Fitch upgrades Thailand to 'BBB+'; outlook stable
March 8 (Reuters) - (The following statement was released by the rating agency) HONG KONG, March 08 (Fitch) Fitch Ratings has upgraded Thailand's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'BBB+' from 'BBB'. The Outlook is Stable. The Long-Term Local Currency IDR has been affirmed at 'A-' with a Stable Outlook. The Short-term Foreign Currency IDR is upgraded to 'F2' from 'F3'. The Country Ceiling is upgraded to 'A-' from 'BBB+'. Key Rating Drivers The upgrade of Thailand's sovereign ratings reflects the following factors: -Thailand's economy has been resilient to repeated shocks, including heavy flooding in Q411, underpinned by a flexible monetary and exchange-rate policy framework. The 2008-2012 average GDP growth rate of 2.9% exceeds the medians for the 'BBB' and 'A' ranges of 2.4% and 2.5% respectively. The volatility of growth is in line with the 'BBB' median. The Bank of Thailand has sustained consumer price inflation in the low single digits for more than a decade and the record of price stability compares favourably with 'BBB' peers, enhancing the capacity of the economy to absorb shocks. -Fitch has revised its assessment of the risks to policy predictability and the investment environment from political and social tensions. The investment rate has accelerated in recent years. The government led by Yingluck Shinawatra has consolidated its position and has faced no serious extra-legal challenges since its election in July 2011. -Thailand's external finances continue to be a rating strength. The economy was a net external creditor to the tune of 42% of GDP at end-2012. Its net foreign asset position was worth 45% of GDP at end-2012, well above the 'BBB' median of 4%. These large external buffers are a key support for the rating. -Thailand's ratings are supported by low gross general government indebtedness (30% of GDP at end-fiscal 2012). Fitch expects that the budget will remain consistent with the broader public debt to GDP ratio remaining below 50% despite a planned increase in infrastructure spending. -The government has made material progress in recent years in improving the structure of government debt. Average maturity and duration of government debt have increased to 7.9 and 5.4 years respectively in 2012 from 5.7 and 4.8 years respectively in 2008. The foreign currency denominated share has fallen to just 1.5% in 2012 from 20% in 2000. -While fiscal solvency remains strong, an expected rise in contingent liabilities arising from projected increases in broader public indebtedness leans against an upgrade of the Local Currency IDR at this time, narrowing the differential with the Foreign Currency IDR to one notch. -The primary constraints on the ratings are relatively low average income reflecting low productivity and value-added activity; relatively high private sector indebtedness; and diminished but still present social and political tensions. Rating Sensitivities The main factors that could lead to positive rating action, individually or collectively, are: -Sustained growth without emergence of imbalances that narrow the income and development gap with the 'A' range. However, Fitch expects upwards pressure from this source is only likely to come to bear beyond the average two-year Outlook horizon. -A more rapid stabilisation of public debt ratios than Fitch currently expects. The main factors that could lead to negative rating action, individually or collectively, are: -Signs of overheating in the economy, such as a sharp rise in inflation, credit growth or the current account deficit, without adequate corrective policy action, that leads to a reassessment by Fitch of the robustness of the macroeconomic and especially monetary policy framework. -Resurgent political and social tensions on a scale sufficient to have a material impact on Thailand's economic and financial stability. Key Assumptions The ratings and Outlooks are sensitive to a number of assumptions. The upgrade is premised on the assumption that the Thai authorities maintain the country's orientation towards participation in the global economy. Fitch assumes the authorities maintain a policy framework likely to be conducive to sustainable growth over the medium- to long-term, rather than pursuing short-term growth at the expense of higher economic volatility over time. The ratings incorporate an assumption that Thailand is not hit by a severe economic or financial shock sufficient to cause a significant contraction in GDP and trigger stress in the financial system. Fitch assumes that there is no materialisation of severe risks to global financial stability that could impact open emerging-market economies like Thailand, such as a breakup of the euro zone or a severe economic crisis in China. The ratings assume that there is no significant escalation in regional inter-state tensions including Thailand's own border dispute with Cambodia and the ongoing territorial dispute between China and Japan.
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