August 29, 2013 |
|Standard & Poor's Ratings |
Services affirmed its 'AA-' long-term and 'A-1+' short-term unsolicited issuer
credit ratings on Taiwan. The outlook is stable. The transfer and
convertibility assessment remains 'AA+'. At the same time, we affirmed the
'cnAAA/cnA-1+' Greater China regional scale ratings on Taiwan.
Taiwan's extremely strong external position, sound monetary management, and
dynamic information technology (IT) companies in the private sector support
the ratings. Tempering these strengths are moderately high government debt and
a small, open economy that is vulnerable to global economic conditions.
Taiwan is a strong net external creditor, the result of persistent current
account surpluses that are typically 8%-11% of GDP and net outward equity
investments. Liquid external assets exceeded gross external debt by 100% of
current account receipts as of end-2012. Taiwan's consistently large current
account surpluses have enabled it to accumulate high foreign exchange
reserves, which we project will exceed US$400 billion (85% of GDP) by the end
of 2013--among the highest in the world. Apart from the large trade surpluses,
the service account is emerging as a substantial contributor to Taiwan's
balance-of-payment surpluses. The increase in service exports comes from
growing tourism from China, as a result of visa restrictions being relaxed.
Standard & Poor's views Taiwan as having strong monetary flexibility. The
central bank has demonstrated sound monetary management, which has kept
inflation low and stable, despite the ample liquidity in the system. Taiwan's
inflation has been among the lowest in Asia, and we expect consumer price
index (CPI) growth to remain modest in the medium term. Another important
support for monetary flexibility is the strength and depth of Taiwan's capital
markets. Its market capitalization reached 164% of GDP as of end 2012.
In our opinion, Taiwan's dynamic and highly competitive IT firms are an
overall credit strength. Although much of Taiwanese industrial production has
shifted to China, huge repatriated profits ensure sizable income account
surpluses in the balance of payments (averaging 3.0% of GDP from 2009-2013),
adding to the long-standing trade surplus (averaging 6.9% over the same
period). We expect Taiwan's current account surplus to remain about 10%-11% of
GDP in the medium term. Taiwan's export-oriented economy has struggled
recently with the slowdown in major developed markets. GDP growth in 2012 was
anemic at 1.3%. But there have been some recent turnarounds in the export
sector, propelled by an upswing in smartphone and semiconductor shipments.
Hence, we expect a slight rebound in GDP for 2013, with a full-year forecast
of 2.8%, and rising close to 4% in 2014-2016.
Taiwan's main credit weaknesses, in our view, are the somewhat elevated
government debt burden, the country's modest prosperity as indicated by GDP
per capita of just over US$20,000 (2012), and its geopolitical factors. We
estimate gross general government debt at 50% of GDP at the end of 2013.
However, the debt servicing is low because of low interest rates and high
demand from the local banking system for Taiwan's government securities. This
affords the government a high degree of fiscal flexibility. We believe the
government is committed to its fiscal consolidation path. We forecast general
government deficit for 2013 at 1.9% of GDP, an improvement from the higher
deficits of 2.2%-3.3% in the past three years.
We anticipate that Taiwan will gradually face increased fiscal pressure from a
fast-aging population. In our view, there remains a general lack of political
will to expand the tax base in a substantive way. Therefore, the main push
behind deficit reduction is likely to come from GDP growth, which we deem
plausible barring major external shocks. We project 2013 real GDP per capita
growth at 2.6%, while growth prospects will remain healthy at over 3.5% over
2014 to 2016.
The stable outlook reflects our expectation that Taiwan will maintain its
large net external asset position and that sustained economic growth will
contain the government's debt position over the next 24 months. The small and
open economy is vulnerable to external shocks, with the concentration in the
electronics sector exacerbating that. Nevertheless, we note that Taiwan's deep
foreign exchange reserves and monetary flexibility provide a significant
cushion against most of the plausible adverse external economic scenarios.
We may raise the ratings if the government can implement structural reforms to
diversify the economy and significantly raise per capita income. We may also
raise the ratings if government reforms lower Taiwan's budgetary and
off-budget shortfalls in a sustainable way, leading to lower government debt.
This scenario is predicated on reforms lifting economic growth sufficiently
for the government to lower subsidies and raise revenues materially.
We may lower the ratings if the fiscal deficits structurally widen due to a
failure to adjust to unfavorable demographics or external shocks, ultimately
resulting in materially higher public-sector liabilities. We may also lower
the ratings if cross-straits relations deteriorate sharply, resulting in
heightened geopolitical risks.
|Full company name||Taiwan|
|Country of risk||Taiwan|
|Country of registration||Taiwan|