Bangkok--16 Apr--Fitch Ratings
Fitch Ratings has today downgraded the Kingdom of Thailand's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'BBB' from 'BBB+' and to 'A-' (A minus) from 'A', respectively, and revised the Outlook to Stable from Negative. At the same time, the agency has downgraded the Short-term foreign currency IDR to 'F3' from 'F2' and the Country Ceiling to 'BBB+' from 'A-' (A minus). "The downgrade of Thailand's ratings reflects the deterioration in sovereign creditworthiness associated with the inability of successive governments to resolve disruptive civil unrest, which threatens to extend an already protracted period of political uncertainty," says Vincent Ho, Associate Director in Fitch's Sovereign Group. "The cumulative effect of repeated episodes of political disorder is a structural weakening of Thai governance, undermining the authority of the state and the credibility of the country's political leadership," adds Mr. Ho.
Thailand has been beset by political turmoil since 2006, when then-Prime Minister Thaksin Shinawatra was ousted in a bloodless coup. Bitter political divisions have been apparent for the past several years, and remain undiminished by changes to the constitution and new elections. With neither side appearing open to compromise, Fitch is uncertain how their differences will be resolved. The agency believes further civil unrest is likely.
The economic implications of Thailand's political upheavals have been evident in a drop in tourism, worth about 6% of GDP, and drawn-out declines in consumer and investor sentiment. Tourism receipts in the balance of payments were down by 23% in the fourth quarter of 2008 versus a year earlier. The growth of consumption and investment spending has followed sentiment indicators lower. Real investment expenditure, for example, grew by an average of 7.3% in 2005-2006, and only 1.2% in 2007-2008. Average real GDP growth in Thailand exceeded the 'BBB' median during 2002-2006, but dropped below the median in 2007 and 2008. The pattern was similar when comparing Thailand to its regional peers. Moreover, given the political backdrop, Fitch believes the policy response to what is forecast to be the worst recession since 1998 may be hindered. Indeed, policy implementation has already been affected, as proposed infrastructure "mega projects" have made very little progress in recent years due largely to repeated political change.
Nonetheless, Thailand's sovereign ratings are still supported by a sound fiscal position and strong external finances. The general government balance and debt/GDP ratio have been consistently better than the 'BBB' peer group median in recent years. Net external credit/GDP (including the public and private sectors) is by far the largest of any 'BBB'-rated sovereign, and the sovereign's net external credit position exceeds USD90bn.
Contacts: Vincent Ho, Hong Kong, +852 2263 9921/ [email protected]; James McCormack, Hong Kong, +852 2263 9925/ [email protected].
Media Relations: Lisa Lim, Singapore, Tel: +65 6796 7214, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].