Bangkok--21 Sep--Moody's
Moody's Investors Service has affirmed Thailand's ratings and stable outlook as the country's financial and external payments positions should be strong enough to withstand temporary disturbances caused by Tuesday's military coup.
The ratings affirmation includes the Baa1 foreign and local currency ratings of the government as well as the A3 foreign currency ceiling for bonds and the Baa1 foreign currency ceiling for bank deposits. All other ratings and guidelines also remain unchanged.
"We view the September 19 coup as primarily a domestic political development reflecting tensions between the Thaksin administration, the army and the Bangkok elites, rather than as a financial development," said Moody's Vice President Thomas Byrne. "Moody's recognizes that there exists a large degree of uncertainty over future political developments and will closely monitor how the events in Bangkok unfold in the weeks and months ahead."
He said any rating impact would most likely hinge on additional information concerning a new government's economic policies, adding that a possible shift in government economic policies would take time to materialize.
"If, as has been reported, the coup clears the way for the scheduling of elections on a timely basis, then the political situation could normalize," observed Byrne. "However, opposition to Prime Minister Thaksin Shinawatra has exhibited a somewhat populist strain, which could, if taken further, impede Thailand's ability to attract foreign investment. But such effects would take time to manifest themselves if at all."
He noted that objective indicators of Thailand's near-term creditworthiness suggest that the country has a low level of
vulnerability to exchange rate and interest rate shocks, or an adverse shift in foreign creditor confidence. He added that Thailand's external payments position has strengthened considerably since the 1997 crisis, and is currently well positioned among its rating peers.
"Thailand's credit fundamentals are strong enough to withstand moderate additional domestic political turbulence in the months ahead," said the analyst.
Thailand's long- and short-term external debt have been reduced significantly, while the Bank of Thailand's international reserves have risen to $60 billion, exceeding total external debt. Moreover, the government's foreign currency debt as share of total government debt has shrunk to 16 percent in 2006, down from 90 percent in 1997, and is lower than the Baa median of 39 percent. Another measurement used by Moody's of Thailand's vulnerability to external shocks, the ratio of total debt
maturing within one year to official foreign exchange reserves, is at a comfortably prudent level estimated at 0.4, compared with the broad Baa rating category median of 0.8 for 2006 (a number less than 1.0 means that reserves more than cover debt service falling due in one year).
"Thailand's relatively robust export performance has helped support its external position in recent years, and there is no indication that the domestic political problems of 2006 have affected this sector's competitiveness," said Moody's Byrne. Thailand's relatively modest current account balance had a moderate deficit in 2005 of about 2 percent of GDP, mainly due to high oil prices and infrastructure-related imports.
But for 2006 the rating agency expects that the current account deficit may be eliminated."
He also noted that Thailand's fiscal position has stabilized under the Thaksin administration, and Moody's does not expect any major shift in fiscal stance under the post-coup interim government.
"The shelving of much of the Thaksin government's mega infrastructure program will ease pressure on the budget this year and next year," said Byrne. "Underlying the improved fiscal position is the government's improved revenue performance as revenues have risen to 18 percent of GDP from a low of 15 percent in the wake of the '97 financial crisis." This, and overall expenditure restraint, he said, has resulted in budget surpluses since 2003. Moreover, interest payments as a share of revenues have fallen to about 4 percent, somewhat lower than the Baa median of 6 percent.
"We believe any additional softness in consumer spending or in investment beyond that which was apparent in these past months of political paralysis would not have any material, immediate effect on the balance of payments or the government's fiscal position," said Byrne. "Fortunately for Thailand, the global economic environment remains supportive on
balance for Thailand's export sector.
New York
Vincent J. Truglia
Managing Director
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Thomas J. Byrne
VP - Senior Credit Officer
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653