Shifts in regional competitiveness reflected in lower FDI share for Thailand: Moody's

Moody’s sovereign credit ratings range from “C” to “Aaa”, and the Philippines improved from a “Ba2” rating in 2005 to “Baa2” last year, while Indonesia moved up from “Ba1” to “Baa3” in the same period. 

“Thailand itself may not be deteriorating in a sense, but there has been a relative loss of positioning, which reflects in our ratings,” said Christian de Guzman, vice president and senior analyst of Moody’s sovereign risk group. “In 2003, both Indonesia and the Philippines were six, seven notches below that of Thailand, and now you are in the situation where the Philippines is now only one notch below and Indonesia is two notches below.

“When you look at the fiscal manifestation of that loss of competitiveness, you can look at FDI,” he said. 

Forty per cent of FDI coming to Asean (excluding Singapore) in 2004 belonged to Thailand, but the country’s share had dropped to 20 per cent by the end of last year, he noted.

Gene Fang, Moody’s associate managing director of the financial institutions group, |said the Thai banking sector had remained |stable despite a challenging environment, but there were concerns over the high level of household debt and a lack of liquidity in the retail |sector.

Moody’s expects the Kingdom’s gross domestic product to rebound from a very low base last year to an expansion rate of 3 per cent in 2015, but this rate of growth is still lower than Asean’s median of 5 per cent.

The rating company also believes that the lack of fiscal impulse, coupled with fiscal ineffectiveness, is weighing on the growth of many countries in the region, including Thailand.

“We have some concern over sectors of the economy that have been exposed to a low-growth environment for a while, and which are relatively vulnerable. 

The retail sector in general is more leveraged in Thailand than in some of the other countries that we cover in the region,” said Fang.

“Thailand’s household debt is topping out or plateauing to some degree, but we think that the continued spell of weak macroeconomic growth is going to put continuous pressure on some borrowers.” 

Fang said that if the Thai growth situation did not pick up, a lot of small enterprises would come under increased pressure and the level of non-performing loans (NPLs) related to those borrowers was going to increase.

There is already some sign of an increase in special-mention loans that he believes is related to small and medium-sized enterprises. 

Meanwhile, a slowdown in domestic consumption caused by a high level of household debt and political uncertainty has contributed to a lack of confidence in the private sector, and the rating company has identified increased public spending as the key to Thailand’s economic growth both this year and next.

“The fiscal deficit has remained narrow in Thailand, and that is partially an inability to really spend money. 

But this is not something that is particular to Thailand at the moment, since we are seeing it across the region,” de Guzman said.

“Even though governments in these countries have made a very strong emphasis on developing infrastructure, there seems to be an underlying capacity issue in each of the countries.” 

He said political uncertainty was weighing on the government’s capacity and willingness to spend.

Moreover, how the military government handles things with a top-down approach is also limiting its ability to spend, as the junta’s approach is somewhat different from what civil servants are familiar with, he added.