Bangkok--25 Apr--Fitch Ratings
Fitch Ratings today affirmed the Long-term Foreign and Local Currency Issuer Default Ratings of the Kingdom of Thailand at ‘BBB+’ and ‘A’, respectively. At the same time, the agency also affirmed the Short-term Foreign Currency Issuer Default Rating at ‘F2’ and the Country Ceiling at ‘A-’ (A minus). The Outlook on the ratings remains Stable.
Political tensions in Thailand have eased since former Prime Minister Thaksin Shinawatra announced that he would not accept the premiership following snap elections in early April. Even so, the country’s political stalemate has not yet been resolved, as, with unfilled seats, it is unclear when the House of Representatives will reconvene. Short-term economic prospects have been affected by the political turmoil, and Fitch has revised its 2006 GDP growth forecast to 4.3% from 5.0%. “If the political uncertainty is prolonged, it could affect medium-term growth as well, particularly if policy initiatives such as the planned mega projects are delayed,” said Vincent Ho, associate director in Fitch’s Asia Sovereign Ratings team in Hong Kong.
The agency indicated that Thailand’s key credit indicators remain strong relative to its ‘BBB’ rated peers despite the lingering political uncertainty, slower economic recovery and the reemergence of a current account deficit. “Thailand has been more resilient to shocks since 1998, given the manageable inflation rate, low unemployment rate, more flexible exchange rate and increased international reserves,” said Mr. Ho.
Fiscal consolidation continued in the fiscal year ended September 2005, mainly supported by higher corporate income and value-added tax receipts. Improving tax collection methods contributed to the government meeting its revenue target. Together with a moderate reduction in capital expenditure, the general government balance is estimated to have registered a surplus of 0.6% of GDP, which was better than the ‘BBB’ median. Assuming delayed implementation of some planned public investments (mainly related to the mega projects) and there are no further downward revisions to economic growth. Fitch forecasts a general government surplus of 0.3% of GDP for 2006. General government debt (including direct government debt and Financial Institutions Development Fund (“FIDF”) liabilities) is expected to fall to 27.8% of GDP in 2006 from 31.9% in 2005 (lower than the ‘BBB’ median). Moreover, the non-financial public sector debt-to-GDP ratio is expected to drop to 39.5% in 2006 from 46.1% in 2005.
Mainly owing to rising oil prices, Thailand’s current account returned to deficit last year, at USD3.7 billion or 2.1% of GDP, for the first time since 1998. “In Fitch’s view, however, it is not alarming for a ‘BBB+’ sovereign, such as Thailand, to have a current account deficit,” said Mr. Ho. Thanks to massive inflows of foreign direct investment and portfolio equity investment, the change in reserves in 2005 remained positive. Official international reserves (including gold) increased by 4.6% to a historical high of USD52.1bn at end-2005, which was 3.3 times short-term external debt and equivalent to 4.5 months of current external payments (“CXP”).
Thailand’s gross external debt (“GXD”) continued to decline last year, reaching a post-crisis low of USD51.4bn. The GXD/current external receipts (“CXR”) ratio reached a multi-year low of 37.8% in 2005, which was one of the lowest in the ‘BBB’ rated category. Additionally, Thailand is one of the few net external creditors in the ‘BBB’ rated peer group and its net external credit position reached a new high at 12.8% of CXR last year. The external liquidity ratio is expected to drop to 289.4% in 2006 from 299.4% in 2005, but Fitch notes this would still be the highest in the ‘BBB’ rated category.
Contact: Vincent Ho, Hong Kong, +852 2263 9921/ [email protected] ; Ai Ling Ngiam, +852 2263 9913/ [email protected] ; James McCormack, +852 2263 9925/ [email protected]
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