• THAILAND WATCH

    S&P sounds warning over long-term credit outlook

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    Thailand’s sovereign credit rating outlook is expected to remain stable over the next two years thanks to the country’s strong external balance sheet and stable fiscal balance sheet, says Standard and Poor’s Ratings Services (S&P).

    But the country’s credit metrics have been deteriorating slowly since 2006 due to domestic political uncertainty and a gloomy outlook on long-term economic growth prospects.

    Despite a slow economic recovery and higher government fiscal deficits, the range of deficit and public debt levels are within the level of a BBB+ rating with a stable outlook, said Kimeng Tan, S&P’s Singapore-based senior director of sovereign and international public finance ratings in Asia-Pacific.

    “Even though Thailand’s economic growth has been relatively slow in the past year or two, average growth is still at a relatively good pace over the long term, and we do expect a recovery in growth going forward,” he said.

    The Thai economy grew by 3% and 2.8% year-on-year in the first and second quarters, respectively, but quarter-on-quarter growth on a seasonal adjusted basis slightly expanded by 0.3% and 0.4%. GDP growth was 2.9% in the first six months.

    The economy grew by a mere 0.9% last year, cramped by export contraction and domestic political upheaval.

    Mr Tan said Thailand’s credit metrics for evaluating the sovereign credit rating had recorded a slow deterioration over the years, with domestic political uncertainty undermining the country’s economic strengths since 2006. Long-term economic growth prospects are another factor sapping its sovereign credit rating metrics.

    “Although tourism will probably rebound after the recent explosions, the manufacturing sector is likely to have much slower growth, because automobile production in this country has reached a point where growth is unlikely to be very strong going forward. It started from a small base and built up very rapidly, but the operations are very big now, and we’re not expecting Asean demand for vehicles to grow very fast,” he said.

    There is lower global demand for hard disk drives made in Thailand, and investors here have not ramped up investment activities for high-end technology due in part to the Thai education system not producing qualified research and development employees, Mr Tan said.

    In fact, investors have bemoaned the lack of skilled labor here for decades, he said, adding that the domestic political volatility over the past 10 years had caused governments to pay less attention to education reform since they were not in office long enough.

    “Any reversal of the deterioration in sovereign metrics will require political stability so that a government can plan long-term policies, complete some of the infrastructure projects and, more importantly, invest more in education,” Mr Tan said.

    Though some may see the delays in Thailand’s general election as maintaining political stability, a lack of continuity and uncertainty in long-term economic policies are disadvantages with a new elected government expected in the medium term, he said. Since the public expects the government is temporary, it is unlikely that important policy changes will materialize.

    ©2015 THE BANGKOK POST (BANGKOK, THAILAND) / DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.

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