Fitch: Governance Still Key to Keeping Thailand's Outlook Stable

 

Fitch's Thomas Rookmaaker says Thailand's governance edge over regional peers has faded, even as political predictability and the debt outlook improve.
 

Governance remains a critical factor in maintaining Thailand's stable credit outlook, according to Thomas Rookmaaker, Fitch Ratings’ Head of Asia-Pacific Sovereigns.

 

Speaking after the agency's Global Risks and Regional Economic and Bank Outlook briefing on 30 September, Rookmaaker noted that while Thailand once scored considerably higher on governance than its regional peers, that advantage has eroded.

 

"Compared to peers, it used to be stronger," he said. "But now it's more in line with regional peers."

 

Data presented during the briefing illustrates this shift.

 

World Bank-based governance indicators, converted by Fitch into percentile ranks, placed Thailand near the 60th percentile in the late 1990s—well above most neighbouring economies.

 

However, that figure has since fallen into the low 40s. Malaysia now outpaces Thailand significantly, while Indonesia, the Philippines, India, and Vietnam cluster around comparable levels.

 

Compared to the median for 'BBB'-rated sovereigns, Thailand's primary vulnerability is political stability, where it trails substantially. It also lags behind on the control of corruption as well as voice and accountability, though its scores for government effectiveness and regulatory quality remain close to the benchmark median.

 

However, Rookmaaker was cautious not to overstate the implications of these disparities. "I'm not in a position to say that Thailand needs to improve anything," he stressed, clarifying that regulatory restrictions prevent Fitch from providing direct policy advice.

 

 

He noted that governance scores across Asia-Pacific are generally low compared with other regions.

 

"In that sense there's some upside potential in case governance were to be improved," he said.

 

 

Political predictability improves

Fitch has taken a more positive view of political conditions since the February election.

 

Rookmaaker said the agency believes policy predictability has increased for the medium term.

 

He said Thailand's low score on political stability reflects, in part, the fact that it had "a new government basically every year". If a single government completes, or largely completes, its term, that would probably help lift the indicator, he said.

 

The point matters to the rating as well as to the governance scores.

 

"If you have the same government in place, it also gives the ability to pursue these policies, including fiscal consolidation," Rookmaaker said. "So it also makes the medium-term fiscal framework more credible."

 

Fitch's presentation makes the same link. It says the coalition government "seems to have a stronger grip on power than its recent predecessors", which puts it in a better position to implement medium-term policies.

 

 

Outlook revised to Stable

Fitch has revised the outlook on Thailand's 'BBB+' rating to Stable from Negative and affirmed the rating.

 

It cites three reasons: government debt should stabilise, growth linked to artificial intelligence (AI) investment offsets the global energy shock, and political uncertainty has eased.

 

Rookmaaker said the agency's focus is the ratio of general government debt to gross domestic product (GDP), and whether it stabilises.

 

Fitch expects the ratio to rise slightly, peak soon and then flatten.

 

Its charts show Thailand's debt at about 60% of GDP, edging to just above 62% by 2028.

 

Stabilisation requires both fiscal consolidation and solid medium-term growth, he said, so the two are closely linked.

 

"If growth disappoints over the medium term, that also has an impact on the public finances," he said.

 

The government's medium-term fiscal framework envisages gradual consolidation over the next few years.

 

Rookmaaker noted that it includes some difficult measures, among them two increases in value-added tax (VAT), "which may be challenging".

 

He said there is "a little bit of space" as debt is still expected to rise, but the government "doesn't have that much room" under its fiscal policy rules.

 

Rookmaaker's presentation shows Thailand's general government deficit at about 3.2% of GDP in 2026, close to the 'BBB' median, narrowing gradually to around 2.5% by 2028.

 

He describe Thailand's public finances as weakening, though it also lists lower financing costs as a strength.

 

Government interest payments are about 5% of revenue, compared with a 'BBB' median of about 9%, and public foreign-currency debt is negligible.

 

 

Growth lags peers

Growth is a weak point. Fitch expects Thailand's GDP to grow about 2.3% in 2026, and 2.2% and 2.5% in 2027 and 2028, only slightly above the 'BBB' median of around 2% this year.

 

Regional peers such as Malaysia, Indonesia, the Philippines, Vietnam and India are forecast to grow much faster.

 

Thailand's GDP per capita is projected at about US$8,800 in 2026, well below the 'BBB' median of about US$20,000. The report says growth is holding up despite the global energy shock.

 

Investment applications submitted to Thailand's Board of Investment surged through 2025, with digital-sector applications prominent, and approved data-centre investment has risen sharply. Tourist arrivals, however, are down, and Fitch says the Iran war has affected Thailand mainly through tourism and inflation.

 

Thailand's external position offsets some of these concerns.

 

Fitch's qualitative overlay adds one notch for external finances, lifting the 'BBB' score from its sovereign rating model to 'BBB+'. Thailand is a large net external creditor, with net external assets of about 44% of GDP, and its foreign-exchange reserves are equal to about 11–12 months of current external payments.

 

 

What could move the rating

Fitch set out what could move the rating in either direction. A failure to stabilise government debt close to current levels, for example through insufficient deficit reduction, could lead to a Negative Outlook.

 

A further substantial rise in debt could then lead to a downgrade. A deterioration in medium-term growth prospects could also weigh on the rating, for instance from continued weak tourism receipts, decelerating investment momentum or persistent deflationary pressures.

 

On the upside, confidence that debt-to-GDP will fall significantly over the medium term could be positive, as could a material improvement in growth prospects without a significant rise in non-financial private-sector debt.

 

Asked whether recent floods and other disasters would affect the assessment, Rookmaaker said it was difficult to gauge.

 

"We don't know what the impact will be in terms of fiscal spending, or on growth at the moment," he said.

 

Fitch normally looks through temporary events, he added, but an event with a structural impact on spending or growth would matter for the rating.

 

 

Regional and global backdrop

Fitch's wider presentation said Asia-Pacific has been more resilient than expected to the global energy shock, helped by strong AI-related exports.

 

It said some sovereigns remain vulnerable, and that fiscal support and rising bond yields could delay consolidation across the region.

 

Fitch forecasts oil prices will average US$87 a barrel in 2026. It said world growth is holding up well in the face of the energy price shock, though the global monetary policy outlook has shifted after a change in the Federal Reserve's leadership and global bond yields have moved higher.