The rice-pledging scheme on its own will not have a significant impact on the sovereign credit quality of Thailand, according to a report published today by Standard & Poor's Ratings Services.
Standard & Poor's does not expect to lower the BBB+ sovereign rating of Thailand because of the cost of the rice-subsidy scheme, the report said.
"Thailand's fiscal and debt metrics can accommodate the likely losses from the rice-pledging scheme, and will remain comfortably in the ranges commensurate with the current rating," said Standard & Poor's credit analyst Agost Benard.
In its base-case scenario, the rating agency projected that general government fiscal deficits will average 0.7% of GDP in 2013-2016, while general government debt as a percentage of GDP will rise by an average of 3% annually over the period. As a result, Standard & Poor's estimates that net general government debt will reach a still-moderate 25% of GDP.
The ratings service said the rice-subsidy scheme in its original form exposed the government to large losses from buying the country's rice crop at a guaranteed price.
The current version however, caps losses by limiting the amount of support per farming household, it said.
Implementation of the scheme has also stalled due to the country's ongoing political stalemate, the report said, adding that the future course of the scheme will depend on resolution of the current political impasse and the makeup of the next government.