Bangkok--19 Apr--Fitch Ratings
Fitch Ratings-Hong Kong/London/Singapore-19 April 2010: Fitch Ratings has revised the Outlook on Thailand's Long-term local currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the rating at 'A-'. At the same time, the agency has affirmed the Long-term foreign currency IDR at 'BBB' with Stable Outlook, the Short-term foreign currency IDR at 'F3' and the Country Ceiling at 'BBB+'.
"The Outlook change on Thailand's Long-term local currency rating reflects an escalation in political uncertainty, coupled with a slow economic recovery and a deteriorating policy environment, all of which are expected to impact adversely on sovereign creditworthiness over time," says Vincent Ho, Associate Director in Fitch's Asia Sovereign Ratings team. However, Fitch says that Thailand's strong external financial position continues to support sovereign creditworthiness in foreign-currency terms, notwithstanding current turbulent domestic developments.
Thailand's economy has been dragged down by heightened political uncertainty and unresolved issues related to weak governance, policy implementation, the authority of the state, and the credibility of the political leadership. On an average five-year basis, Thailand's economic growth has been slower than the 'BBB' peer group and its regional peer group medians, while ongoing political instability threatens economic recovery. Weak domestic demand (-5.7%) contributed to a sharp contraction of 2.3% in real GDP in 2009. Policy uncertainty related to the Map Ta Phut industrial zone has also weighed on the domestic investment climate. Fitch expects Thailand's economy to grow 3.8% and 4.2% for 2010 and 2011, respectively, supported by a recovery in external demand.
After a long period of fiscal consolidation, Fitch notes that public finances could deteriorate over the medium term in the face of a policy vacuum. There have been no major reforms on raising fiscal revenue, especially since 2006, as political uncertainty has shortened the terms of governments and weakened their credibility in policy implementation. The surplus of fiscal revenue over current expenditure sharply narrowed to 0.2% of GDP in the fiscal year to end-September 2009 (FY08/09) from 6.4% in FY05/06. An uplift of the public-debt-to-GDP ratio (reference ceiling under the fiscal sustainability framework) to 60% in August 2009 from 50% may also portend some easing in fiscal discipline.
The country's net external credit position, relative to GDP and current external receipts, is one of the strongest in the 'BBB' peer group. The country became a net external creditor in 2003 and has strengthened since then. The current account has been in surplus since 1998 (except for 2005) and Thailand's foreign-exchange reserves rose to USD138bn at end-2009 (equivalent to 9.7 months of current external payments and 47% of broad money). In addition the liquidity ratio reached 430% at end-2009. All these ratios were at all-time highs and stronger than the 'BBB' medians.
Although the political climate has not yet materially affected Thailand's public and external finances, prolonged political uncertainty is likely to undermine sovereign creditworthiness over time, potentially exerting further downward pressure on the country's sovereign ratings.
Applicable criteria, 'Sovereign Rating Methodology', dated 16 October 2009, are available at 'www.fitchratings.com'.
Contacts: Vincent Ho, Hong Kong, Tel: +852 2263 9921; Andrew Colquhoun, +852 2263 9938.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email:
[email protected].