Rating agency watching Thai situation closely

Meanwhile, as Finance Minister Thirachai Phuvanatnaranubala said the government might run larger fiscal deficits, the governor of the central bank warned about government overspending to boost consumption.

Speaking at a conference called "Global Risks and the Outlook for Thailand", Andrew Colquhoun, senior director of Fitch Ratings, warned that political risk weighed on sovereign credit ratings.

Fitch currently assigns Thailand a credit rating of "BBB" with stable outlook. Yesterday's conference was held at a time of a sovereign debt crisis in Europe and the threat of economic slowdown in the United States.

Colquhoun said previous political turbulence had little impact on Thailand's economic growth.

He said the agency needed to see how Thai politics evolved before the agency could evaluate the country's credit rating. While populist policies carried certain risks to good governance, it was too early to make a judgement.

He added that it was not unusual for a new government not to implement all the promises made during an election campaign.

"We have to wait and see what are the government strategies and evidence of policy implementation," said Colquhoun, in response to a question when the agency would consider upgrading or downgrading the credit rating.

He also pointed out that although the country had relatively low public debt, it also had low revenue. Thailand's weaknesses include underdeveloped human resources, reflected in low average income. Gross domestic product per capita is only US$4,700 (Bt141,000), compared with an average of $9,300 for countries grouped in credit rating "BBB".

At the same conference, Bank of Thailand Governor Prasarn Trairatvorakul said he remained cautiously optimistic on the performance of Asian economies for the rest of this year though the advanced economies are slowing down.

Prasarn said the central bank remained vigilant on inflationary pressure. "With many uncertainties ahead, it is wise to keep the inflation rate low to ensure that the economy remains competitive and to minimise pockets of instability."

He also expressed concern about the possibility of overspending by the new government.

"Public spending should be done with special care. At this juncture, the need to increase consumption is less urgent," Prasarn said.

He suggested that fiscal focus should be put on public investment to expand potential output.

"Therefore, the stimulus should be prioritised and carefully planned to leave some policy space for future needs," he said.

At a separate event, Thirachai said the government might run a deficit for the next fiscal year of more than Bt350 billion. He did not reveal exact figures but said he needed to discuss the matter with Deputy Prime Minister Kittirat Na-Ranong first. Kittirat is also commerce minister.

In the previous government, the Finance Ministry, the BOT and the Budget Bureau had planned to cap the deficit at Bt350 billion for fiscal 2012, which runs from this October to September next year, as they wanted to ensure fiscal discipline.