TEXT-S&P affirms Thailand ratings with stable outlook

Tue Dec 11, 2012 4:02am EST

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(The following statement was released by the rating agency)

Dec 11 -

Overview

-- Thailand's external, fiscal, and monetary accounts support the sovereign credit ratings on the country.

-- The country's level of economic development and its political uncertainties are credit rating constraints.

-- We are affirming our 'BBB+/A-2' foreign currency and 'A-/A-2' local currency sovereign credit ratings on Thailand.

-- The stable outlook reflects our view that that imbalances in Thailand's external, fiscal, and monetary accounts will not emerge and that the country's political economy will stay steady.

Rating Action

On Dec. 11, 2012, Standard & Poor's Ratings Services affirmed its 'BBB+/A-2' foreign currency and 'A-/A-2' local currency sovereign credit ratings on the Kingdom of Thailand. The outlook on the long-term foreign and long-term local currency ratings is stable. Our transfer and convertibility (T&C) assessment remains 'A'. At the same time, we affirmed the 'axAA/axA-1' ASEAN regional scale rating on Thailand. We also affirmed all our ratings on Thailand's outstanding debt issuances.

Rationale

Thailand's favorable external position, relatively light government indebtedness, and the credibility of its monetary policy are the main rating supports. These strengths balance Thailand's low income economy and continued political uncertainty.

We project Thailand's foreign exchange reserves at US$190 billion (eight months of current account payments) by the end of 2012. Thailand has run (mostly small) current account surpluses since 2006, and we expect this trend to continue at least through 2015. As a result, we estimate net external liabilities at 14% of current account receipts at year-end 2012 and expect external liquid assets of the government and financial sector to be double that of the nation's external debt.

Similarly, the general government has run surpluses or small deficits since its recovery from the Asian financial crisis of 1997. After steadily declining to 17% of GDP in fiscal 2008 (ending Sept. 30, 2008), net general government debt rose to 24% of GDP at the end of fiscal 2011. We expect the ratio to increase only modestly through 2015. The general government's interest burden remained a comfortable 5.5% of revenue.

Thailand's inflation, as shown by the Consumer Price Index, has been less than 5.5% per year since 1999. Credit growth has been in line with nominal GDP growth. We rank the country's banking system '5' on a scale of 10 (see "Banking Industry Country Risk Assessment: Thailand," published Nov. 16, 2012, on RatingsDirect on the Global Credit Portal).

Thailand's per capita GDP--about US$5,350 in 2012--is a credit constraint. The country's infrastructure, health, and education indicators also are more in keeping with those of lower-rated sovereigns.

Political uncertainties have been an important credit weakness for Thailand in recent years. Since 2006, frequent and at times extra-constitutional changes in the government have delayed structural reforms, hindered government infrastructure spending, and depressed foreign direct investment. Street protests opposing the leading government party at times have caused significant economic disruptions. However, since the new government took office, political tensions have begun to ebb.

Outlook

The stable outlook reflects our expectation that imbalances in Thailand's external, fiscal, and monetary accounts will not emerge and that the country's political economy will remain in a steady state.

However, we could lower the rating if Thailand's fiscal position and economic indicators worsen significantly; for example, due to the government adopting strongly populist policies.

We believe Thailand's economic growth prospects would improve if uncertainties regarding its political situation recede further, and this would strengthen the sovereign's credit standing.

Related Criteria And Research

-- Thailand (Kingdom of), Feb. 27, 2012

-- Sovereign Government Rating Methodology And Assumptions, June 30, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

Ratings List

Ratings Affirmed

Thailand (Kingdom of)

Sovereign Credit Rating

Foreign Currency BBB+/Stable/A-2

Local Currency A-/Stable/A-2

ASEAN Regional Scale axAA/axA-1

Transfer & Convertibility Assessment A

Thailand (Kingdom of)

Senior Unsecured BBB+

Senior Unsecured A-

Commercial Paper A-2

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