A prolonged political deadlock lasting into the second half of the year may prompt a reassessment of its rating outlook for Thailand, according to Fitch Ratings.
“A continued blockage in the formation of a full government, or a government with authority, into the second half of the year could lead us to reassess the rating outlook,” Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, said in an interview in Singapore on Thursday. “If we have a government that doesn’t have the ability to implement a budget in 2015 that would be negative for the credit.”
Protests that began in late-October to oust Prime Minister Yingluck Shinawatra shut down parts of Bangkok, sparked clashes that killed 23 people and disrupted the election, preventing the opening of parliament and the formation of a new government. Consumer confidence fell to its lowest in more than 12 years in February, and the central bank on Thursday said the economy will grow below its potential of 4-5% this year.
“If we get through to August, or maybe even July-August, and there’s no government in place or parliament in place that can implement a fiscal '15 budget, then firstly that’s going to have quite a significant negative impact on growth,” said Mr Colquhoun. “It would also send a bit of a negative signal about the country’s basic political stability.”
Asian stocks and currencies slid on Thursday after the Federal Reserve signalled a faster timetable for raising rates. The baht slipped 0.7% to 32.363 per US dollar as of 2.35pm local time.
Fitch and Moody’s Investors Service earlier this month kept their credit ratings for Thailand unchanged with a stable outlook, citing the strong economic fundamentals while warning of risks to the creditworthiness if the gridlock continues. A state of emergency in Bangkok was lifted this week to boost confidence after tourist arrivals fell, and a court will rule on Friday on the legality of the Feb 2 election.
“There is a possibility that we may get downgraded if we can’t restore political stability in the second half,” said Kampon Adireksombat, an economist at Tisco Securities in Bangkok. “Everybody has started to feel the pain from the situation lasting so long.”
The central bank last week cut its benchmark interest rate to the lowest level in more than three years to bolster growth, and will release its new expansion forecasts tomorrow. The Thai Chamber of Commerce said on Wednesday the economy may record zero growth or even contract if the political deadlock continues.
A souvenir vendor waits for tourists at the entrance gate of the Grand Palace in Bangkok on Tuesday. A state of emergency in Bangkok was lifted this week to boost confidence after tourist arrivals fell. (Photo by EPA)