S&P ratingssays outlook remains stable

However, the international credit-rating agency warned political risks and banking sector non-performing loans were weakness for the country's creditworthiness.

"A net external creditor position, prudent fiscal management, and relatively light net government indebtedness support the sovereign credit ratings on Thailand," said Standard and Poor's credit analyst Kim Eng Tan.

"On the other hand, heightened political risks and banking-sector non-performing assets are the main weaknesses of the government's creditworthiness."

A strong external balance sheet, which is reinforced by consistent current-account surpluses, is a key supporting factor for the sovereign credit ratings. By the end of 2008, the country's external financial assets are expected to outsize external debt by close to 45 per cent of current-account receipts. "Fiscal discipline is another key underpinning for Thailand's sovereign creditworthiness," Tan said. "Successive Thai governments have shown themselves to be prudent in fiscal matters."

Heightened political tensions continue to undermine support for the sovereign ratings. It remains unclear whether deep divisions within the Thai establishment could be resolved within the political framework. The re-emergence of street protests has raised the possibility of violence. While the likelihood of such an event is small, it can hurt investor confidence. If the recovery in capital spending stalls as a result, economic growth in the next few years could fall from levels in the past five years, he added.

The outlook on the credit ratings is stable on expectations that Thailand will avoid serious social unrest despite continuing political tensions. The sovereign ratings could be lowered if political divisions lead to widespread unrest and violence. In this scenario, economic and fiscal indicators would suffer abrupt deterioration. Political instability would also prolong the weakness of investor confidence and further damage economic-growth prospects.

Conversely, the sovereign ratings could be raised if the impact of political divisions is contained and indicators of credit support continue to improve, Tan said. These include the sustained revival of investment growth and the continuation of prudent fiscal policies.