Bangkok--29 Sep--Moody's
Moody's Investors Service is maintaining its negative outlook for Thailand due to ongoing concerns over the country's political stability, but points out that its credit fundamentals have held up well following the coup three years ago in September 2006.
"The country's quantitative indicators remain well positioned among its peers, and its economic recovery is being supported by a timely and massive fiscal stimulus program, complemented with an accommodative monetary policy," says Tom Byrne, a Moody's Senior Vice President.
"A sustainable, robust recovery in economic growth will, however, depend on a restoration in investment confidence and in the health of the highly advanced economies, which are the ultimate sources for much of the demand for Thailand's exports," says Byrne, who was speaking on the release of Moody's latest credit analysis -- which he authored -- on Thailand.
"Recent trends suggest that the economy may grow by around four percent in 2010, but over the longer term, its ability to foster investment and maintain its export competitiveness -- especially in the automotive, electronics and heavy industrial sectors -- will determine whether a high rate of growth can be restored," says Byrne.
"The negative outlook on the sovereign ratings -- put in place in December 2008 -- reflects Moody's concerns that political unrest could erupt again, causing further damage to confidence, hampering the effectiveness of economic policy, and damaging further the country's investment environment," adds Byrne. "Politically, the outlook now seems to be for a return of the fluid coalition politics of the 1980s and 1990s.
Since former Prime Minister Thaksin was forced into exile three years ago, Thailand has seen four governments—a military junta, two democratically elected by offshoots of the Thaksin Thai Rak Thai party that were disbanded by court actions, and the current Democratic Party government elected in 2008.
"At the same time, we note that Thailand's resort to loans from official creditors to help finance its stimulus deficits is not a reversal of the core MOF debt management policy of shunning external financing, and which has reduced the share of foreign currency debt in total government debt to less than four percent from more than 30 percent some eight years ago," says Byrne. "Thailand has one of the lowest levels of external government debt among A and Baa rating peers."
"The authorities have been particularly keen on reducing both the government's and country's dependence on foreign capital and exposure to the global financial market," say Byrne.
"The Bank of Thailand has built up a considerable buffer against external financial shocks, and official foreign exchange reserves are at a record level and will likely reach $125 billion by year-end."
"But generally, in view of the uncertainties, Moody's outlook is that Thailand's trend growth may range in low- to mid-single digits," says Byrne. "For the economy to recover the fleeting dynamism seen during the Thaksin administration from 2002 to 2005, and when gross fixed capital formation grew by double-digits and real GDP close to six percent annually, policy predictability and political stability are essential."
The new Moody's report also notes that another threat to law, order and political stability is the insurrection in the three Muslim-majority provinces in the south, but as of now, it has not significantly impacted investment or economic activity in Thailand at large, or the country's budget.
The report is entitled Credit Analysis Thailand. It can be found at www.moodys.com .