Fitch: coalition stability to decide Thailand’s credit outlook

Fitch Ratings is closely monitoring Thailand’s government-formation process, saying that a Bhumjaithai-led administration could help reduce the risk of political paralysis. However, it cautioned that negotiations within a coalition government could affect the medium-term fiscal framework (MTFF) and slow fiscal consolidation, stressing that economic stability will be a decisive factor for Thailand’s sovereign credit rating after Fitch revised the outlook to “negative” in late 2025.

In a report published on 10 February 2026, Fitch said its assessment of Thailand’s latest election results suggested continuity in some policies from the caretaker government led by Bhumjaithai. While political uncertainty will persist until a new coalition is finalised, the most important factor shaping Thailand’s sovereign rating going forward will be the new government’s economic and fiscal policy.

Fitch expects Bhumjaithai and its allies to be able to form a coalition successfully, which it says would reduce the risk of post-election disruption. It noted that an increased number of parliamentary seats for Bhumjaithai and potential partners could result in a more stable government than in the past.

Even so, Fitch said coalition stability would determine whether Thailand can reduce entrenched political uncertainty and deliver predictable fiscal policy. It pointed to Thailand’s long history of political unrest, noting that since the May 2023 election the country has seen three prime ministers and three acting prime ministers.

A key concern, Fitch said, is that bargaining among political parties within a coalition could delay fiscal consolidation and significantly alter the MTFF.

Fitch said it is watching whether the new government will prioritise structural reforms or focus mainly on short-term stimulus measures, such as:
• the “Khon La Khrueng” co-payment scheme, estimated to cost about 0.8% of GDP;
• support for SMEs and measures to address household debt.

While such policies may boost demand in the short term, Fitch warned that without appropriate offsets, additional spending to deliver coalition policies could make it harder to reduce the budget deficit.

Under the current MTFF, Thailand aims to cut the fiscal deficit from 4.4% in fiscal year 2026 to 2.1% by fiscal year 2030, with public debt expected to peak in 2028.

However, Fitch said the plan rests on assumptions that are “politically difficult” to implement—particularly a phased VAT increase, raising VAT to 8.5% in fiscal year 2028 and to 10% in fiscal year 2030.

Fitch recalled that in September 2025 it revised Thailand’s outlook to “negative” due to a weakening fiscal position, adding that the government’s ability to stabilise the public-debt-to-GDP ratio is therefore critical.

Ultimately, Fitch warned that if the government cannot reduce the deficit in line with its targets, it could undermine confidence and lead to a sovereign rating downgrade. In the near term, it said a key issue will be whether the government can align economic support measures with a credible deficit-reduction path.