Thailand’s stimulus programme appropriate given growth pressures; no immediate impact on gBBB1(pi) ratings

Published on 23 Aug 2019.

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Recently, Thailand announced a sizeable stimulus programme valued at THB316 billion (or 1.9% of expected GDP in 2019) and a rice price guarantee scheme (estimated at THB21 billion). A response to the country’s weaker growth outlook, the stimulus programme entails higher cash handouts to marginalised households and support measures for farmers affected by a recent drought. Thailand’s respective global- and ASEAN-scale ratings at gBBB1(pi)/stable and seaAA1(pi)/stable remained unchanged as economic conditions warrant a supportive policy stance and the Kingdom has ample policy space which is backed by recent measures to improve fiscal discipline.

Economic growth had decelerated to 2.3% y-o-y in 2Q 2019 from 2.8% the previous quarter (2010-2018 annual average: 3.3%) as unresolved global trade tensions constrained exports and manufacturing activity. Heightened risk aversion and a protracted government formation period following recent elections had likewise lowered the investment outlook despite initial positive expectations of trade diversion-related business developments. In this context, the stimulus measures are viewed as appropriate as it would diminish the severity of the growth slowdown.

Thailand’s low debt level and track record of narrow fiscal deficits anchor its ratings and offset budgetary pressures associated with the expansionary fiscal stance. The Kingdom’s public sector debt (inclusive of state agency debts and government-guaranteed debts) – which stood at 41.3% of GDP as at end-2Q 2019 – and low debt servicing cost of 5.5% of revenues are indicative of adequate fiscal space. The available fiscal space is emphasised by lower than anticipated government expenditure. In the first 10 months of fiscal year ending September 2019, the Government had utilised only 79.1% of its initial budget (THB 3 trillion), with significant underspending in capital expenditure. Further, recent legislation – the Fiscal Responsibility Act 2018 and the State Financial and Fiscal Discipline Act 2018 – are viewed would limit fiscal pressures arising from the stimulus measures.

That said, monetary policy space is somewhat limited by the existing key policy rate (1.50%) and a high household debt level (78.6% of GDP as end-2018). The stimulus programme, which also includes various debt relief measures for farmers and increased availability of low-interest housing loans, could result in further growth of consumer debt and heighten the Kingdom’s sensitivity to future interest rate adjustments. However, as these programmes are undertaken by public sector institutions, any impact on the broader financial sector is expected to be muted.

Thailand’s ratings could be upgraded if current domestic and foreign private investment activity growth trends are sustained, leading to broad-based economic growth. Structural reforms and full-execution of key development projects that improve the country’s growth potential will also be viewed positively in the longer term. Conversely, political upheavals and a material erosion of external indicators would weigh on the ratings.

Analytical contact                
Jason Fong                    
(603) 3385 2616                

Media contact
Padthma Subbiah
(603) 3385 2577

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