S&P affirms ratings on Taiwan at 'AA-/A-1+': Outlook Stable

April 29, 2020

TAIPEI- Global ratings agency Standard and Poors has affirmed its ratings on Taiwan at AA-/A-1+ and says the outlook is stable. "A robust net external asset position, strong monetary flexibility, and competitive private sector will help anchor our ratings on Taiwan in the face of economic headwinds from the COVID-19 pandemic," it says.

S&P expects Taiwan's fiscal position to deteriorate modestly in 2020 due to stimulus measures, but says the stimulus is not expected to add significantly to Government debt.

"The stable outlook reflects our expectation that economic growth will rebound in 2021, and that cross-strait and international trade relations will not fundamentally disrupt Taiwan's economic stability," it says.

S&P says it may lower its ratings if Taiwan's fiscal deficit widens structurally, due to a failure to adjust to unfavourable demographics or external shocks, ultimately resulting in materially-higher Government debt.

"We may also lower the ratings if cross-strait relations deteriorate sharply, resulting in heightened geopolitical risks and adverse effects on economic performance," it says.

"We may also raise the ratings if tension between the U.S. and China eases materially, reducing the risks to Taiwan's economic and export growth.

"At the same time, Taiwan's institutional settings and policy predictability can be affected by destabilising differences in popular opinion regarding cross-strait relations.

"These have added uncertainty to policy outcomes, particularly following political transitions.

"Taiwan also has one of the fastest-aging populations in Asia, which can limit long-term growth potential in the absence of substantial productivity growth."

Over the medium term, stability in international trade and cross-strait relations remain the linchpin for Taiwan's economic performance, S&P says.

"Continued access to customers and suppliers from the two largest economies in the world will be crucial for Taiwan's export-oriented manufacturers in maintaining external competitiveness and productivity.

"Although relations with mainland authorities have cooled since the current Government took office in 2016, the negative impact on real economic activities has been relatively modest.

"We do not expect a material deterioration in practical cross-strait relations, even as we have observed some occasional sabre-rattling." www.standardandpoors.com (ATI).