"If the political uncertainty is prolonged, it could affect medium-term growth as well, particularly if policy initiatives such as the planned mega-projects are delayed," said Vincent Ho, associate director in Fitch's Asia sovereigns ratings team in Hong Kong.

Fitch said political tensions had eased since caretaker Prime Minister Thaksin Shinawatra announced he would not accept the premiership after the April 2 election. However, the country's political stalemate has not yet been resolved and issues like the unfilled seats in Parliament make it unclear when the House of Representatives can reconvene.

Fitch Ratings yesterday named the Thai long-term foreign and local-currency issuer default ratings at BBB+ and A, respectively.

At the same time, the agency affirmed the short-term foreign-currency-issuer default rating at F2 and the country ceiling at A-. The outlook on the ratings remains "stable".

The agency indicated that Thailand's key credit indicators remain strong relative to its BBB-rated peers despite the lingering political uncertainty, slower economic recovery and the re-emergence of a current account deficit.

"Thailand has been more resilient to shocks since 1998, given the manageable inflation, low unemployment, more flexible exchange rate and increased international reserves," said Ho.

Fiscal consolidation continued in the fiscal year that ended September 30, 2005, mainly supported by higher corporate income and value-added tax receipts, Fitch said.

Improving tax collection methods contributed to the government meeting its revenue target. Together with a moderate reduction in capital expenditures, the general government balance is estimated to have registered a surplus of 0.6 per cent of GDP.

Mainly owing to rising oil prices, Thailand's current account returned to deficit last year, at US$3.7 billion (Bt140 billion) or 2.1 per cent of GDP, for the first time since 1998.

"In Fitch's view, however, it is not alarming for a BBB+ sovereign, such as Thailand, to have a current account deficit," said Ho.

Thanks to massive levels of foreign direct investment and portfolio equity investment, the change in reserves in 2005 remained positive.

Official international reserves (including gold) increased by 4.6 per cent to a historic high of US$52.1 billion at the end of 2005, which was 3.3 times the short-term external debt and equivalent to 4.5 months of current external payments.

Thailand's gross external debt continued to decline last year, reaching a post-crisis low of US$51.4 billion.