Taiwan's average income of USD20,322 is slightly above 'A' range peers but
significantly lower than the 'AA' median. The banking system is large with
private credit at 165.1% of GDP, compared with the 'A' and 'AA' median at 94.1%
and 118.9% respectively. Substantial exposure by Taiwanese banks to the real
estate sector (40% of total loans at end-April 2013) could leave banks' asset
quality vulnerable to an abrupt hike in interest rates or a steep rise in
unemployment, although the agency does not view this as a likely development.
-Taiwan and China have made progress on further economic integration under the
Economic Cooperation Framework Agreement (ECFA) talks. Fitch views economic
integration with the mainland as a key long-term growth driver for the economy.
The main factors that, individually or collectively, could trigger positive
-A sustained downward trend in general government debt/GDP
The main factors that, individually or collectively, could trigger negative
-A swift deterioration in the banking sector's asset quality, in light of the
macro-prudential risks stemming from real estate and rising China exposure
-A much worse-than-expected slowdown in the global economy or in China that lead
to sustained output losses and rising unemployment, causing severe economic and
financial instability in Taiwan
-An international environment that remains conducive to global trade flows,
which has underpinned the economic performance of the small open economy for
-No substantial changes in the relationship between Taiwan and China and a
continued high level of political stability, with no major political or social
disruptions that affect the business environment
-Taiwan's economy regains growth of at least 3% per annum in line with the most
recent five-year average
-China attains a smooth economic rebalancing.