Moody's Investors Service has become the third credit rating agency to downgrade Thailand's sovereign credit rating outlook to stable from positive, attributed to "deep economic shock" from the Covid-19 outbreak and existing political tensions.
Earlier, Fitch Ratings and S&P Global Ratings revised their rating outlook on Thailand to stable from positive on Covid-19 uncertainty, with a possible downgrade given heightening political uncertainty and a sluggish economic recovery.
The widening spread of the coronavirus outbreak, deteriorating global economic outlook, and falling asset prices are creating a severe and extensive credit shock across many sectors, regions and markets, said Moody’s.
“For Thailand, the current shock transmits mainly through a sharp slowdown in tourist arrivals, exports of goods, and economic activity,” said Moody's.
“Long-term infrastructure investments will be further delayed, as policy focus shifts to offsetting effects of the economic shock, compounding the apparent difficulties in designing and implementing policies for the current coalition.”
In light of delays in policy implementation and ongoing political tensions as well as the deep economic shock caused by the coronavirus outbreak, government policy is unlikely to effectively direct large investment in physical and human capacity that would boost the country's competitiveness over the near to medium term, according to Moody’s.
Ongoing policy uncertainty and delays in infrastructure investments have not been resolved following the swearing in of the newly elected administration in July 2019.
Continuous delays in enactment of the Annual Budget Expenditure Act of 2020 have slowed public sector expenditures, particularly investment in large capital expenditure projects that would enhance productivity and competitiveness, said Moody’s.
“A number of infrastructure projects in the Eastern Economic Corridor [EEC], such as expansion of the Laem Chabang port, also remain delayed despite establishment of the EEC Office to provide inter-agency coordination and the Budget Procedures Act of November 2018, which aimed to address underspending issues hampering state-owned enterprise implementation of investment projects,” said the international credit rating agency.
Although the government may return to prioritising longer-term investment once the most acute phase of the economic shock has passed, the pandemic is likely to compound delays to policymaking over the next several years.
“Continuing political tensions similar to those seen since the elections will likely contribute to constrained infrastructure investment and sustained weakness in foreign direct investment inflows and manufacturing,” said Moody’s.
But Thailand’s GDP growth is expected to recover going forward as the economy has experienced shocks in the past, from natural disasters to fluctuations in global trade or heightened political tensions, said Moody’s.
“Moody's expects the economy to recover. In particular, the tourism sector, which is deeply affected by global interruptions to international travel, is highly competitive.”