Thailand’s Strong External Financial Position (13/05/2012)
Fitch Ratings has indicated that Thailand’s ratings and outlooks reflect its strong external financial position.

The Director of the Public Debt Management Office, Chakkrit Parapuntakul, said that the rating agency had reaffirmed Thailand’s long-term foreign and local currency issuer default ratings at “BBB” and “A-” respectively, with stable outlooks.

Mr. Chakkrit also quoted Fitch as saying that the Thai economy is expected to grow 5.5 percent in 2012 after flat results in 2011, when the country was hit by extensive flooding. Fitch pointed out that the government’s response to the floods and other policy pledges under the current administration will drive up the general government debt ratio, bringing it to a level closer to the BBB range median. However, it notes the country’s strong financial flexibility and believes that Thailand can accommodate higher public debt at the current rating level.

The pace of credit growth was rapid at 14.9 percent in 2011, and has been accompanied by a rise in banks’ dependence on non-deposit funding and foreign borrowing. Thailand has a large banking system where credit to the private sector was 132 percent of GDP at the end of 2011, double the BBB range median. Continued rapid credit growth could become a risk. However, Fitch views Thailand’s financial supervisory arrangements as strong; macro-prudential indicators remain broadly favorable, with the non-performing loans ratio at 2.7 percent at the end- of 2011 and the banking system capital adequacy ratio at 15.1 percent in 2011.

According to Fitch, Thailand’s net external creditor position was 41.5 percent of GDP and 50 percent of current external receipts in 2011, much stronger than the BBB medians of net external debt of 3.9 percent and 13.4 percent, respectively. The country’s strong external financial position will help to insulate the economy from external shocks.

Mr. Chakkrit earlier quoted a report on the Thai economy, released by Moody's Investors Service, which said that the outlook for Thailand's local and foreign government bond ratings is stable. The ratings are now at "Baa1," and they are based on moderate levels of economic and institutional strength, a high degree of government financial strength, and a low-to-moderate susceptibility to event risk.

According to the Moody report, Thailand's relatively large size and the diversification of its economy is balanced against a per capita income that is lower than the income of its peers. The floods that persisted throughout the second half of 2011 represented a mere cyclical shock, rather than a structural one, and a rapid V-shaped recovery is currently under way. The country is bulking up its defenses against flooding in the future, while the Government has actively sought to restore confidence in its ability to manage such crises in order to retain onshore investments.

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