Moody’s confirms Taiwan’s ‘Aa3’ rating, changes outlook to ‘stable’

Taipei, Sept. 24 (CNA) Moody’s Investors Services, a leading international rating agency, confirmed the Taiwanese government’s “Aa3” rating, while changing its outlook from “stable” to “positive.”

Moody’s said the Aa3 long-term rating affirmation for Taiwan reflected its “credit strengths and challenges, with strong intrinsic financial and economic strengths contrasted with a high degree of event risk, namely political risk, for an Aa-rated government.”

Changing its outlook to stable, Moody’s said tensions across the Taiwan Strait have risen alongside rising strains in China-U.S. relations, which has offset Taiwan’s economic and fiscal strength and has reduces its prospects.

Moody’s left Taiwan’s local and foreign currency caps unchanged at “Aaa” due to limited risks for non-government issuers and minimal transfer and convertibility risks for bondholders and foreign currency depositors in the country.

The rating agency hailed Taiwan’s effective fiscal policy, the result of the government’s firm commitment to maintaining stable budget deficits through economic cycles.

He also cited the “robust” effectiveness of Taiwan’s monetary policy as paving the way for macroeconomic stability, but warned that Taiwan was dependent on imports of energy and specialized inputs for its semiconductor industry.

Taiwan’s track record of “institutional efficiency,” however, served as an anchor for its fiscal and monetary policies, Moody’s said.

“Taiwan’s growing track record of effective medium-term policy planning and fiscal management has withstood the shock of the pandemic, even with the government’s significant fiscal support to the most affected domestic sectors since 2020,” Moody’s said.

“Taiwan’s economy has shown strong economic resilience through the unprecedented pandemic shock, emerging relatively unscathed compared to its regional and similarly rated peers,” he said.

The rating agency said Taiwan had benefited to some extent “from an acceleration in digitalization when domestic movement restrictions and the closure of international borders disrupted economic activity.”

According to Moody’s, Taiwan accounts for more than 90% of the world’s advanced semiconductor production capacity and also plays a vital role in fast-growing emerging technologies, such as cloud-based infrastructure, industrial automation , wireless communications, high performance computing, and electric vehicles.

The rating agency expects Taiwan’s gross domestic product growth to be 3.0 to 3.5 percent in 2022, up from around 6.6 percent a year earlier due to a high base for comparison.

“Taiwan’s growth pace is also one of the least volatile among its peers despite its dependence on external demand, due to its leadership in the ICT sector despite the traditionally cyclical nature of the sector,” Moody’s said.

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