Bangkok--11 May--Fitch Ratings
Fitch Ratings has today affirmed the Long-term Foreign and Local Currency Issuer Default Ratings (IDRs) of the Kingdom of Thailand at 'BBB+' and 'A', respectively. At the same time, the agency also affirmed the Short-term Foreign Currency IDR at 'F2' and the Country Ceiling at 'A-' (A minus). The Outlook on the ratings remains Stable.
Drawing on support from the strengthening external financial position and improving public finances, Fitch has affirmed Thailand's sovereign ratings notwithstanding the uncertain political environment. "Political turmoil is affecting sentiment and economic growth, but has not yet adversely affected Thailand's sovereign credit fundamentals," said Vincent Ho, Associate Director with Fitch's Asia Sovereign Ratings team in Hong Kong. However, the agency also noted that the outlook for sovereign creditworthiness could become more problematic if the political situation remains unresolved for a protracted period, as the interim administration has not proven particularly adept in economic policy management.
Fitch acknowledges that the imposition of limited capital controls in December 2006 created investor uncertainty, but notes that these were targeted at short-term capital inflows and have been relaxed gradually since their inception. Moreover, Thailand's external position continues to improve, notwithstanding the appreciation of the Thai baht and proposed revisions to the Foreign Business Act. The current account surplus was equivalent to 2.6% of GDP in 2006, driven by a strong trade surplus. Gross external assets increased 37.2% yoy to USD93.9 billion at end-2006, based on 65% and 29% growth in banks' external assets and official foreign exchange reserves (including gold), respectively. As gross external debt continued to decline to 29.6% of GDP in 2006, Thailand's net external creditor position strengthened to 16% of GDP and 20.5% of current external receipts (CXR). In addition, net public external credit went up to 33.9% of CXR. All these ratios are better than the 'BBB' peer group medians.
On the fiscal front, the general government deficit narrowed to 0.3% of GDP (better than the 'BBB' median) in the fiscal year to end-September 2006 (FY06) from 1.8% in FY05. A sharp reduction in central government current expenditure relative to GDP was the main cause of the improvement in the deficit. General government debt fell to 28.7% of GDP (lower than the 'BBB' median) in FY06 from 31.9% in FY05, driven by repayments of the central government's external debt and Financial Institutions Development Fund's debt.
Fitch expects the fiscal deficit to widen to 1.6% in FY07, due to additional spending incurred by the previous government, before narrowing to 1.4% in FY08 as the economy recovers. Even taking into account the growing financing requirements of the mass-transit projects (worth THB219bn or 2.9% of 2006 GDP) in 2007-2013, Fitch expects general government debt to stabilise at around 28% of GDP in FY07-FY08.
In Fitch's view, even if a general election is held by end-2007, it could take time to fully restore public confidence in the newly elected government and its policies and political uncertainty is likely to endure into 2008. Consequently, Fitch is forecasting economic growth of only 3.8% in 2007 due to weaker consumer confidence and investor sentiment. Assuming greater political clarity with the restoration of democracy, the agency expects domestic demand will drive the overall economy to grow at a higher rate of 4.5% in 2008.
Contacts: Vincent Ho, Hong Kong, +852 2263 9921/ [email protected] ; James McCormack, +852 2263 9925/ [email protected]
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6336 6801.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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