High government financial strength supports Thailand's Baa1 rating: Moody's

After 6.4 per cent growth in 2012, Moody's expects real GDP growth of 5 per cent in 2013 and 2014 for Thailand, supported by robust private consumption and investment, whereas export recovery will likely remain more subdued owing to the still fragile external demand and the rapid strengthening of the Thai baht, which is up more than 6 per cent versus the US dollar since the beginning of the year.

In the credit analysis released today, the rating agency said that the government's high financial strength is primarily derived from a relatively low government debt burden that is amply financed by deep onshore capital markets. Although Thailand's revenue generating is the weakest among its peers - those with ratings from "A3" to "Baa2",  adherence to implicit fiscal rules has ensured that deficits have been largely contained.

"Fiscal discipline has been tested by successive crises, but fiscal and debt ratios continue to be in line with rating peers, even when factoring in negative repercussions from populist fiscal policies. Thailand has a robust external payments position which has enabled favourable financing conditions for the government and the economy at large," it noted.

Moody's does not anticipate a material deterioration in Thailand's fiscal metrics in 2013-14, populist measures pose a risk to fiscal discipline and increased off-budget financing impairs transparency. The country continues to enjoy a low degree of external liquidity constraints, owing to its strong external payments position, despite a pick-up in the external debt-to-GDP ratio in 2012. 

With nominal GDP of US$366 billion in 2012, Thailand is the 29th largest economy in Moody's rated universe, the ninth-largest among Baa-rated sovereigns, and the second largest in ASEAN, after Indonesia.

Its large and diversified economy, characterised by strengths in moderate value-added manufacturing, tourism, and agricultural exports, has recovered from the cyclical shock caused by flooding in the second half of 2011.

The country also demonstrates moderate levels of institutional strength. Although tensions and polarisation have continued to affect Thailand's political system since the 2006 coup, the country's core economic institutions have helped to maintain macroeconomic stability and a competitive investment climate.

Finally, Thailand's susceptibility to event risk is shown to be low to moderate, balancing prominent political risks against resilient economic and financial fundamentals.

The sound banking system helps to mitigate financial event risks. Since 2008, banks' balance sheets have only been indirectly affected by the global financial crisis and the sovereign debt crisis in Europe. Similarly, the 2011 floods had only a very muted impact on the Thai banking system.