Thailand's credit fundamentals are strong enough to withstand its political crisis, according to Moody's Investors Service.
There is a negative impact on growth, but currently Thailand’s sovereign credit profile remains consistent with its “Baa1” rating and stable outlook.
The political situation should stabilise by the second half of this year, and elections for a new government should be completed and a government formed, likely by July, as the political schedule is currently unfolding.
“We also expect the ongoing protests to remain concentrated in certain areas in Bangkok and do not foresee significant physical disruptions to vital economic sectors, such as manufacturing or tourism,” Steffen Dyck, an assistant vice president and analyst, said yesterday in the release of Moody’s “Credit Focus on the Government of Thailand”.
The report presents a detailed discussion of Moody’s baseline scenario for this year, the links it sees between the political crisis and Thailand’s creditworthiness and the country’s credit fundamentals.
While Thailand’s government bond rating remains unchanged, the political crisis is weighing on its growth performance in 2014.
Political uncertainty hurts private consumption and investment, and the tourism industry may also suffer. “However, Thai government finances continue to show a considerable degree of decoupling from political events,” Dyck said.
Thailand’s credit strengths mitigate the negative impact, the report said. The favourable character of the government’s debt structure is a key credit strength in this regard.
Other strengths are prudent monetary, macroeconomic and debt management, sustained external strength despite erosion of the post-Asian-financial-crisis current-account surplus, a relatively strong growth outlook and an overall healthy banking system.
Thailand’s fundamentals and existing buffers compare favourably to other Moody’s-rated sovereigns that have recently experienced revolutions or are undergoing political crisis.
However, the examples of Egypt, Tunisia and Bahrain also highlight the potential speed and magnitude of sovereign-rating downgrades if political conflicts intensify towards, or result in, a violent overthrow of the government.
Factors that could trigger a negative rating action include the extension of the current political deadlock into the second half, a severe escalation or proliferation of political conflict, and the escalation of protests directed towards targets that directly affect economic assets, and which translate into significant and potentially long-lasting effects on tourism or manufacturing.
Other factors include a marked rise in government funding costs, as relating to domestic political uncertainty, or a lapse in fiscal discipline, or a sharp deterioration of the balance of payments and a significant loss of official international reserves.