Thailand must accelerate its economic growth potential to 3-4% to avoid a downgrade in its sovereign credit rating, say analysts.
Kobsak Pootrakool, director and senior executive vice-president at Bangkok Bank, said in a Facebook post on Wednesday Moody's Investors Service revised Thailand's outlook from stable to negative, the first step in a potential credit rating adjustment and possibly leading to a future downgrade.
WARNING SIGNAL
Moody's is the first global credit ratings agency to revise its outlook on Thailand, potentially prompting the other two major agencies -- S&P Global Ratings and Fitch Ratings -- to review and possibly adjust their assessments as well, he said.
According to Mr Kobsak, Thailand's outlook downgrade by Moody's is primarily based on concerns that the nation's economic and fiscal strength could deteriorate further, particularly in light of US trade and tariff policies.
These global headwinds threaten international trade and economic growth, posing significant risks for Thailand's export-driven economy.
"The downgrade to a negative outlook does not necessarily imply that a credit rating cut is imminent. However, it serves as a warning sign -- an indication of increased risk," he said.
During the 2008 global financial crisis, Thailand's outlook was also downgraded to negative by Moody's. However, after navigating the crisis, the outlook was restored to stable within two years.
Moody's indicated the outlook could be revised back to stable if Thailand demonstrates sustained economic growth above current expectations, thereby improving its fiscal position.
Mr Kobsak said a credit rating downgrade would likely stem from further weakening of Thailand's economy, with potential growth declining due to structural challenges and global economic instability, particularly influenced by US trade policies.
Moreover, if Thailand's public debt continues to rise -- driven by both external and internal shocks that hinder economic growth, or by political tensions that weaken the government's ability to implement effective policies -- it could potentially lead to a credit rating downgrade.
To avoid such a downgrade, he said the Thai government must prepare the economy to withstand global headwinds, particularly US President Donald Trump's tariff schemes and the potential resurgence of protectionist policies.
In addition, the government should focus on building a sustainable economic future by strengthening Thailand's growth potential, in line with Moody's target of at least 3-4%, said Mr Kobsak.
He said the government should move swiftly to advance infrastructure development, cultivate high-potential industries that generate sustainable income, strengthen Thailand's research and innovation capacity, overhaul outdated legislation that impedes progress, and prioritise the development of human capital.
CAUTION REQUIRED
Bank of Thailand governor Sethaput Suthiwartnarueput said the regulator must strengthen financial stability in anticipation of heightened risks and global uncertainties, particularly those stemming from US tariff hikes and a potential trade war.
Although Thailand's international reserves are at a relatively high level, having increased more than tenfold since the 1997-1998 financial crisis, the situation still requires caution, Mr Sethaput said during a gold offering ceremony held by the disciples of the late revered monk Luangta Maha Bua Yannasampanno.
The central bank's foreign reserves total US$276 billion, compared with just $23 billion in 1998.
He said while the current level of international reserves and the overall strength of the country's financial system are reassuring, financial stability has weakened in recent years, primarily due to rising debt levels.
"With both household and public debt at elevated levels, we cannot afford to lower our guard as a storm is approaching," said Mr Sethaput, referring to the trade war.
Although the risks have yet to fully materialise, they are clearly emerging. The central bank is monitoring the situation and sees a stronger financial buffer as essential, he said.
LITTLE FOREIGN DEBT
In response to Moody's downgrade, Finance Minister Pichai Chunhavajira said yesterday Thailand's ability to repay debt remains robust and the government has borrowed very little from abroad.
He said one of Moody's concerns about the Thai economy is the potential impact of Trump's tax policies on domestic investment. However, in the first quarter this year, investment inflows into Thailand grew by more than 90% year-on-year, directed towards several key sectors of the Thai economy.
Mr Pichai acknowledged investors who have already applied for investment promotion may be waiting to evaluate the full impact of Trump's policies before beginning their actual investments. However, he still views the situation as a positive sign.
Regarding the cost of government borrowing, Mr Pichai said Thailand does not borrow from abroad, and domestically the situation remains strong.
He said any potential impact predicted by Moody's due to Trump's policies would affect all countries, not only Thailand.
The framework for government borrowing was already set during the budget planning stage, said Mr Pichai.
However, issuing an emergency loan decree would require careful consideration, he said.
As of February 2025, the government's public debt tallied 12 trillion baht, accounting for 64.2% of GDP. This debt comprises government debt worth 10.7 trillion baht, state-owned enterprise debt worth 1.06 trillion baht, and financial sector state-owned enterprise guarantees worth 162 billion baht.
The government's foreign debt amounts to 72.3 billion baht.
TOO HASTY
Government spokesman Jirayu Houngsub said on Wednesday Moody's acted too hastily in downgrading Thailand's outlook, noting trade talks with the US have not concluded.
"Thailand's economy is still growing, while the government is accelerating its economic stimulus amid global volatility," he said.
"I believe the downgrade was too fast. Thailand and many other countries are still in negotiations, with no clear outcomes yet. If the results turn out positive, what will Moody's do then?"
For the second half of the year, Mr Jirayu said stimulus policies will focus on four major growth engines: domestic private consumption, international trade, government spending, and private and public investment.
LIMITED IMPACT
Rakpong Chaisuparakul, senior vice-president at KGI Securities (Thailand), said Moody's action makes it unlikely Thailand will issue new borrowing bills worth 500 billion baht, as this would push the public debt-to-GDP ratio to rise, raising the risk of a ratings downgrade.
While Moody's maintained Thailand's credit rating at Baa1, the agency dimmed its outlook for Thai GDP growth this year, cutting the forecast from 2.9% to 2%.
Following Moody's action, the Stock Exchange of Thailand (SET) index continued its rise yesterday, surging 0.89% to 1,181.52 points by midday, after increases the three prior sessions.
Krungsri Securities (KSS) views the downgrade as having a short-term psychological impact on the SET index.
Historical data suggests when Thailand's outlook was downgraded, the baht was not significantly affected, while Thai equities tended to dip briefly before recovering to previous levels or even higher.
For example, on Dec 1, 2008, S&P downgraded Thailand's outlook from stable to negative, and the SET index decreased 3.6% before rebounding 0.5% the next day and recovered to the previous level within four days. On Dec 4, 2008, when Moody's lowered Thailand's outlook from stable to negative, the SET index gained 4.49% during early an recovery from the global financial crisis.
When S&P downgraded the Thai outlook on April 13, 2020 from positive to stable, the SET index rose 2.3%, and as Moody's lowered the outlook from positive to stable on April 21 of the same year, the Thai index shed only 0.34%.
"Given these precedents and that this is only an outlook downgrade, not a ratings cut, KSS expects limited impact on the SET," said head of research Suwat Wattanapornprom, adding Thailand hasn't had a credit rating trim since the 1997 financial crisis.