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March 6 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Thailand's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' and 'A-' respectively. The issue ratings on Thailand's senior unsecured foreign and local currency bonds are also affirmed at 'BBB+' and 'A-'. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed at 'A-' and the Short-Term Foreign Currency IDR at 'F2'.
KEY RATING DRIVERS
The affirmation and Stable Outlook reflect the following factors:
- Thailand has a strong external position and a credible monetary policy framework, while key public finance ratios still compare well with peers. These strengths have helped buffer the economy against turbulence associated with the tapering of stimulus from the US Federal Reserve and against heightened domestic political tension, which re-emerged in early November 2013.
- However, the near term political outlook remains uncertain. Prolonged and more intense political tension could risk protracted economic weakness and erosion of market confidence, which could ultimately put pressure on sovereign creditworthiness.
- Thailand proved relatively robust to global emerging-market turbulence in 2013. However, domestic political uncertainty is dragging on Thailand's economy, particularly on consumer and business confidence. Fitch forecasts Thailand's real GDP to grow 2.5% and 3.7% in 2014 and 2015 respectively, compared with a 2.9% rise in 2013. Thailand's average growth of 3% for the five years to 2013 has dropped marginally below the medians for peers in the 'BBB' and 'A' rating categories of 3.2% and 3.3% respectively. Diminishing growth and investment could ultimately erode the credit profile. Conversely, measures to raise the economy's growth potential could strengthen the credit profile.
- Thailand's public finances remain sound for the most part. General government debt-to-GDP ratio stood at 31.9% at end-September 2013, significantly lower than the 'BBB' and 'A' peer rating group medians of 40% and 53%. In the short term, heightened political volatility limits the caretaker administration's ability to implement public infrastructure plans, offsetting potentially lower tax revenues, or commit to deeper changes to revenue and expenditure. However, prolonged political drift could see the credit profile weaken if Thailand fails to make progress with growth-enhancing reforms and policy measures.
- Fitch estimates that Thailand's net external creditor position stood at 38% of GDP at end-2013, which is significantly stronger than both 'BBB' and 'A' peer rating medians of -11% and 18%. The strong net external creditor position reduces the country's reliance on foreign capital and provides Thailand a large buffer during periods of either heightened political volatility or elevated global risk version.
- Fitch believes that Thailand's banking sector is reasonably positioned to weather the challenges of a more difficult operating environment. However, Thailand's private credit-to-GDP ratio, which stood at 151.7% in 3Q13, is among the highest in emerging markets and is viewed as a weakness for the sovereign credit profile. This in turn increases the contingent liability risk the sovereign could face if support for the banking sector needs to be provided in the event that a large economic shock undermines private sector debt-servicing capacity.
The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change.
Future developments that could individually or collectively, result in negative rating action include:
- The absence of a functioning government, which is perceived to undermine the economic policy making framework.
- More prolonged and/or intense political volatility, sufficient to undermine medium-term economic prospects and financial instability.
- A sharp, sustained rise in Thailand's public debt, particularly rising contingent liabilities.
Future developments that could individually or collectively, result in positive rating action include:
- Sustained economic growth - without emergence of imbalances - and a narrowing of income divergence with 'A' rating category sovereigns, could see Thailand's ratings upgraded.
- A more rapid stabilisation of public debt ratios than Fitch currently expects.
Fitch assumes that there is no significant escalation in regional inter-state tensions, including Thailand's border dispute with Cambodia and the on-going territorial dispute between China and Japan.
Fitch assumes that the global economy will improve gradually over the forecast period. The world's real GDP growth is projected to rise 2.9% and 3.2% in 2014 and 2015, compared with an estimate of 2.3% in 2013