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.
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