Moody’s names Thailand among most resilient emerging markets

Moody’s Ratings has released its latest analytical article, saying several large emerging markets, including Thailand, have become better able to withstand global economic shocks over the past five years without suffering a sharp jump in risk premiums or losing market access, as seen in previous crises.

Thailand was cited as one of five large emerging-market economies — alongside Malaysia, India, Indonesia and Mexico — that have shown greater resilience to global shocks over the past five years, despite facing the Covid-19 crisis, the global interest-rate tightening cycle, banking-sector stress and trade tensions.

Policy reforms help emerging markets absorb shocks

The rating agency explained that many emerging economies have continued to face volatility in bond yields and exchange rates in line with the global interest-rate cycle. However, credit risk spreads, or risk premiums, have not surged as severely as in past crises. This reflected continued market confidence in the policy frameworks and macroeconomic management capacity of these countries.

The report divided emerging economies into three broad groups: highly resilient, conditionally resilient and vulnerable. India, Thailand, Malaysia, Indonesia and Mexico were placed in the best-performing group, supported by early policy reforms, particularly in inflation-targeting frameworks, exchange-rate flexibility, debt management and the development of local-currency financial markets.

These factors have allowed the countries to absorb shocks through market mechanisms without the pressure escalating into a credit or funding crisis.

Moody’s said the performance of the five emerging markets was reflected in four key market indicators: volatility in sovereign bond risk spreads; volatility in bond-yield differentials against the United States; exchange-rate depreciation; and volatility in local-currency bond yields.

By contrast, Turkey, Argentina and Nigeria were placed among the most vulnerable economies, facing high market pressure due to policy constraints, inflation and external risks.

Thailand among top five on early reforms and strong buffers

Moody’s cited Thailand and India as examples of countries with “structural resilience”, placing them among the economies seen as best prepared to deal with future global shocks.

A key factor was the early implementation of important policies that supported stability before later volatility emerged. These countries also benefited from clear and predictable monetary policy frameworks, inflation remaining within expected ranges, and exchange rates that could adjust flexibly to market conditions.

This flexibility helped reduce the risk that currency volatility would spill over into prolonged inflationary pressure or force abrupt policy changes.

Both countries also stood out for having strong and accessible buffers. India relies on domestic funding sources, supported by deep domestic markets and large reserves, while Thailand benefits from external strength, backed by a solid long-term balance-of-payments position and low external debt.

However, Moody’s warned that India’s relatively high debt burden and weak fiscal balance limited its room to respond to continued shocks. For Thailand, the rising debt burden risks weakening the country’s ability to withstand crises over the longer term.