March 8 (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
The main factors that could lead to positive rating action, individually or
-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
-A more rapid stabilisation of public debt ratios than Fitch currently expects.
The main factors that could lead to negative rating action, individually or
-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.
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.