High Government Financial Strength Supports Thailand's Baa1 Rating, Says Moody's

A high degree of government financial strength, moderate levels of economic and institutional strength, and low to moderate susceptibility to event risk continue to support Thailand's Baa1 local and foreign currency bond ratings, according to Moody's Investors Service.


The ratings outlook is stable.


The government's high financial strength is primarily derived from a relatively low government debt burden that is amply financed by deep onshore capital markets.


Although revenue mobilisation is the weakest amongst its peers in its methodological rating range of A3-Baa2, adherence to implicit fiscal rules has ensured that deficits have been largely contained.


While Moody's does not anticipate a material deterioration in Thailand's fiscal metrics in 2013-14, populist measures pose a risk to fiscal discipline and increased off-budget financing impairs transparency.


The country continues to enjoy a low degree of external liquidity constraints, owing to its strong external payments position, despite a pick-up in the external debt-to-GDP ratio in 2012.


In terms of economic strength, the country recorded nominal GDP of US$366 billion in 2012, making it the 29th largest economy in Moody's rated universe, the ninth-largest among Baa-rated sovereigns, and the second largest in ASEAN, after Indonesia.


It also recorded 6.4% real GDP growth in 2012, which was one of the strongest performances in the region. Quarterly growth in 2012 rose from 0.4% year-on-year in the first quarter to 18.9% in the fourth quarter, and was the strongest on record, driven by post-flood reconstruction but also strengthened private consumption.


Its large and diversified economy, characterised by strengths in moderate value-added manufacturing, tourism, and agricultural exports, has recovered from the cyclical shock caused by flooding in the second half of 2011.


Moody's expects real GDP growth of 5% in 2013 and 2014, supported by robust private consumption and investment, whereas export recovery will likely remain more subdued owing to the still fragile external demand and the rapid strengthening of the Thai baht, which is up more than 6% versus the US dollar since the beginning of the year.


The country also demonstrates moderate levels of institutional strength.


Although tensions and polarisation have continued to affect Thailand's political system since the 2006 coup, the country's core economic institutions have helped to maintain macroeconomic stability and a competitive investment climate.


Fiscal discipline has been tested by successive crises, but fiscal and debt ratios continue to be in line with rating peers, even when factoring in negative repercussions from populist fiscal policies.


Thailand has a robust external payments position which has enabled favorable financing conditions for the government and the economy at large.


Finally, Thailand's susceptibility to event risk is shown to be low to moderate, balancing prominent political risks against resilient economic and financial fundamentals. The sound banking system helps to mitigate financial event risks; the average bank financial strength rating for Thai banks rated by Moody's is  D+, above the global universe of D.

Since 2008, banks' balance sheets have only been indirectly affected by the global financial crisis and the sovereign debt crisis in Europe.


Similarly, the 2011 floods had only a very muted impact on the Thai banking system.


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