Fitch Ratings has affirmed Thailand's long-term foreign-currency issuer default rating (IDR) at BBB+ with a stable outlook.
The country's ratings are underpinned by robust external finances and a strong macroeconomic policy framework, which should bolster the economic recovery from the Covid-19 pandemic.
These strengths are balanced by weaker structural features compared with its peer group, including lower per capita income and World Bank governance scores. Public finance metrics deteriorated in the past couple of years, and while they are in line with peers, future consolidation could be challenged by adverse demographic factors and scarring from the pandemic. Among other factors influencing the rating:
Growth to gain traction: Fitch forecasts Thailand's GDP growth to accelerate to 3.8% in 2023 (the median for BBB-rated countries is 2.0%) from 3.3% in 2022. Growth momentum will be underpinned by a robust recovery of inbound tourism due in part to pent-up demand, and continued improvement in domestic demand based on sustained public spending and easing inflation. These positive trends should offset external headwinds from global monetary tightening and weaker external demand due to lacklustre global growth prospects.
Our baseline forecast is for tourist arrivals to rise to about 24 million in 2023, or 60% of the pre-pandemic level, from 10.3 million in 2022. A sharper global economic downturn, however, could weigh on growth, while the potential for a faster than expected revival of Chinese tourist arrivals in the second half of 2023 could provide an upside.
Mild fiscal consolidation: Fitch estimates a general government deficit of 4.9% of GDP in fiscal 2022 ending on Sept 30, down from 6.8% in fiscal 2021, largely reflecting stronger than budgeted revenue and reductions in pandemic-related spending. We forecast a narrower deficit of 3.8% in fiscal 2023 as modest fiscal consolidation continues. Revenue collection should be buoyant as growth strengthens, though sustained public investment and targeted energy subsidies and transfers will keep the deficit sizeable.
Elevated public debt ratio: Fitch forecasts gross general government debt to rise to 56.2% of GDP by fiscal 2024 from 54.9% in 2022. Under the government's current medium-term fiscal framework, deficits are forecast to remain steady and above pre-pandemic levels. This would lead to the debt ratio stabilising around current levels, and could constrain fiscal headroom in the event of another shock.
Public debt risks mitigated: Fitch believes the government's solid access to its deep domestic capital markets and a public debt stock mainly funded in baht mitigate the risks.
Robust external position: Thailand's external finances have remained resilient during the pandemic, providing buffer against tighter external funding conditions. We forecast the current account to flip back to a surplus of 1.9% of GDP in 2023, from a deficit of 3.2% in 2022, largely due to stronger tourism receipts offsetting weaker merchandise exports, and as headwinds from high energy import and freight payments gradually wane.
Fitch projects Thailand will maintain its large net external creditor position at 42.1% of GDP in 2023, which is well above the projected median level for BBB- and A-rated peers. Foreign-currency reserves fell in 2022 as the country is a large net oil importer. But we expect reserves to gradually rebound and remain sufficient to cover 6.9 months of external payments in 2023, in excess of the projected BBB median of 5.6 months.
Moderate inflationary pressures: Headline inflation is forecast to average 6.2% in 2022, mainly fuelled by broadening cost-push factors and baht weakness. We project inflation will moderate to 2.8% in 2023 on easing commodity prices and currency pressures, and a mild wage-price spiral. We expect the Bank of Thailand to stick to a measured tightening path by raising the benchmark interest rate to 1.25% by the end of 2022 and 2.00% by the end of 2023.
High household debt: Fitch has a neutral sector outlook on Thailand's banks. We believe financial-sector risks are well contained, despite pockets of vulnerability. Household debt fell to 88.2% of GDP as of June 30 from 90.1% at the end of 2021, but remained above that of most regional peers. However, banks are well-capitalised with high loan-loss allowance coverage and stable liquidity, providing buffer against unexpected shocks.
Political uncertainty: Political tensions could rise in the run-up to the elections slated for May 2023, but are unlikely to disrupt growth momentum, despite possible protests. The election outcome remains highly uncertain and there remains the potential that a broad and fragmented coalition government could emerge. This could complicate effective policymaking, but is unlikely to lead to a major shift in economic strategy by the next government.
