S&P, Fitch Say Thailand Must Sustain Growth to Avoid Ratings Cut

Suttinee Yuvejwattana
·3 min read

(Bloomberg) -- Thailand’s plan to jumpstart its $500 billion economy with a mix of cash handouts and loan moratoriums carries a credit downgrade risk amid a growing reliance on debt and doubts about the nation’s ability to sustain growth, according to ratings companies.

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Prime Minister Srettha Thavisin plans to lift government borrowing by about 8% to 2.43 trillion baht ($66 billion) in the fiscal year from Oct. 1 as he boosts spending that includes a signature 560 billion baht cash handout to all adult Thais. He also needs to find revenue for a debt moratorium for farmers and to subsidize electricity and fuel prices.

With Srettha pushing big spending to stimulate both demand and supply and propel growth in Southeast Asia’s second largest economy to 5% annually, foreign investors have pared holding of Thai sovereign bonds on concerns of increased supplies. The move also has stoked tension between the premier and central bank governor Sethaput Suthiwartnarueput, who’s advocated a more targeted approach to spending.

“If Thailand’s economic growth rate is persistently weaker than what we currently project, that could put downward pressure on the ratings,” S&P Global Ratings analyst Andrew Wood said.

Thailand is rated BBB+ at S&P, two notches above the lowest investment grade that it has retained since 2004. The country is rated Baa1 at Moody’s and BBB+ at Fitch — both three notches above junk territory.

Here’s what sovereign analysts said about Thai ratings:

Moody’s Investors Service (Grace Lim)

“Thailand’s fiscal policies planned for fiscal 2024 will hamper fiscal consolidation efforts needed to gradually rebuild Thailand’s fiscal space. The new fiscal measures will lead to some increases in the fiscal deficit and government debt, compared to the plan approved by the previous government.”

“However, there is currently a lack of clarity on the new government’s medium term fiscal strategy. Should the government plan to run wide fiscal deficits leading to persistently higher government debt over the medium term, this will put downward pressures on Thailand’s rating.”

S&P Global Ratings (Andrew Wood)

“Planned fiscal stimulus measures like the digital wallet scheme could lead to a faster accumulation of debt by the government in the current fiscal year (FY2023-24), depending on how they’re financed. If there is additional borrowing to finance the scheme, the impact on government finances would likely fall primarily on FY2024, with further consolidation to resume after that.”

“If Thailand’s economic growth rate is persistently weaker than what we currently project, that could put downward pressure on the ratings. Nevertheless, we currently see the economy growing at 2.8% in 2023, ahead of a further acceleration to 3.5% in 2024, as the tourism sector continues to recover and investment sentiment becomes more supportive following the formation of the government.”

Fitch Ratings (George Xu, Thomas Rookmaaker)

“Key risks include in terms of public finances, an inability to stabilize the general government debt ratio; for example, due to prolonged fiscal deterioration or continued spending pressures. In addition, if heightened political tension would return on a scale sufficient to alter Thailand’s economic policymaking effectiveness and growth prospects, or affect its tourism recovery, this could be rating negative.”

“We expect social welfare expenditure and other measures advocated by the Pheu Thai Party and its coalition allies during the election campaign to constrain fiscal consolidation efforts.”

“Fitch has not factored all of these campaign promises into our projections of government spending in FY2024 and beyond.”

“Their implementation and a higher budget deficit proposed for FY2024 could put upward pressure on the gross general government debt/GDP ratio, particularly if rising spending fails to sustain economic growth in a more durable way. Our baseline case expects the ratio to stabilize over the medium term, but prolonged fiscal deterioration could eventually put downward pressure on the sovereign rating.”

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