Mei Fong / Andrew Batson
Fitch cuts Taiwan rating on debt fearsBy Robin Kwong in Taipei and Geoff Dyer in Beijing 2009-01-20
Fitch Ratings yesterday lowered its outlook on Taiwan's credit rating, saying government debt is likely to be pushed to record levels by aggressive stimulus packages. Mongolia's rating was also cut.
The downgrade of Taiwan's double A local-currency rating from stable to negative was the first such cut Fitch has made since it began assigning ratings to the country in late 2001.
Like other export-oriented Asian economies, Taiwan has been battered by the sudden slump in consumer demand in the US and Europe. The island saw economic growth fall into negative territory in last year's third quarter after reaching 4.56 per cent in the previous three months.
In response, Ma Ying-jeou, president, said his government would turn to the domestic economy to drive growth. He unveiled a number of stimulus packages, including the distribution of $2.5bn (€1.8bn, £1.7bn) in spending vouchers and earmarking $18bn in funds for loan guarantees for businesses. The economic ministry is also considering a bail-out for ailing memory-chip makers.
“In policy terms, stimulating economic growth seems to be a higher short-term priority than balancing the central government's general budget,” Fitch said.
The agency warned that Taiwan's recent spending on stimulus packages could limit its fiscal options should the global economic situation continue to deteriorate. “Government's fiscal policy is becoming less flexible as debt levels, approaching their legal ceilings, and non-debt financing resources are limited,” it said.
Officials countered that Taipei still had room to raise funds, as total debt was only 37 per cent of gross national product. “The government is raising debt to stimulate the economy after careful consideration of costs and benefits,” they said. “The measures should increase government revenues and lead to a balanced budget in the long term.”
Fitch forecasts Taiwan's economy will contract by 2.1 per cent this year.