S&P: Many Asian countries facing fiscal challenges

Published: 03 Feb 2010 00:23:05 PST

HONG KONG, Feb 3 - Ratings agency Standard & Poor's said on Wednesday a number of Asian countries face fiscal challenges this year and their ratings may come under pressure unless measures were taken to rectify them.

The credit rating agency identified Japan, India, Sri Lanka, Taiwan and to some extent, Vietnam and Malaysia among the leading candidates with fiscal problems as they had relatively higher government debt to GDP ratios.

"Their ratings may come under pressure unless policymakers overcome structural fiscal issues and take tough measures in consolidating finances in the medium term while not stifling economic growth," S&P said in a note.

Japan's outstanding debt to GDP ratio is expected to hit 200 percent this year and S&P said it faced a number of daunting challenges, including deflation, an aging population and a high government debt burden.

But the country benefits from a strong net external asset position and low interest rate environment of deep domestic markets, making its debt less costly.

The comments come after the ratings agency cut its outlook on government debt last week. [ID:nTOE60P0BH].

S&P said easy lending conditions last year had led to overcapacity in many industries increasing contingent liabilities and systemic risks that could ultimately add to China's currently light sovereign debt burden.

"China's strong economic growth potential and a large net external asset position remain the key supporting factors underpinning its sovereign rating," it said.