Govt 'must trim debt for higher ratings'

But the sovereign credit ratings could be lowered if political stability deteriorates markedly to cause a prolonged loss of investor confidence in the country.

The ratings agency assigned a "BBB+" senior unsecured foreign currency debt rating to the following yen global bonds to be issued by the Kingdom:

--  ¥25 billion (Bt7.73 billion) Series 22 bonds due May 20, 2011.

--  ¥20 billion Series 23 bonds due May 20, 2013.

--  ¥10 billion Series 24 bonds due May 20, 2015.

"A sustained reduction of political uncertainties could help to return average Thai economic growth to the projected trend rate of 6 per cent per year.

"In this scenario, if a further reduction in the government debt burden occurs and is accompanied by improving banking sector balance sheet, the government's issuer credit ratings could be raised," S&P said.

S&P's issuer credit ratings for Thailand reflect a strong external creditor position, a track record of prudent fiscal management and relatively light net government indebtedness.

More recently, however, the public financial position has weakened somewhat with the government's use of fiscal stimulus to support economic growth.

Consequently, the general government account is expected to show small deficits in fiscal 2008 and 2009.

The banking system also remains relatively weak and could find it a challenge to improve asset quality in the midst of current uncertainties in the global financial system, S&P said.

Political uncertainties, elevated since early 2006 and culminating in a military overthrow of the government in September 2006, also subtract from credit support for the government. "The formation of a new coalition government, which replaced the post-coup regime in early 2008, has reduced risks somewhat," said S&P credit analyst Kim Eng Tan.

"However, the stability of the government is threatened by the possible dissolution of the leading People Power Party. This relates to allegations of electoral misconduct by a key party official," he said.

The outlook on Thailand's sovereign credit ratings is stable due to expectations that the political situation will improve gradually.

In the near term, the two main political camps have strong incentives to maintain political and social stability. The situation is likely to mean that the incumbent government will remain in power through at least much of its term of office, despite possible legal challenges to the People Power Party.

Policy coherence will likely improve over time in this environment, S&P added.