Thailand unrest highlights political fissures: Fitch
Fitch Ratings has warned Thailand's political volatility would take a major impact on growth or investor confidence to trigger negative rating action.
In a statement released on November 26, the rating agency added that it does not expect the volatility to happen.
"Thailand's political instability has once again come into the limelight with the recent takeover of some ministerial offices by anti-government demonstrators. But widespread disturbances, especially in and around Bangkok, have become an ongoing feature of the political landscape since 2006 without gravely threatening underlying economic or financial stability, says Fitch Ratings," it said in the statement.
It also praised Thailand for the strong growth fundamentals which withstood recurrent political and political shocks. During 2008-2012, the Thai economy has expanded around 3 per cent per annum on average, higher than 2.6 per cent in countries that are also rated "BBB".
Financial fundamentals have also remained resilient. Previous episodes of political upheavals in recent years did not result in discernible outflows of domestic- or foreign-owned capital. Nor did they widen sovereign credit spreads to the extent of hurting government debt dynamics.
"All of this does not imply that the credit profile is unassailable. Fitch believes political instability has retarded progress on infrastructure development - and thereby constrained Thailand's growth and inhibited convergence with its higher-income peers."
It added that political noise could increase investor skittishness as the US Fed's tapering of Quantitative Easing draws closer (even if the timing remains uncertain). Amid the recent emergence of a small current account deficit, Thailand has a combination of above-trend (although slowing) activity, near-zero real interest rates and an anticipated rise in its budget deficit.
The combination of rising financing requirements amid an unsettled political environment and an onset of Fed tapering could thus place potentially greater strain on the sovereign's credit profile than currently anticipated. But the country's net external creditor position offers a significant buffer.
Fitch expects the recent political disturbances will dissipate in the run-up to the King's birthday on December 5.
"However, the upshot is that the recurrence of periodic bouts of political instability pressurises the sovereign credit profile to some degree, and constrains any prospect of uplift. But it remains difficult to conceive of an escalation in ongoing disturbances to a scale where they pose a clear and present danger to overall growth or financial stability."
