Business & Investment

Fitch confirms Thailand’s rating on “BB B +” with a stable outlook

Fitch Ratings confirmed Thailand’s long-term foreign currency issuer default rating (IDR) with “BBB +” with a stable outlook.

Major evaluation drivers

Thailand’s rating is underpinned by strong external and public finances that continue to provide a buffer against downside risks amid the long-term economic recovery from the coronavirus pandemic.

These strengths are structurally weak compared to other companies in the “BBB” range, such as the World Bank’s governance score, lower per capita income, and lower medium-term growth prospects due in part to the aging of the population. Balanced with features.

Affirmations with a stable outlook reflect Fitch’s assessment that the increase in government debt associated with a financial response to a pandemic can be curbed in the medium term, based on the strength of the fiscal framework and Thai records in fiscal management. ing.

Thailand’s tourism-dependent economy will recover only 1.8% in 2021

Fitch predicts that Thailand’s tourism-dependent economy will only recover moderately by 1.8% in 2021 after a sharp contraction of 6.1% in 2020.

The weak recovery is due to the limited influx and turmoil of the third Covid-19 wave that emerged in April. The unemployment rate will rise to 2% by the end of the first quarter of 2009, constraining the recovery of consumer spending. Nevertheless, strong commodity exports and increased spending on public works projects pose an upward risk to the growth outlook for the second half of 2009.

Real GDP growth will rise to 4.2% in 2022

Real GDP growth is projected to rise to 4.2% in 2022, supported by external demand, government stimulus and a gradual recovery in tourist influx. The government launched the Covid-19 mass vaccination program in early June with the aim of immunizing 70% of the population and recently announced to tourists that it will completely reopen its borders.

in addition “Phuket sandboxThe plan, which begins in July, will allow vaccinated tourists to travel inbound without quarantine if implemented on time. Still, in Fitch’s view, it will take years to resume the influx of tourists to pre-pandemic levels.

Government deficit grows to 5.9% of GDP

Fitch predicts that the general government deficit for FY09 / 2021 will increase from an estimated 4.4% in FY2008 to 5.9% of GDP (based on fiscal statistics). The widening budget deficit reflects government efforts to strengthen support for economic activity and protect households and businesses from long-term scars. An emergency decree approved in April 2020 to allow additional spending of THB 1.0 trillion (average 3.1% of GDP) in FY2008 and FY21 was a key element of this effort.

In the baseline case, the general government deficit is projected to shrink to 4.0% of GDP in 2010 due to improved revenues associated with expected upturns and lower Covid-19-related spending. .. The Cabinet approved a new emergency decree in May, allowing the Treasury to borrow up to THB 500 billion (2.9% of 2010 GDP forecast) by September 2022. Most of these funds are expected to be paid in 2010.

Government debt increases to 52.7% of GDP

Fitch predicts that gross domestic product debt (GGGD) will increase from 35.9% in FY19 to 52.7% in GDP by FYE22, still below the current median “BBB” of 59.4% predicted in 2022. I will. Reducing the risks associated with a significant increase in public debt is a sound government debt management strategy, with a long average maturity of 9.5-year government securities and a high share of over 98% in local currencies (“BBB”). Is illustrated by the current median: 68.8%).

At baseline, GGGD / GDP is projected to peak at 53.7% in FY2011 and then slowly decline as growth recovers and the budget deficit shrinks. In addition to a strong record of fiscal management, we believe that debt trajectories remain fixed by fiscal liability legislation. This requires regular committee approval to raise the public debt cap on GDP. This can happen in 2010 to make room for additional spending.

Bank of Thailand (BoT) benchmark policy rate is 0.5%, the lowest ever

The Bank of Thailand (BoT) has maintained its benchmark policy rate at a record low of 0.5% since the last rate cut in May 2020. The central bank will keep interest rates unchanged until the end of 2022 and will rely on more targeted measures to assist. recovery.

In March 2021, BoT launched a new soft loan scheme of THB 250 billion to financial institutions for lending to viable SMEs. BoT will also provide qualified private borrowers with low-cost funding to support debt restructuring programs of up to THB 100 billion through asset custody with repurchase options. Fitch expects inflationary pressures to weaken in 2021 and headline CPI is expected to remain at the lower end of the target band of 1% to 3% of BoTs.

Strong external funding remains core credit

Fitch predicts that the collapse of tourism revenue will result in a current account surplus of 0.5% of GDP in 2021. However, as the tourism industry recovers, the surplus is expected to gradually increase to 2.3% of GDP in 2022 and 4.0% in 2023. Our forecast is that Thailand’s large net external creditor position will remain at 45.5% of GDP in 2021 (BBB’s current median: -5.8%).

Foreign exchange reserves were nearly stable at US $ 258 billion by the end of 2021, sufficient to cover the current 10.8 months of foreign payments in 2021 and the median BBB of 9.3 months. I predict that it will exceed.

Thailand’s political environment remains subtle, but the youth-led demonstrations that began in 2020 have been suppressed in the third wave of the virus. We believe that the economic impact of political tensions is limited. Still, the risk of political tensions towards the next general election scheduled by 2023 can hinder consumer and corporate sentiment.

Fitch maintains a stable sector outlook for Thai banks

The business environment remains difficult as the economic recovery slows. The already high household debt-to-GDP ratio had increased to 89.3% by the end of 2020. The rise in unemployment associated with a pandemic can hinder the ability of some households to repay their debt. However, the impact of a pandemic on the quality of a bank’s assets is expected to be mitigated by a sufficient loss buffer. In this regard, we consider an allowance for doubtful accounts of 144.2% and a CET1 ratio of 16.2% (as of the end of the first quarter of 2009) as important cushions to absorb unexpected losses.

ESG – Governance: As with all sovereigns, Thailand’s ESG Relevance Score (RS) is “in terms of both political stability and rights, the rule of law, institutional and regulatory quality, and control of corruption. 5 “.

These scores reflect the high weight that the World Bank’s Governance Index (WBGI) has on its own sovereign rating model. Thailand’s WBGI ranking is moderate at the 46th percentile, reflecting sound institutional capacity and quality of regulation, and established rule of law, but offset by sustained political change. I will.

Fitch confirms Thailand’s rating on “BB B +” with a stable outlook Fitch confirms Thailand’s rating on “BB B +” with a stable outlook

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