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Fitch Affirms Thailand at 'BBB+'; Outlook Stable
June 14, 2017 / 10:33 AM / 6 months ago

Fitch Affirms Thailand at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 14 (Fitch) Fitch Ratings has affirmed Thailand's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BBB+'. The Outlooks are Stable. The issue ratings on Thailand's senior unsecured local-currency bonds have also been affirmed at 'BBB+'. The Country Ceiling has been affirmed at 'A-' and the Short-Term Foreign- and Local-Currency IDRs have been affirmed at 'F2'. The short-term issues have also been affirmed at 'F2'. KEY RATING DRIVERS Strong external finances and low public debt increases Thailand's resilience to economic shocks and underpins the country's ratings. These strengths are balanced by weaker structural factors compared with 'BBB' rated peers, such as low income per capita and weak governance indicator scores. The risk of a renewed bout of political instability, as evident during public protests in 2014, also constrains the ratings. A wider current-account surplus and higher foreign reserves have further bolstered Thailand's external finances. The current-account surplus widened to 11.5% of GDP in 2016, from an already-high 8.1% in 2015, driven by continued low energy prices and weak domestic demand. The large surplus, along with bigger capital inflows, has generated appreciation pressure on the Thai baht since the start of 2017. Interventions by the Bank of Thailand to reduce exchange rate volatility have increased foreign reserves to USD185 billion by April 2017, from USD172 billion at end-2016. The Thai economy expanded by 3.2% in 2016, in line with the 'BBB' median's 3.1%, but behind other south-east Asian peers. Government stimulus and a rebound in farm incomes have lifted growth, following a severe drought early in 2016. Fitch expects increased public investment as part of the government's infrastructure plan to push growth up to 3.4% in 2017. However, deepened protectionism or weaker global demand could be a downside risk for exports. The government is using available fiscal space to boost infrastructure spending to support medium-term growth prospects. Fitch expects the general government balance to shift from a 0.5% of GDP surplus in the fiscal year ending September 2016 (FY16), to a 1.6% deficit in FY17. The deficit remains lower than the 2.6% of GDP 'BBB' median and is consistent with the general government debt/GDP ratio stabilising at a low level relative to rating peers. The government has some contingent liabilities from quasi-fiscal activities conducted through state-owned enterprises (SOE), but Fitch does not see this exposure as unusually high despite limited transparency. The government has taken steps to improve reporting of SOE operations. The government has launched the Thailand 4.0 economic plan to improve the country's productivity and counter the effects of an aging population and declining export competitiveness on growth. Measures include reforms to improve the efficiency of SOEs, boost competition and incentivise foreign investment. However, it remains to be seen whether they will be implemented successfully and be sufficient to offset structural headwinds. Thailand's high household debt could weigh on consumption and increase the economy's vulnerability to shocks. The household debt/GDP ratio was stable over 2016, but remains high at 80%. A shock that leads to job losses or higher interest rates could hinder the ability of households to service debt, causing a rise in delinquencies and lower consumption. Banks have already started to face asset-quality pressure on unsecured retail loans and other vulnerable non-household sectors, such as small business. However, Fitch believes Thai banks' capital and liquidity positions remain adequate. Delays to the general election have added to uncertainty over the country's timing and transition back to civilian rule. The government now expects the election to be held by mid-2018. Uncertainty over the transition, including any further delays, could hold back private investment if businesses struggle to assess economic and policy direction. That said, Thailand has enjoyed a period of economic and political stability since the military government took power in 2014. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Thailand a score equivalent to a rating of 'BBB+' on the Long-Term Foreign-Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows: - Structural features: -1 notch to reflect uncertainty over the terms and timing of Thailand's transition back to civilian rule and risks to economic stability from ongoing political divisions. High household debt increases vulnerability to shocks. - External finances: +1 notch to reflect strengths in Thailand's external finances not captured in the SRM, including its large net creditor position and strong external liquidity Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that could, individually or collectively, lead to positive rating action include: - A sustained improvement in growth above Fitch's expectations without the emergence of imbalances. - Resolution of social and political tensions sufficient in scale to improve governance and development indicators. The main factors that could, individually or collectively, lead to negative rating action are: - Renewed political disruption on a scale sufficient to have a significant effect on Thailand's economy. - A large and sustained rise in Thailand's government debt ratios, for example, due to a fiscal deterioration or materialisation of contingent liabilities on the sovereign balance sheet. KEY ASSUMPTIONS The global economy performs broadly in line with Fitch's <a href="">Global Economic Outlook. Contact: Primary Analyst Mervyn Tang Director +852 2263 9944 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Andrew Fennell Director +852 2263 9925 Committee Chairperson Jan Friederich Senior Director +852 2263 9910 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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