Political risks could outweigh external effects on Thai economy, S&P expert says
Political risks, including the delay in completing the new constitution, could overshadow external risks facing Thailand, according to Kimeng Tan, senior director of sovereign and international public finance ratings, Asia-Pacific, of Standard & Poor's R
He made the remark on the sidelines of a seminar on Asean bond markets held yesterday in Bangkok by Tris Rating and S&P.
He said people knew there were some delays in the rewriting of the constitution and the longer the delay is, the greater is the risk that there will be some policy mistakes.
He added that if external environments were such that economic growth in Thailand continued to be very disappointing, then the desire for an elected government might grow stronger. In that case one might see the policy environment deteriorate because the military-led regime might try to offset some of this sentiment with policies that in the short run may be beneficial for the people, but in the long run may not help the economy.
He does not expect the external sector to be a big threat to Thailand. Even though this year exports are relatively disappointing, the US economy is recovering, and even if the European economy does not rebound, it is no longer falling as sharply as before.
The key risk outside Thailand is obviously China. If China’s growth were to slow very sharply, the implications for everyone, not just Thailand, will be quite significant.
"But we do not expect China to slow very sharply," he said, adding that the Chinese economy would continue to rebalance and slow down, but not at a speed that will cause disruption outside the country. It is believed that China has a very strong balance sheet financially and therefore will be able to offset some of the pressures on growth if necessary.
The long-term growth prospects for the Thai economy still depend on the domestic policy environment.
"We really need some long-term thinking coming out of the policy-makers to [ensure] that we see development in the country," he said.
When asked what Thailand can do to increase its credit rating, he said that in general sovereigns with high ratings tended to have policy environments that are reassuring to investors because they are transparent. They come with a great deal of predictability in the sense that any policy changes that could adversely affect investors tend to be well known in advance. So it does not come overnight.
So in this kind of policy setting, long-term investors are more comfortable putting their money in such economies, and even if adverse developments happen, they are less likely to pull out their money. And this is what supports market developments in these countries, which reduces the risks of abrupt stoppages of financing.
In the case of Thailand, the very frequent changes of governments could make some investors nervous. But long-term investors have been comfortable with many changes in Thailand.
Meanwhile yesterday, the Fiscal Policy Office (FPO) said it had maintained its target for this year’s economic growth at 3 per cent, while planning for the next economic review in October after the government’s stimulus measures.
FPO director-general Krisda Chinavicharana, who is also the Finance Ministry’s spokesman, said the office was sticking to its 2015 growth target for gross domestic product.
To achieve this target, the growth has to be 3 per cent for the latter half of this year. First-half growth was 2.9 per cent.
"We may revise the [growth estimate] next month. In the past two or three weeks, government [stimulus] measures have been launched," Krisda said.
If the export-growth target of minus-4 per cent is to be met this year, monthly export value must average US$18.9 billion (Bt688 billion).
In August, the Thai economy continued to be affected by the global economic slowdown, reflected by an eighth consecutive month of export contraction. Export value shrank 6.7 per cent in the month as the global economy, particularly in key trading countries, failed to recover. The only destinations where Thai exports expanded were CLMV (Cambodia, Laos, Myanmar and Vietnam) and China, with growth of 5.5 and 0.4 per cent respectively.
August’s private consumption signalled a slowdown from a 2.4-per-cent shrinkage of collections of value-added tax at constant prices, a 5.9-per-cent contraction of VAT on imports at constant prices and a 0.2-per-cent contraction of VAT on domestic spending at constant prices.
Domestic consumption of durable goods also slowed down, with contractions of 6.4 per cent and 24.0 per cent for sales of motorcycles and passenger cars respectively. However, imports of consumer goods expanded by 10.4 per cent in August.
The Consumer Confidence Index on the overall economy continued falling to 61.5 in August on concerns over the economic situation, low crop prices, and unimproved purchasing power on the back of drought.
Private investment continued rising, reflecting from an increase in property-tax collection by 8.4 per cent and a 0.9-per-cent rise in commercial vehicle sales’ turnaround.
In the month, government spending and tourism drove the economy. Government budget disbursement climbed 12.2 per cent year on year to Bt148.2 billion.
The number of foreign tourists arriving in August jumped by 25.1 per cent, mostly from East Asia and Asean. In the August 1-17 period, the number of foreign tourists soared 32.9 per cent. In the period after the Bangkok bomb blast on August 17, the figure plunged to a 7.7-per-cent rise for the remainder of the month.
However, Krisda was confident that tourism revenue would achieve the 2015 target of Bt1.4 trillion. So far, tourism revenue has totalled Bt1 trillion.
