Credit rating agencies have voiced concerns that the political impasse could take a toll on investment if it continues, says a Finance Ministry source.
Public investment under the caretaker government cannot proceed at full throttle, while the 2-trillion-baht infrastructure and the 350-billion-baht water management projects have been temporarily stalled by the court.
The government’s stuttering investment and heightened political uncertainty are denting private sector investment demand, while financial institutions’ increasingly prudent loan approvals are another blow to investment, the source said.
Most of the country’s economic engines are running out of stream the source said, adding that exports are seemed to be the only engine expected to underpin GDP growth this year.
However, the country’s economic fundamentals remain strong as seen by low unemployment, subdued inflation and high foreign reserved.
In a related development, Ekniti Nitithanprapas, deputy director-general of the Finance Ministry's Fiscal Policy Office, said the country’s financial institution system remains solid with a 2.5 trillion baht surplus liquidity.
As well, the overall banking capital adequacy ratio is 16%, he said.
Separately, Moody’s Investors Service yesterday affirmed Thailand’s government bond rating at Baa1 with a stable outlook.
“Moody’s sees that Thailand’s credit fundamentals remain intact and are strong enough to weather cyclical pressures on the economy and recurring bouts of political instability,” Moody’s said in a statement.
Moody’s expects a small and manageable current account deficits of below 1% of gross domestic product (GDP) in 2014.
Although the share of non-resident investors in the local currency government bond market has increased since 2009, it remains smaller than other countries in the region.
In addition, ample domestic liquidity mitigates the risk of interest rate volatility stemming from potential outflows, either from heightened political risk or the further normalisation of monetary policy in advanced markets.
Moreover, Thailand’s external vulnerability indicator compares favourably to the rating peer group.
“Moody’s does not expect the recent political developments to have a significant impact on Thailand’s medium-term growth outlook, which remains favorable when compared to similar-rated peers. While anti-government protests will keep real GDP growth in 2014 at around 3%, assuming a return to political normalisation from the second half of 2014,” the statement said.
“Our best-case expectation is the Thai banking sector can remain stable, but the risks have increased. We don’t expect political issues to be resolved any time soon, and that means further vulnerability for Thai banks,” said Standard & Poor’s credit analyst Geeta Chugh.