Although Standard & Poor's Ratings Service sees no reason to downgrade Thailand because of the problems from the rice-pledging project, it cautions that the sovereign ratings could be pressured if the country's institutional and governance effectiveness w
“The ratings could come under pressure if policy-making weakens further, such that we believe Thailand’s institutional and governance effectiveness is no longer commensurate with the existing rating.
“We believe that Thailand’s institutional and governance effectiveness will remain a weak credit factor, with no potential for improvement over the next 12-24 months,” the rating agency said yesterday.
Thailand’s rice-pledging programme highlights a short-sighted and politically driven approach to policy-making in Thailand, the agency said.
However, the scheme on its own will not have any significant impact on the credit quality of the sovereign. “The full amount of realised losses will accrue over time as the stockpiles are sold, and the support scheme has built-in limits starting in fiscal 2014 that were absent in the initial version,” it said. S&P has no plan to lower the sovereign rating on Thailand – foreign currency “BBB+/Stable/A-2”; local currency “A-/Stable/A-2”; “axAA/axA-1” – because of the fiscal cost of the rice-support scheme.
“Thailand’s fiscal and debt metrics can accommodate the likely losses from the rice-pledging scheme and will remain comfortably in the ranges commensurate with the current rating,” credit analyst Agost Benard said.
“In our base-case scenario, we project general government fiscal deficits to average 0.7 per cent of GDP in 2013-16. We expect general government debt as a percentage of GDP to rise by an average of 3 per cent annually over this period. As a result, we project net general government debt to reach a still moderate 25 per cent of GDP.”
The rice-pledging programme committed the government to buying farmers’ crops at significantly higher prices than in the international market. It has led to mounting fiscal losses, accumulating rice stockpiles that Thailand has struggled to sell and Prime Minister Yingluck Shinawatra being charged with dereliction of duty on account of losses and alleged corruption associated with the scheme.
The support programme in its original open-ended form exposed the government to large losses from buying the rice crop at a guaranteed price. The current version caps losses by limiting the amount of support per household.