Thailand's rating can withstand ill effects: S&P
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The rice-pledging scheme highlights a short-sighted and politically driven approach to policy-making in Thailand, according to Standard & Poor's Rating Services.
However, the project on its own will not have any significant impact on the credit quality of the sovereign, the ratings agency said yesterday.
The programme committed the government to buying farmers’ crops at significantly higher prices than in the international market.
It has led to mounting fiscal losses, accumulating rice stockpiles that Thailand has struggled to sell and Prime Minister Yingluck Shinawatra being charged with dereliction of duty on account of losses and alleged corruption associated with the scheme.
The full amount of realised losses will accrue over time as the stockpiles are sold.
The support scheme now has built-in limits. In its original open-ended form, it exposed the government to large losses from buying the country’s rice crop at a guaranteed price.
The version starting this fiscal year, however, caps losses by limiting the amount of support per farming household.
Implementation is also stalled because of the political stalemate, and the future course of the programme will depend on resolution of the impasse and the make-up of the next government.
S&P does not expect to lower the sovereign rating – foreign currency “BBB+/Stable/A-2”; local currency “A-/Stable/A-2”; “axAA/axA-1” – because of the fiscal cost of the rice subsidy project.
“Thailand’s fiscal and debt metrics can accommodate the likely losses from the rice-pledging scheme, and will remain comfortably in the ranges commensurate with the current rating,” credit analyst Agost Benard said yesterday.
“In our base-case scenario, we project general government fiscal deficits to average 0.7 per cent of GDP in 2013-16. We expect general government debt as a percentage of GDP to rise by an average of 3 per cent annually over this period. As a result, we project net general government debt to reach a still-moderate 25 per cent of GDP.”
However, the ratings could come under pressure if policy-making weakens further, such that Thailand’s institutional and governance effectiveness are no longer commensurate with the existing rating.
“We believe that Thailand’s institutional and governance effectiveness will remain a weak credit factor, with no potential for improvement over the next 12-24 months.”
