Fitch: Continued Thai Political Impasse Would Be Credit Negative

Thu May 8, 2014 11:40pm EDT

(The following statement was released by the rating agency) HONG KONG/LONDON/SINGAPORE, May 08 (Fitch) A continuation of the Thai political impasse through the latter half of 2014 would be credit negative, and is likely to prompt a review of the sovereign rating, Fitch Ratings says. This is in line with the guidance Fitch gave at the time of its March 2014 review of Thailand's ratings. As we highlighted in our March review, failure to establish a functioning government by mid-year would have a major impact on medium-term capital investment, consumer confidence and fiscal planning. Domestic demand is already expected to be soft in 2014, resulting in a forecast real GDP growth rate of 2.5%. The resulting drag of protracted political uncertainty on the economy would bring Thailand's long-term growth rate further below its 'BBB' range peers, placing negative pressure on its sovereign credit profile. Political risk is heightened by the 7 May Constitutional Court decision to remove Prime Minister Yingluck Shinawatra and nine of her senior ministers, and the 8 May decision by the National Anti-Corruption Commission to indict Shinawatra on dereliction of duty charges. Pro- and anti-government street rallies are scheduled in the coming weeks, and the judicial decisions are likely to act as a focal point for pro-government supporters. Should elections scheduled for 20 July be delayed or cancelled, it would significantly increase the probability that Thailand will not have a fully functioning government for the remainder of the year. Such a scenario could also increase the risks to Thailand's basic political stability. Prolonged political drift risks broader negative effect on Thailand's credit fundamentals. We estimated Thailand's potential growth rate may have slackened to about 3% in its March 2014 review - a very low rate for a country at Thailand's income level, and related to repeated delays in strengthening key infrastructure. This in turn holds Thailand back from breaking free of the low-investment "middle income trap" equilibrium in which it has languished since the Asian Financial Crisis in 1997. Contacts: Andrew Colquhoun Senior Director Sovereigns +852 2263 9938 Fitch (Hong Kong) Limited #2801, Tower 2, Lippo Centre 89 Queensway Hong Kong Justin Patrie Senior Director Fitch Wire +65 6796 7232 justin.patrie@fitchratings.com Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Thailand here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.