Fitch Ratings has affirmed Thailand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook.
- Fitch Ratings has affirmed Thailand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook, citing robust external finances and sound macroeconomic policy framework as strengths, but also highlighting weaker structural features and fiscal risks.
- Fitch forecasts Thailand’s GDP growth will accelerate to 3.8% in 2024 after a weaker expansion than expected of 2.8% in 2023, supported by a steady tourism recovery, strengthening merchandise exports, higher domestic demand from public spending, and supportive policy settings.
- The formation of a coalition government in Thailand reduces near-term political uncertainty, but balancing diverse forces could affect policymaking effectiveness and fiscal prudence, and some political uncertainty remains beyond 2024.
The ratings reflect Thailand’s robust external finances and sound macroeconomic policy framework, although it has weaker structural features compared to peers. Fitch forecasts Thailand’s GDP growth to accelerate to 3.8% in 2024, supported by a tourism recovery, merchandise export momentum, and higher domestic demand.
The formation of a coalition government is expected to reduce near-term political uncertainty. The new government’s expansionary budget proposal focuses on stimulating domestic demand, but there are concerns about the financing of spending pledges.
Public finances have deteriorated, with wider deficits and a higher debt ratio expected. However, Thailand’s resilient external position and access to deep domestic capital markets provide a buffer against risks. The household debt level remains high, posing potential challenges for banks.
The ESG Relevance Scores reflect political stability, rule of law, institutional quality, control of corruption, and human rights. Negative rating action could occur if public finances worsen or political disruptions impact economic policymaking. Positive rating action could result from improved growth prospects and declining government debt.
Key rating drivers
External Strengths, Structural Constraints
Thailand’s ratings reflect its robust external finances and sound macroeconomic policy framework, balanced against some weaker structural features compared with ‘BBB’ category peers, including lower per capita income and World Bank governance scores. Public finance metrics have deteriorated in the past few years, and are currently aligned with those of peers.
The financing of the new government’s spending pledges is currently uncertain, which poses a fiscal risk in the near term. Additionally, there is a medium-term risk associated with unfavorable demographics.
Growth to accelerate to 3.8% in 2024
Fitch forecasts Thailand’s GDP growth will accelerate to 3.8% in 2024 after a weaker expansion than expected of 2.8% in 2023. Fitch expect stronger growth will be bolstered by a steady tourism recovery, a gradual strengthening of merchandise export momentum, and higher domestic demand from stepped-up public spending and other supportive policy settings.
The new government has launched temporary visa exemptions for tourists from targeted source markets, such as China and India. A faster tourism recovery and larger fiscal spending than we currently anticipate could boost near-term growth further, while downside risks may come from a more pronounced global economic slowdown, severe drought due to El Nino and significant budget delays.
Newly Formed Coalition
We believe the formation of the coalition government led by the Pheu Thai Party (PTP) after a four-month impasse reduces near-term political uncertainty. Bringing the various factions together could encourage consensus-led policymaking, although balancing diverse forces could affect policymaking effectiveness and fiscal prudence.Fitch Affirms Thailand at ‘BBB+’; Outlook Stable (fitchratings.com)
There are lingering concerns about political uncertainty, as the senate will lose its ability to collaborate with the lower house in selecting the premier starting from May 2024. Fitch anticipates that the World Bank Governance Indicators will show improvements, indicating a higher level of political stability.
Key Policy Priorities
Economic headwinds are an imminent challenge for the new government, whose expansionary budget proposal for the fiscal year ending September 2024 (FY24) focuses on stimulating domestic demand.
We expect the budget enactment to be delayed by seven months to late April 2024, which will weigh on disbursement of capital spending for new investment projects. However, we believe the government will ramp up efforts to support the economy in the FY24 budget, without shifting significantly the country’s key medium-term strategy of fostering investment and productivity growth.Fitch Affirms Thailand at ‘BBB+’; Outlook Stable (fitchratings.com)
Wider Deficits, Slower Consolidation
Fitch projects the general government deficit (Government Finance Statistics basis) will increase to 3.7% of GDP in FY24 (BBB median: 2.9%), from an estimated 3.0% in FY23. We assume stepped-up expenditure to accommodate the digital cash handout scheme and other measures advocated by the coalition parties during the election campaign, more than offsetting steady revenue collection as growth strengthens. We forecast the fiscal deficit to decline only modestly to 3.5% in FY25 (BBB median: 2.6%), due largely to sustained social and capital spending.
Pro-Growth Spending Pledges
The PTP has promised wide-ranging digital cash handouts to targeted citizens of 16 years and older at a one-off cost of roughly THB500 billion (2.6% of GDP). The plan announced by Prime Minister Srettha Thavisin is to propose a special loan decree to fund the handouts, which will be postponed by three months to May 2024. However, we see some near-term uncertainty in terms of parliamentary approval for the government to fully fund the scheme with new debt. This could imply slippage in near-term consolidation targets and further constrain fiscal headroom.
PublicDebt Ratio to Stabilise
Fitch forecasts that gross general government debt (GGGD) will rise to 56.8% of GDP by FYE25, as much as 21pp above pre-Covid-19 pandemic levels and broadly aligned with the ‘BBB’ peer median of 56.3%. The slightly wider fiscal-deficit targets over the next few years – of around 3.4% of GDP, as published recently by the new government in its medium-term fiscal framework – will weaken the government debt trajectory, particularly if the rising spending fails to sustain growth in a more durable way.