Recent losses and any future losses from the unmodified rice buying scheme will increase the difficulty of the Thai government's task of reaching its goal of a balanced budget by 2017, and are credit negative for the Thai sovereign, warned Moody's Inves
The rating company based its comment on the reports that losses from Thailand’s rice buying scheme in the harvest season 2011-12 are bigger than the Ministry of Finance originally forecast.
Thailand, rated "Baa1" with stable outlook, is hopeful to win a credit upgrade, to resume the"A" rating once assigned before the financial crisis in 1997.
In a statement, Moody's said that on the implied losses of Bt200 billion in the harvest year, it is much higher than World Bank's estimate of Bt115 billion and the Finance Ministry's forecast loss of Bt70-Bt100 billion.
The major sovereign credit implications of the continuation of the program and its associated costs lie in the government’s fiscal accounts. Previous estimates of losses for the 2011-12 harvest year were equal to 1.0 per cent of gross domestic product, but the current estimate brings the cost up to 1.7 per cent of GDP or 7.8 per cent of total expenditures in 2012.
The overall budget deficit for the fiscal year ended September 2012 reached 4.1 per cent of GDP, revised slightly downward from 3.9 per cent because of a larger-than-expected non-budgetary cash deficit.
"While financing of Thailand’s budget deficits is supported by the country’s deep onshore capital markets, the growing losses from the rice buying scheme and the potential need for additional government funding resulting from the continuation of the scheme increasingly jeopardise a reduced deficit, which we previously forecast will be 3.1 per cent of GDP in fiscal 2013. In addition, this makes achieving a balanced budget by 2017 more challenging."