Moody's: Thailand's ratings supported by strong government financial position

Moody's Investors Service says that Thailand's (Baa1 stable) ratings are supported by a very strong government financial position. The country's well-diversified economy and high foreign reserves are additional credit strengths.

Moody's conclusions were contained in its just-released credit analysis, titled "Thailand, Government of" and which examines the sovereign in four categories: economic strength, which is assessed as "high"; institutional strength "high (-)"; fiscal strength "very high (+)"; and susceptibility to event risk "moderate (+)".

The report constitutes an annual update to investors and is not a rating action.

The report also contains Moody's analysis of how the sovereign's credit metrics are affected by the revised national accounts data released on 11 May. Moody's notes that while the some of the ratios it examines changed, the impact on Thailand's credit metrics is limited.

"Thailand's low funding costs and favorable debt structure, which stem from prudent monetary policy and debt management, are a core strength in the government's debt carrying capacity" says Steffen Dyck, a Vice President and Senior Analyst at Moody's. "In addition, the high level of foreign exchange reserves limits external vulnerabilities, while the well-diversified economy is another credit strength."

Manufacturing, wholesale and retail trade, and agriculture accounted for around 52% of nominal GDP in 2014, and 66% of employment. The services sector was the single largest source of GDP growth in 2014, whereas the contribution from agriculture was negligible, says Moody's.

Increased public investment spending will be the key to Thailand's growth recovery in 2015 and 2016, whereas sluggish external demand recovery and constraints on private consumption spending from high household debt act as a drag on growth.

In Moody's view, infrastructure improvements will likely help improve Thailand's regional competitiveness.

The military coup on 22 May 2014 restored public order and stemmed economic uncertainty, says the rating agency. Still, Thailand's deep polarization of domestic politics remains a key issue affecting the growth outlook, and if unresolved could destabilize again the country's politics and economics and erode Thailand's fundamental credit strengths, says Moody's.

The stable rating outlook means that credit strengths and weaknesses are balanced. But Moody's notes that credit positive signs would include strengthening public sector finances, limiting contingent liabilities, and an improved political climate.

In this respect, Moody's notes that implementation of the government's fiscal reform plans, which include revenue measures, as well as reform of state-owned enterprises, would be credit positive.

Credit negative developments would include heightened political tensions that impact tourism or manufacturing, or increase government funding costs, or other weakening of the government's financial position.