Thailand faces challenge to sustain credit rating: Fitch

Andrew Colquhoun, head of Asia-Pacific sovereigns, said the rating company believed the Kingdom’s sovereign outlook remained "stable" for the next two to three years, thanks to strong public finances, macroeconomics and external factors.

However, Thailand’s level of development lags behind its "BBB" peers, despite its credit rating of "BBB+", because gross domestic product per capita is lower than a "BBB" median rating, while private-sector credit to GDP is higher than a "BBB" median rating, he said.

GDP per capita in Thailand is below US$10,000 (Bt312,250), which is lower than the level for a "BBB" rating and akin to that for "BB"-rated countries, he added.

The private-debt-to-GDP level of a "BBB"-median rating country is 50 per cent, but Thailand’s level has climbed to 148 per cent, which will be more sensitive for the country’s sovereign rating ahead of a global economic recession, Colquhoun said at Fitch Ratings (Thailand)’s "Major Global Economies and Thailand’s Outlook" seminar.

Fitch upgraded Thailand’s credit rating to "BBB+" from "BBB" with "stable" outlook in March, based on the country’s faster growth than its rating peers despite the major impact of the flooding in 2011.

Thailand has strong reserves and moderate public debt, which could provide a considerable buffer, and the economy has not been afflicted with the kind of global economic volatility experienced by Indonesia or India, he said.

Colquhoun said the reduction of current-account surplus, low interest rates and rising fiscal deficits, coupled with high private-sector debt, were outliers among emerging Asian economies that could still prove to be sources of weakness.

As to the government’s Bt2-trillion infrastructure budget, the Asia-Pacific Sovereigns head said Thailand should not rely solely on public spending to spur economic growth, as private investment still had a role to play.

Fitch considers the efficient spending of Bt2 trillion to be a focus issue, because it does not yet have a clear picture of budgetary withdrawal, he added.

Moreover, a weakening of the policy-making framework and signs of overheating without corrective policy action could trigger a downgrade for Thailand, he warned.

Fitch recently cut its forecast for Thai GDP growth this year to 3.5 per cent, from the previous estimate of 4.5 per cent.

Mark Young, Fitch’s head of Asia-Pacific financial unstitutions, said a risk for Thailand and the region was a rapid build-up of credit and whether this would lead to significantly bad debt when economic conditions became more challenging.

For Thailand, one of the concerns relates to the surge in household debt since 2010, which partly results from the government’s first-car scheme, he said.

Even though Fitch expects overall loan growth will decline in the short term, lending will still expand at state-owned banks and private savings cooperatives, which are more susceptible to credit losses because of their lower-income borrowers, he added.