Moody's affirms 'resilient' economy
Agency maintains Thai credit rating with a stable outlook, but government debt likely to rise
Moody's Investors Service has affirmed Thailand's credit rating and maintained its outlook at stable, says Patricia Mongkhonvanit, director-general of the Public Debt Management Office.
On Thursday, Moody's affirmed the Thai government's Baa1 issuer and local currency senior unsecured ratings.
The affirmation of the Baa1 ratings reflects Moody's expectation that Thailand will continue to display economic resiliency to future shocks, underpinned by its large and diverse economy and strong macroeconomic policy effectiveness, the rating agency said.
While Moody's expects Thailand's government debt to increase and remain markedly higher than the pre-pandemic norm, leaving the government with weakened fiscal strength for some time, Thailand's fiscal metrics will still be stronger than most Baa-rated peers.
It is likely the government will quicken its pace of fiscal consolidation in the next two to three years once the economic recovery takes hold, said Moody's.
The stable outlook indicates balanced risks to Thailand's credit profile. Thailand's economic strength may benefit from productivity gains, including through the ramp-up of the Eastern Economic Corridor to a greater extent than Moody's currently expects.
Moody's expects Thailand's real GDP growth to come in at above potential rates for the next 2-3 years as the effects of the pandemic fade, although the global shock of Russia's invasion of Ukraine will slow the recovery.
The rating agency predicts the Thai economy will expand by 3.4% in 2022 and 4.8% in 2023.
Tourist arrivals should pick up this year, albeit only gradually, following the reopening of borders in Thailand and other countries, along with an easing of quarantine rules and testing requirements for tourists, said Moody's.
Moody's expects tourist arrivals to reach around 15% of pre-pandemic levels by the end of 2022, before rising to about 50% in 2023.
Tourist arrivals are likely to return to pre-pandemic levels only in late 2024 or early 2025.
The rating agency's baseline scenario incorporates a view that tourist arrivals from China will pick up starting in 2023, while the number of Russian tourists will decline significantly this year because of the war, before rising modestly in 2023.
Over the longer term, Thailand continues to face structural challenges that will weigh on potential growth. Its rapidly ageing population will constrain the labour supply, while moderate competitiveness and shortages in higher value-added skills weigh on labour productivity, said Moody's.
The pandemic led the government to run large fiscal deficits in 2020 and 2021 to support the economy, sharply increasing the government debt burden.
Thailand's prudent fiscal policy in the past gave it sizeable fiscal space to respond to the economic shock.
Thailand's fiscal deficit was 4.5% and 7.9% of GDP for fiscal 2020 and 2021, respectively.
Moody's expects the government to continue running deficits of 3-4% over the next 2-3 years to support the still-fragile economic recovery.
Accordingly, Moody's expects government debt to stay on a mild upward trend, reaching 52-54% of GDP from 2022 to 2024, compared with 51% in 2021 and a much lower level of 34% in 2019. At that point, the economic and social environments are likely to create the conditions for narrower deficits that can bring down the debt burden, said the rating agency.