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Thailand’s outlook stable but populist policies are a threat

Standard & Poor’s Rating Services has affirmed Thailand’s stable outlook on long-term foreign and local currency ratings, citing a favourable external position, light government indebtedness and the credibility of the country’s monetary policy as the main rating supports.

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Populist election poster

Standard & Poor’s Rating Services has affirmed Thailand’s stable outlook on long-term foreign and local currency ratings, citing a favourable external position, light government indebtedness and the credibility of the country’s monetary policy as the main rating supports.

Chularat Sutheethorn, director general of the Finance Ministry’s Public Debt Management Office, said S&P’s also affirms the ‘axAA/axA-1’ ASEAN regional scale rating for Thailand as well as its ratings on Thailand’s outstanding debt issuances.

Populist election poster

The Pheu Thai Party had pledged in its election campaign to raise the national minimum wage to Bt300 per day and to ensure that college graduates have a minimum starting salary of Bt15,000 per month

The rating agency projects Thailand’s foreign exchange reserves at US$190 billion (eight months of current account payments) by the end of 2012, and indicates that Thailand has run (mostly small) current account surpluses since 2006.

“We expect this trend to continue at least through 2015. As a result, we estimate net external liabilities at 14 per cent of current account receipts at yearend 2012 and expect external liquid assets of the government and financial sector to be double that of the nation’s external debt,” says S&P’s.

It continues, “Similarly, the general government has run surpluses or small deficits since its recovery from the Asian financial crisis of 1997. After steadily declining to 17 per cent of GDP in fiscal 2008 (ending September 30, 2008), net general government debt rose to 24 per cent of GDP at the end of fiscal 2011. We expect the ratio to increase only modestly through 2015. The general government’s interest burden remained a comfortable 5.5 per cent of revenue.

“Thailand’s inflation, as shown by the Consumer Price Index, has been less than 5.5 per cent per year since 1999. Credit growth has been in line with nominal GDP growth. We rank the country’s banking system ‘5’ on a scale of 10. Thailand’s per capita GDP–about US$5,350 in 2012–is a credit constraint. The country’s infrastructure, health, and education indicators also are more in keeping with those of lower-rated sovereigns.”

“Political uncertainties have been an important credit weakness for Thailand in recent years. Since 2006, frequent and at times extra-constitutional changes in the government have delayed structural reforms, hindered government infrastructure spending, and depressed foreign direct investment. Street protests opposing the leading government party at times have caused significant economic disruptions. However, since the new government took office, political tensions have begun to ebb.”

S&P’s says it could lower the rating if Thailand’s fiscal position and economic indicators worsen significantly due to, for example, the government adopting strongly populist policies. (MCOT online news)

via S&P says Thailand’s outlook stable despite political uncertainties | MCOT.net.

Government told to put brakes on populism

Thailand’s government should slow down its lavish populist projects to avoid the undesirable situation of rocketing public debt, the Bank of Thailand (BoT) has warned.

Songtum Pinto, BoT Monetary Policy Office director, said the populism policy, including the rice pledging scheme and the tax rebate for first-car buyers, takes up the state’s huge budget and its successive execution will greatly increase the government’s spending and public debt.

He urged the government to spend more on infrastructure development so as to strengthen Thailand’s declining competitive edge.

According to the World Competitiveness Yearbook 2012 published by the International Institute for Management Development (IMD), Thailand’s competitiveness is ranked 30th among 59 countries, a drop from 27th last year.

When Thailand becomes part of the ASEAN Economic Community in 2015, it will have to adjust its competitive strategy, otherwise it will be overtaken by neighbouring countries or be edged off the world stage, he warned.

Mr Songtum said the BoT has closely monitored the country’s rising household debt, particularly personal loans for those earning less than Bt15,000 a month.

Household debt will not be intense as long as salary earners are employed, while the skyrocketing stock index at 1,300 remains manageable and in accord with the strength and performances of listed companies, he said.

Housing loans have increased at a satisfactory pace but growth is too rapid in the condominium market, which has seen an increased rate of failures in debt payment.

Mr Songtum predicted Thailand’s economic growth at 5.7 per cent this year and 4.6 per cent next year thanks to domestic consumption but warned of challenges in light of slow economic improvement worldwide, especially the European debt crisis which will carry on for at least a decade and risk from the ‘fiscal cliff’ in the US. (MCOT online news)

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