The outlook on Thailand's long-term foreign currency issuer default rating (IDR) has been upgraded to positive from stable, with the rating affirmed at BBB+, as lingering political risks are unlikely to derail sound macroeconomic management, says Fitch Ratings.
"This 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. Nevertheless, a degree of political uncertainty remains about the stability of the new coalition government."
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, as 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, firming by more than 4.5% as equity and debt inflows increased, particularly in June.
Thailand's external finances are forecast to remain robust, with 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.
Fitch expects the large current account surplus along with portfolio inflows to facilitate an increase in official reserves to about US$216 billion (6.65 trillion baht) at year-end 2019 from $205.6 billion at year-end 2018.
In 2019, Thailand's net external creditor position of 43% of GDP, under Fitch's forecast, would be well above the BBB median net debtor position of 7.0% of GDP and the A median net creditor position of 9.7% of GDP.
Fiscal management remains sound, supported by a record of prudent policies and the Fiscal Responsibility Act (FRA) enacted in April 2018.
"We forecast general government debt-to-GDP to rise to 40.7% by the fiscal year ending September 2023, from 36.3% in fiscal 2018, as the government uses its fiscal space to boost infrastructure investment, before trending downward thereafter," Fitch said.
Much of the infrastructure financing is undertaken through direct government borrowing outside of the budget but is done transparently and is subject to cabinet approval and limits under the FRA, the ratings agency said.
Completion of the first general election since the 2014 military coup helped ease political uncertainty, and the new government is poised to support policy continuity associated with the 20-year national strategy and the Eastern Economic Corridor.
"However, the stability of the new coalition government under Prime Minister Prayut Chan-o-cha, with its disparate 19 parties led by the Palang Pracharath party, is uncertain and its ability to implement its policy agenda could be constrained by its thin majority," Fitch said.