Fitch closely monitors Thailand's fiscal policy
The Thai government's response remains an important factor in Fitch Ratings' assessment of the country's rating, rather than the economic growth.
"Pre and post-flood fiscal loosening could narrow the fiscal buffers that the Thai sovereign can deploy against future shocks. As such, we will continue to monitor Thailand's fiscal policy closely," Fitch Ratings said in a statement.
It noted that targeted reconstruction spending following the floods, by both the government and private sector, could boost full-year economic growth in 2012 and could strengthen the Thai economy's supply potential as well as the sovereign credit profile over the longer term. Fiscal stimulus could help also offset any weakening in the global economy.
Fitch Ratings projects 4 per cent growth for Thailand this year, against 5.5-6.5 per cent forecast by Thailand's National Economic and Social Development Board.
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Its concerns lie in the government's various pro-growth policy measures, including an increase to the minimum wage and spending on infrastructure development, prior to the flooding. Earlier reports showed that the budget deficit in the 2013 fiscal year could reach Bt400 billion (3.7 per cent of GDP), from Bt350 billion (3.3 per cent of GDP) in 2012.
In 2009, Fitch Ratings lowered Thailand's Long-Term Foreign Currency IDR to 'BBB' due to political risk. It noted that now, fiscal policy remains an important ratings driver and will be monitored closely.
Fitch Ratings' statement was issued the same day when the government approved the budget deficit of Bt300 billion for the 2013 fiscal year.
