Local investors were rattled earlier this month after Moody's Investors Service sounded a warning that the government's rice scheme was "credit-negative" due to high losses and negative effects on Thai rice exports. The Bangkok Post spoke with Moody's analyst Steffen Dyck about the rice pledging policy and Thailand's current credit rating.
Moody's earlier this month stated that the rice subsidy scheme would not affect the country's credit rating. Can you expand on this?
We stated in our comment on June 3: "Recent ... and any future losses from the rice-buying scheme increase the difficulty of the government's task of reaching its goal of a balanced budget by 2017 and are credit-negative for the Thai sovereign."
Saying that losses are credit-negative does not mean we are going to take immediate rating action. Thailand's government finances would have been stronger had it not had to carry these losses, but the losses are not great enough as they currently stand to change to a material degree the creditworthiness of the government.
Thailand's current government bond rating is Baa1 with a stable outlook. From a fiscal perspective, we see low government financing costs as a key strength. This counterbalances to a certain degree the rise in government debt. We also acknowledge the favourable structure of Thailand's government debt.
And if the rice pledging scheme and losses continue? Are the government's borrowing plans for new infrastructure and water management programmes a concern?
We have repeatedly stated that progress in strengthening public-sector finances, which includes reducing the fiscal deficit and off-budget spending as well as limiting contingent fiscal liabilities from populist measures and social welfare programmes, would be one factor that could change Thailand's rating up.
On the other hand, we would consider a significant deviation from fiscal rules _ which results in widening fiscal deficits, from either greater expenditure or weaker revenue, and a steep build-up of government debt _ as one factor that could prompt downward pressure on the rating.
Any specific concerns for Thailand at the moment?
We stated in our latest Credit Opinion on Thailand that a sharp deterioration in political stability that has a direct and negative impact on credit fundamentals is a factor that could trigger negative ratings action.
However, we also acknowledge that domestic politics have stabilised since 2011. The stable outlook expresses our view that current developments support our assessment of Thailand's sovereign creditworthiness.