Accumulated and potential losses from the rice buying scheme, if it is not modified, will make it harder for the government to reach its goal of a balanced budget by 2017 and are a negative factor in Thailand's rating, Moody's Investors Service warned on Monday.
The ratings company quoted a Bangkok Post report that losses from the rice-pledging scheme in the harvest season 2011-12 are bigger than the Finance Ministry originally forecast.
At the same time, Thai authorities appeared committed to continuing the scheme without any changes.
The report, which Moody's said it was unable to confirm with government sources, said new estimates based on actual amounts received imply losses of 200 billion baht from the 2011-12 harvest year.
"This is significantly higher than previous estimates by the World Bank discussed in our April Credit Analysis, which pegged losses at 115 billion baht, as well as Thailand's Ministry of Finance forecast losses of 70-100 billion," said Moody's, which earlier rated Thailand BAA1 with a stable outlook.
The current rice subsidy scheme was set up in October 2011 to boost Thai farmers' incomes, the report said.
The government's purchase of rice at around 50% above market prices carries a fiscal cost when the rice has to be resold at a loss.
The scheme is also blamed for a decline in rice exports. Total earnings from rice exports fell in 2012 to $4.6 billion from $6.4 billion in the previous year, owing to the government withholding rice stocks for sale in the hopes world rice prices will rise, it added.
"In volume terms, Thailand's rice exports fell to 6.7 million tonnes in 2012, from 10.7 million tonnes in 2011, the lowest level since 2000.
"However, given that rice exports make up a relatively small proportion of Thailand's total exports (averaging 2.6% over the past 10 years), the direct and immediate effect on Thailand's balance of payments is not material," it said.