Fitch maintains Thailand’s credit rating at BBB + with a stable outlook

songryosukeJune 27, 2022

Fitch Ratings confirmed Thailand’s long-term foreign currency issuer default rating (IDR) with a stable outlook on “BBB +”.

A complete list of rating actions can be found at the end of this rating action description.

Main evaluation drivers

Strong appearance, structural constraints

Thailand’s rating is underpinned by Thailand’s sustainable external funding and strong macroeconomic policy framework. Ratings also reflect weak structural characteristics compared to other BBB peers, such as per capita income and lower World Bank governance scores. In addition, the medium-term outlook for growth and fiscal consolidation is constrained by unfavorable demographic factors and the potential scars of the Covid-19 pandemic.

Recovery to strengthening

Fitch predicts that Thailand’s economy will grow 3.2% in 2022 (median BBB: 3.4%), up from 1.5% in 2021. This is underpinned by improved domestic consumption, still supportive policymaking, and a gradual recovery in inbound tourism. Thailand has eased domestic containment measures and has completely reopened its borders with foreign travelers.

Fitch predicts that GDP growth will accelerate to 4.5% in 2023, supported by a continued recovery in domestic demand and a faster resumption of inbound tourism (Median BBB: 4.0%). Our baseline predicts that tourist arrivals will increase to 22 million by 2023, or 55% of pre-pandemic levels. A slow resurgence of arrival from China.

Narrower budget deficit

According to Fitch, the deficit of the general government gradually decreased to 5.3% of GDP (based on government financial statistics) in the fiscal year ending September 2022 (FY2010) (median BBB: 3.9%), and 3.7% in FY2011. (Median BBB: 3.1%) is expected. ), From the estimated 7.0% in FY2009. The reduction in the budget deficit reflects the increased revenue recovery and the measurement of mitigation of pandemic-related economic bailouts. Expectations for modest fiscal consolidation reflect the still early stages of Thailand’s continued economic recovery.

Higher but more stable debt ratio

Fitch predicts that gross domestic product (GGGD) will rise to 55.4% of GDP (2009: 53.8%) by 2010, which is in close agreement with the median BBB (55.9%). I am. By 2014, this ratio is expected to rise to 56.6%, about 21pp above the pre-pandemic level. We believe that the risk of GGGD / GDP is leaning upwards, especially if the recovery is longer, as we are only planning a phased integration, but the government’s fiscal health record, domestic capital. Risk is mitigated by market depth and public debt stock. Funded mainly in baht.

Robust external finance

Thailand’s resilient external position is a core strength, and in our view it provides sufficient buffer to tighten global fiscal conditions and manage greater geopolitical risks. Fitch predicts that Thailand will maintain its large net external creditor status at 41.5% of GDP in 2022, with “BBB” (-4.4%) and “A” (-6.2%) peers. It is well above the median forecast. We expect US $ 232 billion in foreign exchange reserves by the end of 2022, which is sufficient to cover the current 7.8 months of foreign payments in 2022 and is the median of the “BBB”. It’s been over 5.6 months.

Fitch predicts that the current account deficit will shrink from an estimated 2.1% in 2021 to 1.8% of GDP in 2022. This reflects a gradual recovery in tourism revenue that offsets increased energy imports and freight payments. As tourism recovers momentum, the balance of payments is expected to return to a 1.0% surplus in 2023 and further increase to 2.8% in 2024.

Inflationary pressure rises

The Fitch project’s headline inflation will average around 6.0% in 2022 from 1.2% in 2021, primarily supported by the growing cost-push factor. The Bank of Thailand (BoT) expects to raise the benchmark interest rate by 25bp in the second half of the year after maintaining the policy rate since May 2020 at a record low of 0.5%. BoTs have adopted a more hawkish stance in recent months, but Fitch has slowed the pace of rate hikes to avoid hindering recovery. Inflation is projected to return to the BoT’s 1% to 3% target band of 2.3% by 2023.

Increased household debt

Thailand’s household debt increased further from its pre-pandemic level of 79.9% at the end of the fourth quarter of 2019 to 90.1% of GDP by the end of the fourth quarter of 2009. Low-debt low-income households and small businesses continue to be the source of banking sector vulnerabilities if they are exposed to pandemic shocks and recovery turns out to be longer than expected. Fitch expects banks to experience higher credit losses as deregulation ends in 2022, but asset quality pressures are eased by appropriate credit loss reserves and core capital.

Structural headwind

Medium-term growth prospects are weakened by the aging of the population and can be exacerbated by the potential economic scars of a pandemic. The effects of scars can be manifested by long-term investment restraints, slowed productivity growth, and reduced labor skills and profits. To counter these potential headwinds, the government seeks to increase productivity through hardware and software infrastructure investments and by promoting targeted innovation and technology industries.

Elections bring political uncertainty

The next general election, scheduled by March 2023, could bring further uncertainty to the policy outlook. Election preparation also poses the risk of heightened political tensions that could emerge in new protests, but we do not expect these risks to disrupt economic recovery. Election results are still uncertain, but in Fitch’s view, it could lead to another broad coalition government that could challenge the effectiveness of policy making.

ESG – Governance

Thailand’s ESG Relevance Score (RS) is “5” and “5” for political stability and rights.[+]’The rule of law, institutional and regulatory quality and control of corruption. These scores reflect the high weight of the World Bank’s Governance Index (WBGI) on its own sovereign rating model. Thailand has a medium WBGI ranking in the 45th percentile. This reflects sound institutional capacity and quality of regulation, and established rule of law, but is offset by sustained political change.