S&P affirms Taiwan's long-term rating at 'AA+'; outlook stable

Taipei, April 26 (CNA) S&P Global has affirmed its "AA+" long-term and "A-1+" short-term credit ratings for Taiwan, saying geopolitical unease is not expected to affect the local manufacturing sector's development over the long run.

In a statement released earlier this week, the ratings agency said Taiwan's outlook over the long term is stable, which reflects its expectation that "structural demand for Taiwan's semiconductor exports is likely to offset growth issues associated with longstanding geopolitical tensions and evolving trade settings" over the next 24 months.

S&P said its ratings on Taiwan were maintained based on the country's "robust external position" and "strong economic support."

Despite current uncertainties relating to global trade, S&P said, Taiwan is expected to continue to benefit from a strong export performance amid global advancement in the information technology sector, with Taiwan's growth prospects being stronger than its peers' at a similar income level.

While its spending on defense and social benefits has risen and is likely to continue to grow, "Taiwan's fiscal settings remain healthy, supported by strong revenue growth." In addition, "ample domestic liquidity and low debt-servicing costs further contribute to the government's fiscal strength," it said.

S&P said it believes cross-strait ties will not deteriorate toward a major military conflict given the close economic and trade ties between China and Taiwan.

The ratings agency said Taiwan's monetary flexibility is also strong.

"The central bank has demonstrated sound monetary management, which has kept inflation low and stable despite ample liquidity in the system," S&P said. "The relatively flexible exchange rate and the new Taiwan dollar being an actively traded currency help cushion economic and financial shocks."

The United States imposed a 32 percent "reciprocal" tariff on Taiwan on April 2 but subsequently announced a 90-day pause with a 10 percent baseline tariff remaining in place.

Commenting on the tariffs, S&P said the initial tariffs would have a substantial impact on Taiwan's growth due to its export-oriented economy, particularly as 18 percent of its trade is with the U.S.

"However, we believe Taiwan's credit metrics have sufficient buffers against such an economic shock" S&P said." Furthermore, it has a leadership position in advanced chip manufacturing, moderating the impact of U.S. tariffs as importers have limited scope to diversify their supplier base."

S&P praised Taiwan's vibrant and highly competitive electronics manufacturing sector, saying the sector is well positioned to benefit from long-term developments in the technology-intensive integrated circuit industry, as demand for chips is likely to remain high on the back of artificial intelligence, high-performance computing devices, 5G network deployment, big data processing and analytics, and electric vehicle development.