Sovereign outlook of Southeast Asian nations mostly positive
This year, Thailand’s key credit-negative feature for the sovereign is its prolonged political protests, which will weigh on an already fragile growth outlook, according to Moody’s Investors Service.
The heightened political tensions have marred investor confidence, as reflected in the accelerated decline in the official foreign exchange position since late October.
Elsewhere in Southeast Asia, the sovereign rating outlook will be largely stable on expectation that global growth prospects will improve while global risks will decline.
The emerging economies of Southeast Asia will continue to face heightened credit pressures, partly due to the US Federal Reserve’s tapering of its expansive quantitative easing policy.
“In Indonesia, the widening of the current account deficit over the past two years has given way to concerns about the sustainability of the country’s external payments position. While the policy response has shifted towards stabilisation, political risks could rise ahead of elections later this year,” said Tom Byrne, a senior vice president for sovereign risk.
The stable outlook on Indonesia’s sovereign rating reflects Moody’s expectation that the sovereign’s low level of government debt and narrow fiscal deficits can be maintained, against the backdrop of slowing but still healthy economic growth.
Singapore’s stable rating outlook and “Aaa” rating reflect Moody’s expectation of robust economic growth over the next five years. Compared with similarly rated advanced economies, Singapore has exhibited above-average growth performance.
Malaysia’s positive rating outlook reflects its improved prospects for fiscal consolidation and reform, and continued macroeconomic stability in the face of external headwinds. Since Malaysia’s parliamentary election last year, the government has begun to accelerate fiscal consolidation.
The expected introduction of a goods and services tax next year to broaden the tax base and ease the government’s reliance on petroleum-related receipts, and the rationalisation of Malaysia’s extensive subsidy framework will have the overall effect of bolstering the government’s finances. Credit support for the Philippines comes from its strong growth prospects, track record of narrow fiscal deficits and declining debt burden. The sovereign’s financing needs have been increasingly met using domestic sources. This source of funding, along with the structural current account surplus, renders financing conditions for the government less susceptible to external financial shocks.
Overall, sovereign creditworthiness will be more vulnerable to common global risks than to region-specific exposures. The shared global risks include a disorderly unwinding of monetary stimulus in the US, persistently elevated event risks in the euro area and uncertainty about commodity prices.
“The interaction of these global risks with country-specific factors will determine the credit implications,” Byrne added.