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Outlook on Thailand revised from ‘positive’ to ‘stable’

Apr 13. 2020
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S&P Global Ratings revised its outlook on Thailand to stable from positive on Monday (April 13).

At the same time, it affirmed “BBB+” long-term and “A-2” short-term foreign currency sovereign credit ratings, and “A-” long-term and “A-2” short-term local currency rating on Thailand. However, the country’s transfer and convertibility assessment remains “A”.


The stable outlook reflects its view that the Covid-19 induced economic uncertainty and subsequent state of emergency could delay the political transitions expected under the civilian government over the next 12 months.

It may raise the ratings if there is greater certainty about the evolution of the multi-party parliamentary system in line with arrangements set out in the Constitution. Over time, it expects this to increase the responsiveness of the political system in addressing social demands and help to resolve longstanding political uncertainty in the country.

S&P may lower the ratings if the economic recovery is persistently slower and weaker than what it is forecasting. This could increase the pressure on the current policymaking process and raise the likelihood of abrupt political changes.


S&P’s ratings on Thailand are supported by the country's strong credit metrics built over the years, including a solid external balance sheet and liquidity, moderate net general government debt and a record of orthodox monetary and fiscal policies.

These strengths are in contrast to the country's low income levels and longstanding uncertainty about its political stability and socioeconomic fissures.

The expected evolution of the parliamentary system following the expiry of transitory arrangements in the Constitution would help to lift this uncertainty, as the political system becomes more responsive to societal demands.

However, this evolution could be delayed under the Covid-19 state of emergency, as the government draws on extraordinary powers under the Emergency Decree.

Environmental, Social, and Governance (ESG) credit factors for this credit rating change:

• Health and safety factors

Institutional and economic profile: Economy poised for severe contraction this year amid Covid-19 pandemic.

• Thailand's service-oriented economy is likely to suffer the brunt of travel disruptions.

• Political uncertainty has risen after the government imposed a state of emergency.

• Current political arrangement will likely be tested by the coronavirus outbreak and economic downturn.

The unpredictable developments in the Covid-19 pandemic and Thailand's invoking of emergency powers have increased political uncertainty, S&P believes.

Official statistics show an exponential rise in the country's number of Covid-19 cases starting from mid-March, which prompted the government to issue an Emergency Decree from March 26 to impose travel restrictions both to Thailand and within the country.

These restrictions, in line with tightening controls in the rest of the world, are intended to help strengthen the government's responses to the pandemic. In addition to restricting movements, the 2005 Emergency Decree also empowers the prime minister to take control of the government and strictly enforce restrictions.

The elections in March 2019 paved the way for political transitions toward an elected government that is expected to evolve to be more responsive to social demands.

However, a severe economic fallout, coupled with the sweeping powers accorded by the Emergency Decree, can potentially disrupt progress toward putting in place political structures and policies to alleviate deep-rooted socioeconomic fissures across the country. These structural issues had been the source of political upheavals in the past.

The increased uncertainty of political transitions envisaged under the civilian government toward greater political participation has slowed improvement in Thailand's political stability in the next 12 months, S&P says.

The pandemic has also drastically changed the economic, fiscal and political scenarios for Thailand in the near term.

S&P now expects Thailand's economy to enter a recession in 2020 as the pandemic brings economic activities around the world to a standstill. This has weighed heavily on Thailand's external-oriented sectors.

Tourist arrivals have plummeted and trade has suffered from lockdowns in major trading partners and disruptions to global supply chains. Tightening travel restrictions and the rising public health threat from the virus are likely to depress domestic demand as households cut back on discretionary spending and businesses shutter or postpone investment.

S&P expects Thailand's GDP to contract by 2.5 per cent in 2020 before rebounding by 7.6 per cent in 2021 if the Covid-19 outbreak can be successfully contained within this year.

GDP per capita is forecast to reach US$7,400 (Bt242,176) under these assumptions, while its estimate of trend growth, as measured by the 10-year weighted average per capita GDP, is likely to come in at 2.8 per cent, in line with peers at the same income level.

However, these economic projections are still subject to considerable uncertainty, chiefly over the capacity of the healthcare system and the speed and effectiveness of governments in containing the virus. These could result in a slower and shallower economic recovery than what is being forecast.

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government agencies estimate the pandemic will peak about midyear, and S&P is using this assumption in assessing the economic and credit implications. It believes the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates at As the situation evolves, the assumptions and estimates will be updated accordingly.

Flexibility and performance profile: Massive fiscal stimulus will worsen fiscal position temporarily and increase government debt.

• Covid-19 related stimulus is likely to widen fiscal deficit temporarily, but fiscal performance is not expected to worsen structurally.

• Net government debt and interest payments are expected to increase due to new borrowings to fund the deficit.

• External metrics are likely to remain strong as the country's maintains its net asset position.

S&P projects Thailand's fiscal position will deteriorate sharply in fiscal years 2020 (ending September 30, 2020) and 2021, following three successive rounds of stimulus measures, as the economy moves into a Covid-19 induced recession. The budget will improve substantially in fiscal 2022, after the economy begins to recover.

The government has announced a cumulative Bt2.4 trillion in stimulus measures to counter the economic impact of the contagion. Many of the measures are not funded directly out of the budget.

These include soft loans extended by Specialised Financial Institutions and the Social Security Office to individuals and small and mid-size enterprises, as well as credit lines and corporate bond purchases supported by the Bank of Thailand.

However, S&P still forecasts some budgetary impact due to a projected Bt600 billion in cash handouts to temporary and contract workers, mostly in the informal sector, and revenue headwinds from much weaker economic activity as well as various tax deductions and fee waivers included in the stimulus packages.

S&P expects the change in net general government debt in fiscals 2020 and 2021 to average 5.8 per cent of the GDP. This is projected to increase net general government debt to 34 per cent of GDP in 2021, from 24 per cent in 2019.

However, beyond fiscal 2021, S&P expects to see a substantial narrowing of the fiscal deficit as the one-off stimulus measures phase out and economic activity picks up.

The focus of government spending will likely shift back toward priorities under the national reform and strategy plans. These include projects in the Eastern Economic Corridor (EEC), as well as the transport infrastructure under the government's master plan. However, it expects the bulk of infrastructure investment to be undertaken by state enterprises, as well as public-private partnerships. This will limit the government's fiscal exposure in line with the Fiscal Responsibility Act.

S&P believes Thailand's strong external balance sheet and liquidity will continue to underpin the rating. The country has posted many years of current account surpluses, supporting an associated rise in foreign exchange reserves and external assets. There is substantial downside risk on the current account this year due to extremely weak external demand, both for goods and services. Hence, even if Thailand posts a current account surplus this year, it is likely to be marginal. However, due to the country's large stock of external assets, S&P does not believe a temporary deterioration in external conditions over the next one or two years will be sufficient to reverse Thailand's strong external position.

S&P forecasts Thailand's external liquidity indicators to remain mostly stable over the next two to three years. Gross external financing needs are likely to stay at about 68 per cent of current account receipts plus usable reserves over 2020-2023. On a narrow net external debt basis, S&P forecast Thailand to be in a net asset position of about 22 per cent of current account receipts in 2020.

S&P views the Bank of Thailand's record of monetary policymaking and maintaining price stability as important strengths supporting Thailand's sovereign credit profile.

The country's inflation has been muted, averaging 1.4 per cent over 2009-2019, a period of political turmoil. The Bank of Thailand utilises a sizable foreign exchange forward facility to manage liquidity. Because this is a foreign currency asset position for the central bank, S&P reflects this in its data via a positive adjustment to the central bank's usable reserves position. Credit growth has been moderate over recent years and the size of total banking sector assets relative to GDP has stabilised since 2014. S&P views the banking sector's contingent liability to the government as limited.

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