RAM Ratings: Thailand well placed among ASEAN peers; outlook revised to stable from negative

Published on 30 April 2015

RAM Ratings has reaffirmed Thailand’s ASEAN-scale rating of seaAA1(pi) and revised the outlook on the rating to stable from negative in June 2014. “Despite its economic challenges, Thailand still stacks up well against ASEAN peers,” says Esther Lai, RAM’s Head of Sovereign Ratings. Thailand has a healthy external position, a better track record of monetary and financial stability, deeper capital markets and better infrastructure compared to other ASEAN nations. The stable outlook reflects the country’s strong external buffers, balanced by a sluggish economic environment and evolving political landscape. The Kingdom’s reserves-to-import cover has persistently been above 9 months, compared to a peer average of less than 5 months. Moreover, the more diversified nature of the Thai economy cushions it against the current commodity slump, differentiating it in particular from Indonesia’s commodity-centric economy.

“Measured against RAM’s sovereign benchmarks, however, Thailand has underperformed our base expectations. Amid weaknesses of a slower economy, we have downgraded its rating on the global scale to gBBB1(pi) from gA3(pi) previously,” Lai highlights. Thailand’s ratings could be upgraded if we observe a sustained recovery in economic conditions and improvements in growth prospects subsequent to the sovereign addressing structural challenges. Conversely, the ratings could face downward pressure in the event of a significant worsening of government finances, further deterioration of the country’s external position and the erosion of official reserves.

“The Bank of Thailand eased its policy rate yesterday by another 25bps to 1.50%, after the most recent rate cut in March 2015. Subsequent to external and internal headwinds, this move was aimed at shoring up private confidence and providing Thai exporters with some relief against the strong Baht,” notes Lai. Nonetheless, we opine that a reduction in the policy rate is unlikely to provide a meaningful boost to economic recovery at this juncture as households were already highly leveraged at 86.8% of GDP as at end-2014. Notwithstanding increased political stability, Thailand’s economy is still fragile as private confidence and business sentiment have yet to return to levels seen after the massive 2011 flood.

Thailand’s sluggish growth of 0.7% in 2014 was significantly below the 5-year historical trend of 3.0% and the Kingdom’s long-term growth potential of 4.0% to 4.5%. Domestic demand is envisaged to remain weak in 2015 against a backdrop of poor farm income, elevated household debt and slower-than-expected progress on public spending which leads to lethargic private investments. Although the tourism sector is anticipated to contribute positively to growth, the increase in merchandised exports could be limited due to the Kingdom’s inherently weak export competitiveness coupled with uneven global recovery. In line with a contraction in export performance of 4.7% y-o-y in January and February, the government revised its 2015 export growth forecast steeply down to 0.2%, from 1.0% previously.

Figure 1: Thailand’s recovery weaker than past 5-year average of 3.0%
Sources: National Economic and Social Development Board and RAM calculations

For further information, please refer to the full report here.

Media contact
Lynette Lee
(603) 7628 1182
lynette@ram.com.my