Taipei Times  By Joyce Huang STAFF REPORTER Tuesday, Nov 24, 2009

Fitch Ratings yesterday maintained its issuer default rating (IDR) on the New Taiwan dollar at “AA with a negative outlook” amid concern over rising government debt.

“The fiscal deterioration in 2009 is expected to be severe due to a sharp reduction in tax revenue amid the recession and the effects of one-off tax relief measures,” Vincent Ho (何永燊), associate director at Fitch’s Asia sovereign ratings team, said in a press statement.

“In addition, the reduced tax-revenue base in GDP terms is not expected to expand in 2010-2011 as revenue generated from the [government’s] fiscal consolidation program would only offset taxes cut outside the program,” he said.

The agency said that the uncertainty with regard to the implementation and effectiveness of the government’s fiscal consolidation program and concern over the possibility of continued increases in government debt persisted because few details about the consolidation program have been revealed.

Fitch expects the public fiscal deficit to account for 6 percent of the nation’s GDP this year — the highest since 1994 — mainly because of a substantial reduction in tax revenue to an estimated 12.1 percent of GDP, compared with 13.9 percent last year.

The agency expects the fiscal deficit to narrow to 4.4 percent and 3.6 percent of GDP next year and in 2011 respectively, while forecasting that the government’s debt-to-GDP ratio would rise to an all-time high of 51.6 percent next year.

Fitch also forecast that the central government’s long-term non-self-redeemed debt relative to the three-year-average GNP would approach its ceiling of 40 percent as stipulated in the Public Debt Act.

Although closer economic ties with China might have some positive impact on Taiwan’s economy, Fitch said it was still unclear how meaningful the changes might be and whether they would have a material effect on the nation’s public finances.

However, Taiwan’s creditworthiness in foreign-currency terms is well supported by its strong external financial position and minimal foreign-currency sovereign debt, and will continue to strengthen given a sizable current account surplus, it said.

Fitch also maintained a stable outlook for the nation’s foreign currency IDR.


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