Published on 03/06/2014
Moodyâ€™s affirms Thai credit rating Moody's Investors Service has affirmed Thailand's long-term issuer rating at Baa1 with a stable outlook, saying the country's credit strength remains largely intact and capable of weathering cyclical economic pressures and recurring bouts of political instability. The stable outlook reflects expectations that the recent military coup and lingering political uncertainty will not undermine Thailand's credit strength to a material degree over the next 12-18 months. Three main drivers shaped the decision to affirm the Baa1 rating. First is the government's unimpaired ability to manage its finances. The government's prudent debt management through times of political turbulence remains unchanged even after the May 22 military coup and against a backdrop of weakened investment and economic performance. Thailand's favourable debt structure mitigates foreign exchange and refinancing risks, given its reliance on local-currency-denominated instruments and the comparatively long average time to maturity (7.9 years) of its debt. The share of foreign-currency-denominated government debt as a portion of overall direct general government debt was below 2% at the end of last year, indicating virtually no risk of a currency mismatch in light of the country's ample foreign reserves. Moody's expects direct general government debt levels to stay manageable and comparatively lower than the median for similarly rated peers. The second factor is the presence of strong institutional anchors unaffected by the military coup. Moody's sees three entities as anchors for Thailand's rating: the Bank of Thailand, the Fiscal Policy Office and the Public Debt Management Office, the last two under the Finance Ministry. The third key driver is sustained external strength.
Moody's expects the current account to shift to a surplus of about 1% of GDP this year after small deficits in 2012 and 2013. Moreover, Thailand's external vulnerability indicator, which looks at short-term external liabilities in relation to official foreign reserves available at the end of the previous year, compares favourably with similarly rated peers. The stable outlook balances Thailand's fundamental credit strengths against challenges arising from polarised politics, rising government debt and slow progress regarding fiscal consolidation. The outlook also reflects Thailand's heightened level of political uncertainty since the September 2006 military coup, which effectively restrains the ceiling of Thailand's indicative rating range. A positive rating outlook or rating upgrade looks unlikely for now. Potentially credit-positive developments would include an improvement in the political climate and a transparent roadmap for reforms, progress in strengthening public-sector finances and a return to the pre-crisis trend of economic growth. Factors that could trigger a negative rating outlook or a rating downgrade include an escalation of conflict between the military and protesters; a significant rise in government funding costs related to domestic political uncertainty or a lapse in fiscal discipline; and a sharp deterioration of the balance of payments and significant loss of official international reserves.