Fitch rates Thailand stable, shippers expect higher exports
International ratings agency Fitch Ratings has affirmed Thailand’s sovereign debt rating at investor-grade BBB+, and said that Thailand’s public and external finances stand out as clear rating strengths, while the economy has shown resilience despite a series of negative shocks. Also, leading members of the National Shippers Council said they expect exports will rise by 2 percent next year.
Fitch said that its “Stable Outlook” reflects its assessment that upside and downside risks are well balanced. Despite the economy performing below its potential, Thailand’s fiscal position remains a credit strength. Although Fitch expects the budget deficit to widen with the launch of infrastructure projects, the agency still believes the government debt ratio “will remain on a sustainable path” well the 42 percent of gross domestic product (GDP) median required for a BBB rating.
In purely technical terms, Fitch wrote that 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 local-currency bonds are also affirmed at ‘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’.
“While tourism has been a notable bright spot, weak global demand, drought and low private-sector confidence have dragged on economic growth. Fitch expects growth to pick up to 3.4 percent in 2016, assuming the recent surge in public investment is able to support business sentiment and spur private investment growth,” the agency said.
“External finances have improved as tourism revenues rebounded, with visitor arrivals from Mainland China almost doubling. Lower oil prices also reduced the value of imports, although the overall impact on net exports was partly offset by a decline in prices for petroleum and agricultural products. Thailand also has substantially higher reserves relative to imports than the medians of the ‘BBB’ and ‘A’ peer group, providing protection during bouts of volatile capital flows,” Fitch wrote.
The agency said that Thailand’s downside risks include its ageing population, declining export competitiveness and high private-sector leverage act as structural headwinds. “Unresolved political and social cleavages weigh on economic performance and the rating,” Fitch said, noting that economic problems began under the previous administration but the recovery has been “lackluster.”
The Thai National Shippers’ Council also took an optimistic view of next year’s prospects, projecting that exports will reach $220 billion in 2016, as government policies to restructure the economy and trade strategies should bring positive results. The council predicted that exports will contract by 5 percent in 2015 to $216 billion.
Council Chairman Nopporn Thepsithar warned, however, that a global recovery could be weaker than hoped for and it may establish a new normal for lower growth. He said that the Council supports Thailand joining the U.S.-led Trans Pacific Partnership as a way of improving its trade.
Thailand Focus week of November 9, 2015
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