Fitch Ratings has raised Taiwan’s Long Term Foreign Currency Issuer Default Rating (IDR) to “AA” for the first time in 20 years, citing the country’s strong economic performance despite the COVID-19 pandemic.

Taiwan’s IDR has been upgraded to “AA” from “AA-” with the outlook stable, Fitch said in a statement released on Friday.

“The upgrade of Taiwan’s IDRs reflects the economy’s outperformance versus peers through the COVID-19 pandemic, a further strengthening of the external sector, and continued fiscal prudence,” Fitch said.

The last upgrade of Taiwan’s ratings by Fitch was in 2016, when the rating agency raised it from “A+” to “AA-.” Fitch started to issue ratings reports on Taiwan in 2001.

The United States-based rating agency expects Taiwan’s gross domestic product (GDP) to grow by 6 percent in 2021 after a 3.1 percent increase in 2020.

This is slightly higher than a forecast of 5.88 percent made by Taiwan’s Directorate General of Budget, Accounting and Statistics in mid-August.

“Growth momentum is underpinned by robust export performance and Taiwan’s relative success in containing COVID-19 without causing major disruptions to manufacturing operations, including a recent outbreak,” Fitch said.

In the first eight months of this year, Taiwan’s merchandise exports rose 30.9 percent from a year earlier.

In response to digital transformation initiatives accelerating across the world, Fitch said, many major semiconductor and tech companies have launched multi-year expansion plans in Taiwan.

“We expect strong investment in high-tech manufacturing alongside capacity expansions, the continued reshoring of Taiwanese manufacturing, and policy efforts to facilitate industrial upgrading and enhance supply-chain resilience with key trading partners, will strengthen Taiwan’s medium-term growth potential,” Fitch said.

On the back of solid global demand for electronics components and information communications gadgets, Fitch said Taiwan’s economic growth will hit 3.3 percent in 2022 before moderating to 2.6 percent in 2023.

However, Fitch pointed out that Taiwan has been lagging behind many economically developed countries in vaccine rollouts due to a supply shortage. About 45 percent of its population had received at least one dose of a COVID-19 vaccine as of Sept. 8, while only about 4 percent have been fully vaccinated with two doses, it said.

Meanwhile, Fitch said Taiwan already has a record of prudent fiscal management.

Despite COVID-19, Taiwan’s economic resilience has allowed the government to be modest in its use of fiscal stimulus and a general government deficit represented only 1 percent of the country’s GDP in 2020, according to Fitch.

In 2021, while the Legislative Yuan has approved a special budget to support individuals and enterprises affected by the disease, Fitch said, the government deficit is expected to represent 2.2 percent of the country’s GDP and the ratio will still be below the projected “AA” median of 5.3 percent.

After the latest rate cut by Taiwan’s central bank in March 2020, Taiwan’s discount rate has remained at a historical low of 1.125 percent. Fitch said it is possible for the central bank to leave its monetary policy unchanged into the end of 2022.

In addition, Fitch said Taiwan’s consumer prices are expected to grow by 1.7 percent in 2021 and rise by 1.2 percent in 2022.

Source: Focus Taiwan News Channel