The international ratings agency Standard and Poor's yesterday affirmed its foreign and local currency ratings for Thailand after embattled caretaker Prime Minister Thaksin Shinawatra announced his decision to step down.

The agency maintained its "stable" ratings outlook, saying it does not expect the country's credit strength to be eroded by the political turmoil.

"The ratings on Thailand still reflect the country's strong external liquidity and public sector net external creditor standing, supported in part by its improved budgetary position in the past three years," said Standard and Poor's credit analyst Kim Eng Tan.

Thailand's foreign currency rating remains at BBB+/A-2 and its local currency grade at A/A-1. This generally means the country can meet its financial commitments but risks remain due to political developments.

"We expect a return to political normality to be protracted," Tan said.

"Until the current political upheaval has been resolved, and for some time after that, the policy environment is likely to be tentative. Nevertheless, we expect the road to political normality to be peaceful and constitutional."

Thaksin's decision late on Tuesday to step down followed an election result that would probably have seen him returned to office, but with significantly less support than when voters handed him a landslide a year ago.

He had been under increasing pressure to quit since January when public anger erupted over his family's Bt73.3-billion tax-free sale of its stock in telecoms giant Shin Corp to Singapore's Temasek Holdings.

Thaksin's move "has reduced tension, at least for the moment", Standard and Poor's said, adding that the influence of His Majesty the King "is likely to contain any large-scale fallout or violence".

The ratings firm said the Bank of Thailand had adequate reserves to cover gross financing requirements this year and the country should maintain its strong international liquidity position.

"The government should maintain a healthy position this fiscal year due to an expected delay in implementing infrastructure spending and its debt burden is likely to decline further, from 29 per cent of 2005 gross domestic product to 27 per cent in 2006," it said.

But Standard and Poor's also warned that "there are risks that fiscal consolidation efforts will stall, or could even reverse slightly, in the face of a weaker economic outlook, or for political considerations.

"Non-performing assets in the banking system could also begin to rise again, posing a high contingent risk to the government."

The ratings company said it would revise its outlook to negative "if these developments, including off-budgetary spending, damage Thailand's fiscal strength".