Fitch Ratings has revised its outlook on Thailand’s long-term foreign-currency issuer default rating to positive from stable to reflect higher confidence that lingering political risks are unlikely to derail sound macroeconomic management.
The international credit rating agency has also affirmed the rating at BBB+.
The outlook revision is demonstrated by the sustained strength of external and public finances over the past several years, which has resulted in greater resilience to macroeconomic and financial shocks, Fitch said.
“A major political hurdle has been passed with the formation of a new civilian-led government following elections in March,” the agency said. “Nevertheless, a degree of political uncertainty remains in the context of the stability of the new coalition government.”
Fitch expects continued implementation of the economic plan under the 20-year national strategy and the focus on development of the Eastern Economic Corridor.
The broad policy contours and sustained infrastructure investment should be supportive of near- and medium-term growth prospects.
But the stability of the new coalition government under Prime Minister Prayut Chan-o-cha, with its disparate 19 parties led by Palang Pracharath, is uncertain and its ability to implement its policy agenda could be constrained by its thin majority.
Thailand’s robust external position is a core credit strength, exemplified by the economy’s insulation from recent bouts of global risk aversion towards emerging markets, when the country’s financial markets continued to exhibit safe-haven characteristics.
The baht has been one of the strongest-performing emerging-market currencies against the US dollar in 2019, appreciating by over 4.5% as equity and debt inflows have increased, particularly in June.
Fitch forecasts external finances to remain robust.
“We expect the current account surplus to remain high relative to peers at 5.6% of GDP in 2019 and 4.9% in 2020, supported by tourism inflows and a goods surplus, despite slowing exports,” the agency said.
Fitch estimates that the large current account surplus along with portfolio inflows will facilitate an increase in official reserves to about US$216 billion (7.9 months’ external payments coverage) at the end of 2019, from $205.6 billion at the end of 2018.
Thailand’s net external creditor position of 43% of GDP in 2019, under Fitch’s forecast, would be well above the BBB median net debtor position of 7% of GDP and the A median net creditor position of 9.7% of GDP.