Thailand - Political uncertainty affecting Thailand's credit rating: S&P

Political uncertainty and external factors continue to pose the highest risk to Thailand's credit rating, according to global rating agency Standard & Poor's.

"One thing that is specific for Thailand, if not for political uncertainty Thailand's rating may be higher because the other ratios are quite strong. It is very hard to predict," said Tan Kim Eng, senior director and analytical manager for sovereign ratings in Asia-Pacific.

He expressed high concern over Thailand's political stability.

S&P assigns BBB+ for Thailand's long-term foreign currency rating with a stable outlook for the next two years. Its framework for sovereign foreign currency ratings consists of political, economic, external, fiscal and monetary scores.

Thailand's strength extends from a solid external position, relatively well-developed financial markets and low net general government debt.

"At the BBB+ level, it [net general government debt] is not high. It is essentially lower than most of the other sovereign BBB+ category," Tan said.

However, the prolonged political uncertainties in the past two years have prevented Thai governments from pursuing necessary infrastructure investment for Thailand's long-term growth.

Last year's devastating floods have made Thailand less attractive in the eyes of foreign investors that fear that another round of floods. The months-long floods took a heavy toll on Thailand's industrial heartland north of Bangkok, with many factories forced to close temporarily.

To restore foreign investor confidence in Thailand, the government may need to assure them that the floods will not happen again. Despite its hard efforts through its 300-plus billion baht package for the restoration of infrastructure and improvement of water management, due to political uncertainty, it may not be implementing parts of the infrastructure projects.

Another concern lies in the government's policies promised during last year's election - such as the rice-pledging scheme and daily minimum wage increases to 300 baht in three years - which have constrained the government's budget and could hammer Thai businesses particularly smaller ones. That may prompt the government's relief measures for them in the next few years.

"Even given infrastructure spending pressure, the government is now undertaking other measures supporting rice prices and possibly helping small and medium enterprises in the future. All these will be negative for the ratings because you may increase deficits, you may increase debts over the medium term. That would erode one of |the strengths, Thailand's credit strength," Tan said.

Over the next three years, everybody is expecting the economic environment, at least outside Thailand, to be weak and businesses in Thailand will suffer high pressure. Embattled Europe and the fragile United States continue to be highly important to Thai exports.

"The one that affects everyone is what's happening in Europe," he said.

The situation in Europe may deteriorate much more than most expect now as its economic structure is more rigid, less flexible and many of the European-country economies are fiscally constrained.

If that happens, the US will be caught in the spiral and, then, Asia will be affected, he said.

"East Asia is still export oriented," he said.

Thailand has witnessed government changes in the past few years due to coups and people judgement. Such developments are not easily predictable and cause high political uncertainty.

Obviously, the Thai government was seen to be highly worried about them and that would take some attention away from long-term projects like infrastructure building and education reform.

"This is another thing we watch for in the political environment," he added.

Seetalavajit Sabayjai

The Nation

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.