The Ministry of Finance of the Republic of China announced that Fitch Ratings issued a press release on the 14th, confirming the maintenance of Taiwan’s long-term sovereign credit rating at “AA” with a “stable” outlook since 2021. The agency praised Taiwan’s prudent fiscal management and adherence to sound fiscal discipline.
Fitch noted that Taiwan’s robust external financing, careful fiscal management, strong government governance, and competitive business environment were key factors supporting the rating outcome. Taiwan’s actual tax revenues are significantly higher than budgeted, offsetting the increased budget spending for post-pandemic recovery. The estimated fiscal deficits of all levels of government in Taiwan for 2024 are expected to moderately maintain at 0.8% of GDP, lower than the median of 2.3% for AA-rated countries, and further decrease to 0.4% in 2025.
Fitch estimated that by the end of 2025, the ratio of outstanding public debt of over 1 year for all levels of government in Taiwan to GDP will decrease from 33.0% at the end of 2023 to 30.5%. This trend is expected to continue, surpassing the AA-rated country median of 50.0%. Taiwan’s adherence to the GDP ceiling of 50% for public debt, as stipulated in the Public Debt Act, is recognized as a solid foundation for maintaining medium-term fiscal discipline.
The Ministry of Finance further highlighted that the global economy in 2024 is expected to show stable growth. However, external factors such as geopolitical risks, inflation pressure, and the deferral effects of contractionary monetary policies pose uncertainties. In response, the Ministry will continue to prudently manage the national finances, abide by fiscal discipline, and strive to promote various financial activities to build a resilient foundation for sustainable development in Taiwan.
Over the years, Taiwan has allocated funds for national infrastructure, national defense, and other expenditures. These investments have driven domestic economic growth. In response to the COVID-19 pandemic since 2020, Taiwan implemented multiple relief and stimulus measures to sustain economic growth momentum. The economic growth rates in Taiwan during 2020 and 2021 stood at 3.39% and 6.62%, respectively, outperforming major global economies such as the United States and Japan.
Regarding fiscal management, the Ministry of Finance emphasized that the central government’s total budget and debt control have been included for monitoring. The ratio of outstanding public debt of over 1 year to average nominal GDP for the past 3 years has decreased from 33.0% at the end of 2016 to 28.3% at the end of 2023. The projected debt ratio at the end of 2024 is 29.7%, with the actual figure as of July 31, 2024, at 26.0%. This reflects the government’s efforts in economic development, tax collection surpassing expectations, and a continued focus on debt repayment and fiscal prudence.
Looking ahead, the Ministry expressed confidence in stable economic growth prospects. Besides scheduled debt repayments, any additional debt repayment will depend on revenue execution during the fiscal year. Over the years, Taiwan has increased debt repayments by 109 billion New Taiwan Dollars (approximately 3.36 billion US Dollars) from 2019 to 2023, in accordance with the provisions of the Public Debt Act.
The Ministry of Finance reiterated that Taiwan’s fiscal management has been consistently praised by international credit rating agencies. The Ministry also mentioned Fitch Ratings’ recent affirmation of Taiwan’s long-term sovereign credit rating at “AA” with a “stable” outlook. The positive outlook indicates that Taiwan’s government debt-to-GDP ratios are expected to continue declining slightly in the coming years, underscoring the government’s adherence to prudent fiscal management and debt control well below the 50% limit set by the law.
With Taiwan’s government currently preparing the budget for the following year, discussions on the adjustments to the fiscal resources between central and local governments have taken place. Considering the need for fair distribution of fiscal resources, the Ministry emphasized evaluating the division of responsibilities and the overall fiscal situation. In addition to local fiscal demands, the central government should maintain appropriate flexibility to respond to international political and economic changes, climate variations, and evolving needs.
In recent years, through the central allocation of taxes and subsidies, local finances in Taiwan have improved significantly. The annual shortfall of 58.9 billion NTD (approximately 1.91 billion USD) in 2012 turned to a surplus of 11.7 billion NTD (about 3.80 billion USD) in 2015. By 2023, the overall surplus reached 64.8 billion NTD (around 2.10 billion USD), demonstrating a notable improvement in local fiscal conditions. Addressing unequal local fiscal situations will require resolving through the distribution formula of central taxes and subsidies. Meetings have already been held regarding the proposed indicators for central tax distribution by local governments, with discussions ongoing to reach a consensus for advancing fiscal reform legislation.