Connect with us

Banking

Thailand rated among least vulnerable countries to a strengthening US dollar

Countries with large current account deficits, high external debt repayments and substantial foreign-currency government debt are most exposed but Thailand is among the least vulnerable countries to a stronger dollar.

Published

on

The strengthening US dollar since mid-April has prompted a sharp currency depreciation and/ or a significant decline in foreign exchange reserves in a number of emerging and frontier market countries.

Moody’s has published a Sector In-Depth titled “Sovereigns – Global: US dollar appreciation raises credit risk for sovereigns with large external funding needs” rating Thailand in the lowest vulnerability tier to a stronger dollar.

To the extent that these currency fluctuations reflect capital outflows or significantly lower external inflows, they are credit negative for sovereigns with large external funding needs. In this report, we analyze the vulnerability of a group of emerging markets to a strengthening US dollar and where relevant, identify mitigating factors.

Moody’s considers the sovereigns’ current vulnerability, changes in vulnerability in the last four years, and evidence of exposure to financial market shocks.

Countries with large current account deficits, high external debt repayments and substantial foreign-currency government debt are most exposed.

Moody’s ratings take into account sovereigns’ relative vulnerability to changes in external financing conditions.

Thailand’s debt to GDP ration at 34% is considered as a medium vulnerability rating by Moody’s, but the very low percentage (2%) of foreign currency is credit positive and rated as “low vulnerability”.

In comparison Indonesia (42%) and Cambodia (85%) have a much higher exposure of their debt to FC fluctuations.

Countries with large current account deficits, high external debt repayments and substantial foreign-currency government debt are most exposed.

The US dollar has appreciated by nearly 6% in trade-weighted terms since mid-April, while capital flows to emerging markets have slowed.

Although we expect only a moderate further appreciation of the US dollar, the US Federal Reserve’s balance sheet shrinking may have further implications for external financing conditions in emerging markets.

In this report, we analyze the vulnerability of a group of emerging markets to a strengthening US dollar and tightening external financing conditions in general.

Economies rely on capital inflows to meet import payments and repay external debt. When risk appetite weakens, investors tend to shift their portfolios away from the economies most reliant on such capital inflows, in particular those with low reserve buffers. In turn, lower capital inflows erode foreign exchange reserves, potentially starting a negative feedback loop.

Click to comment

Leave a Reply

Banking

Fitch Affirms Thailand’s rating at ‘BBB+’ with a Stable Outlook

Fitch forecasts Thailand’s tourism-dependent economy will recover only modestly, by 1.8% in 2021 after a sharp 6.1% contraction in 2020.

Published

on

Don Mueang Bangkok domestic airport
Empty seats tagged with social distancing await passengers in Don Mueang Bangkok domestic airport

Fitch Ratings has affirmed Thailand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook.

(more…)
Continue Reading

Economics

China’s new three-child policy highlights risks of aging across emerging Asia

Thailand’s (Baa1 stable) total dependency ratio is set to jump nine percentage points to 51% by 2030 – a faster increase than China’s – which will pressure public and private savings through higher taxes and social spending, reducing innovation and productivity gains.

Published

on

Street vendor in Bangkok

Population aging in China (A1 stable) and other emerging markets in Asia will hurt economic growth, competitiveness and fiscal revenue, unless productivity gains accelerate, according to a new report by Moody’s Investors Service.

(more…)
Continue Reading
Wise

Most Viewed

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 14,105 other subscribers

Recent