Positive outlook 'clouded by politics'

Uncertainty blocking needed infrastructure development, S&P analyst says

Like its peers in Asia, Thailand's credit rating outlook remains positive, though any political instability - even if it does not include large-scale street protests like in 2010 - could dampen the Kingdom's long-term prospects, an analyst from Standard & Poor's Ratings Services warned.

In his interview with The Nation, Kim Eng Tan also voiced concerns about the growing fiscal deficit caused by the government's populist policies as well as the robust credit growth, which could lead to economic imbalance. Tan is the senior director and analytical manager on sovereign ratings for S&P in Asia-Pacific.





Echoing concerns voiced by analysts from other agencies, Tan said the lack of reforms in the education sector could also undermine the country's long-term economic prospects.

"In the near term, changes to the rating we're most concerned about is [in the area of] politics and political stability. In the worst-case scenario, if we see street protests that are of a very big and prolonged scale, then it would be negative for the country. But even without that, politics in Thailand is so complicated that it prevents the government from implementing changes that could benefit the economy and the credit rating. For instance, Thailand's infrastructure needs a lot of improvement. But many governments have come in and out, and many mega-projects have not been pursued in a very major way. Even the post-flood investment... we have not seen much money allocated for that so far," he said.

During his presentation at the Asean Capital Markets Seminar, hosted in association with Tris Rating yesterday, Tan noted that Thailand's political situation has been relatively calm since the 2011 election. Yet, fundamental differences among key factions appear unresolved and this "could burst out", he warned.



Several catalysts are taking shape from the Thai-Cambodia dispute over land surrounding Preah Vihear Temple to amendments to the Constitution.

Politics aside, Thailand has demonstrated less fiscal flexibility in relation to planned huge investments on infrastructure and populist schemes.

Tan said Thailand has historically been conservative when it came to fiscal policies, until the last few years, when deficits emerged. He said a higher debt level to gross domestic product (GDP) ratio would be tolerable if the money was invested in projects that promise long-term benefits.

Losses from the rice-pledging scheme is one example, as are other schemes like the tax benefits for first-car buyers, which may cause on-budget impacts. "If government expenditure on projects or schemes that have long-term benefits is not there, and if the money is only spent on things that help short-term political benefits, obviously the budget will be in a less favourable state," he said.

He also expressed concern over the lack of educational reform.

"In the past few years, we haven't heard anything about educational reforms in Thailand. This is one of those things for which policy changes can be made so that long-term prosperity can be assured, but it's something we don't see in this political environment," he said.

S&P has given "BBB+" to Thailand's long-term foreign currency rating. The Kingdom has been expecting an upgrade, boasting about its low public debts and high reserves. Yet, while changing the rating, the agency has considered five credit factors - politics, economy, external factors, fiscal flexibility and debt - as well as the monetary situation.

In Asean, only Singapore (AAA) and Malaysia (A-) are rated higher than Thailand.

The sovereign-rating outlook in 2013 is also bright, given improvements in the US and the euro zone.

Tan expects to no loan default in the US, despite the fiscal cliff woes in the US. Meanwhile, the situation in the euro zone in 2013 tends to be better than the past two years, with resources to tackle the problem and understanding among policy makers that austerity measures must be balanced with social impacts.



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