KUCHING: RAM Rating Services Bhd (RAM Ratings) has reaffirmed the respective global- and Asean-scale ratings of the Kingdom of Thailand, at gA3(pi) and seaAA1(pi), with a stable outlook.
In a press release yesterday, the ratings reflect the country’s well-diversified economy, good track record of monetary and financial stability, and fairly healthy external position. These strengths are, however, balanced by its modest but increasing government debt load and lingering political instability.
“Thailand’s economy is perceived to be resilient, backed by solid macroeconomic fundamentals, a stable banking system and an accommodative monetary policy – all of which insulate it against murky political situations.
“While prospects for economic recovery hinge on the resolution of the current political stalemate, the prolonged absence of a functioning government – which hampers the Kingdoms’ growth potential – could exert pressure on its sovereign ratings,” it said.
Political instability caused by the deep divide between rural and urban political orientation remains the weakest link in Thailand’s fundamentals. Frequent tension has derailed structural reforms and weakened the country’s institutional framework.
The political situation in Thailand remains in limbo as results of the elections on February 2014 have been nullified; former Prime Minister Yingluck Shinawatra has been removed from office along with nine other caretaker ministers while Niwatthamrong Boonsonpaisan has assumed the role of caretaker prime minister.
The National Anti-Corruption Commission has resolved to bring impeachment proceedings against Shinawatra to the Senate. While fresh elections have been tentatively scheduled for July 20, 2014, the Royal Decree has not been obtained as the Election Commission is still ironing out a list of provisions to prevent a recurrence of the problems faced during the February polls.
Despite the recent political instability, the Thai economy expanded 2.9 per cent in 2013, marginally below its average of three per cent in the last five years. Investments contracted while consumption softened last year, mainly due to the expiry of consumption-driven stimulus measures and smaller tail-end benefits from reconstruction activities after the devastating floods in 2011.
Although a sub-par gross domestic product (GDP) growth is estimated for the first quarter 2014 (1Q14) due to the lingering political uncertainties, RAM Ratings note that the manufacturing production index is still holding up relatively well.
“In fact, Thailand’s competitiveness bodes well for its exports. While the export sector remains the principal growth driver in 2014, there are still downside risks vis-a-vis RAM an uneven global recovery ,” it said.
Meanwhile, Thailand’s external position and broadly sound government finances continue to support its ratings. Despite mild current account deficits, its commendable level of official reserves and stable banking system should act as buffers against potential shocks. While its general government debt-to-GDP ratio has been inching up, it was still moderate at 32.2 per cent as at end-2013. The widening of Thailand’s fiscal deficit may throw the government off its target of balancing the budget by 2017.
Although political volatility has been factored in as a credit weakness, negative rating action will be warranted if we observe heightened negative spill-over effects on the economy due to the prolonged absence of a functioning government, or more intense political instability that leads to substantially slower growth.
Thailand’s sovereign ratings will also face downward pressure if there is a significant worsening in its government finances, further deterioration of its external position and erosion of official reserves.