S&P upgrades sovereign rating outlook

S&P upgrades sovereign rating outlook

External factors the main risk

A woman casts her ballot at a polling station in Chatuchak district during the March general election. S&P Global Ratings raised its outlook on Thailand's sovereign credit rating to positive from stable, citing greater political stability. Patipat Janthong
A woman casts her ballot at a polling station in Chatuchak district during the March general election. S&P Global Ratings raised its outlook on Thailand's sovereign credit rating to positive from stable, citing greater political stability. Patipat Janthong

S&P Global Ratings has upgraded its outlook on Thailand's sovereign credit rating to positive from stable, but it cautions that a return to political stability will not be enough to spur an economy beset by external challenges.

The ratings agency has affirmed its BBB+ long-term and A-2 short-term foreign currency sovereign credit ratings, as well as its A- long-term and A-2 short-term local currency ratings.

"The positive outlook reflects our assessment that political uncertainty in Thailand has begun to ease with the return of an elected government," S&P said in a release. "With progress in implementing national reforms and strategic plans, we believe policy continuity and political stability will improve."

S&P said the positive outlook was a signal that the sovereign rating could be raised over the next 24 months "if there are clearer signs the key political players are committed to the current political framework and that abrupt and unexpected political changes become unlikely".

But the outlook could be downgraded again to stable if pressure on the current political process builds substantially, resulting in increasing social tensions and uncertainty that raise the likelihood of abrupt political changes.

"In addition, if growth is persistently weaker than our forecast, we could also revise the outlook to stable," S&P said.

The ratings for Thailand reflect the country's strong credit metrics, including a solid external balance sheet and liquidity, limited net general government debt, and a track record of orthodox monetary and fiscal policies, S&P said.

"These strengths are in contrast to the country's low income levels and uncertainty about its political stability and socioeconomic fissures," the agency said. "A lifting of this uncertainty could result in stronger support for the rating."

Finance Minister Uttama Savanayana said the upgrade by S&P follows previous increases by Fitch Ratings, Moody's Investors Service and Rating and Investment Information Inc.

These upgrades will help sustain confidence among domestic and foreign investors, he said, as well as support the government's roadmap for national strategic development aimed at revving up investments in infrastructure projects through public-private partnerships.

But easing political uncertainty is not reflected in Thailand's economic performance, as the economy is being buffeted by external uncertainties stemming from the US-China trade dispute and slowing growth in China, one of Thailand's largest export markets, S&P said.

This is exacerbated by the strong baht, which erodes Thailand's export competitiveness.

Since the start of 2019, the baht has appreciated 7% against the US dollar and 9% against the yuan, S&P noted.

Political uncertainty has weakened public and private investment in recent years, but S&P pointed to the government's attempt to address this through a multi-year transport infrastructure plan worth about 20% of estimated 2019 GDP.

"However, implementation will remain crucial to the success of these planned infrastructure projects," S&P said. "A persistent record of under-execution of public works projects, as seen by capital disbursements averaging 70% in recent years, could dampen the expected boost to headline GDP, in our view."

S&P forecasts GDP growth of 2.6% in 2019, down sharply from 3.8% in its previous review. It also reduced its estimate of real per-person GDP growth to 2.9%, compared with 3.3% previously.

"While this is likely below potential for Thailand, it is in line with peers at the same income level," S&P said.

Although the national infrastructure agenda signals an expansionary fiscal policy, S&P does not foresee a material deterioration in government indebtedness.

"We forecast that Thailand's current account balance will moderate, but expect it to remain solidly in surplus," the agency said.


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