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BOT soaks in positives from Moody's report

The Bank of Thailand (BOT) believes that the latest Moody's report is more positive than negative.

Moody's Investors Service said yesterday that Thailand's debt-carrying capacity and monetary policy management remain the country's core strengths but warned that its strong rating fundamentals is increasingly challenged by the current political situation.

Moody's explained in its report that the Kingdom's government bond rating (Baa1) is still being supported by the government's strong financial position and its credit metrics remain well positioned when compared to rating peers. However, if the political situation prolongs into the second half of the year, it could lead to a lowering of the country's credit rating.

Negative factors

A significant rise in government funding cost, sharp deterioration in the balance of payments, and a significant loss of international reserves will also have a negative impact on the country's bond rating, according to Moody's.

However, BOT said that Moody's comments are more positive than negative, as it had said in its report that the current political deadlock and protests are not currently at the point as to prompt rating downgrades. It said the report had also praised the country's monetary policy as suitable for strengthening the country's financial position.

"Are they really warning us or praising us? Moody's have basically reaffirmed that Thailand's outlook is stable and that is something that they have always said," BOT spokesperson Roong Mallikamas said.

Moody's reported that Thailand's debt-carrying capacity, which stems from pro-active and credible debt and monetary policy management, would still play a big part in stabilising the country's financial position. It believes the deeply polarised domestic political situation poses the main challenge for its key credit strengths and economic growth.

Moody's expects Thailand's gross domestic product to grow less than 3 per cent on average in 2014 and 2015 due to delays in public and private investment and dampened consumer confidence. It noted that the expected economic growth rate for these two years is well below the average of 3.8 per cent growth in the past 10 years.

Besides the slowing down of economic growth, Moody's also anticipates cyclical pressures on Thailand's banking sector from the challenging macroeconomic environment and the continued political crisis, which had led to the slowdown of credit growth and resulted in the deterioration of some asset quality.

The good news is that external vulnerabilities on the country's economy are limited by its high foreign exchange reserves in relation to short-term external debt payments while improvements in the political climate and governance that support long-term stability should be enough to increase the country's credit rating in the future.

Progress in strengthening public sector finances such as reducing the budget deficit and off-budget spending as well as limiting contingent fiscal liabilities associated with populist measures would also improve the Kingdom's rating, according to Moody's.


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