Peaceful election positive for Thailand’s credit rating

Peaceful election positive for Thailand’s credit rating

    July 7, 2011
    Boris Sullivan

A peaceful transfer of power is a step towards reducing the political risk which has been a significant negative factor in Thailand’s country rating since 2006, according to Vincent Milton, Managing Director of Fitch Ratings Thai office.

The prolonged turmoil resulted in a downgrade in the country’s ratings in April 2009, so an actual easing in political risk could be a positive rating factor for Thailand.If the overall political climate improves for a sustained period, consumer and business confidence should continue to recover, barring any external shocks.

This could lead to higher investment and stronger economic growth in the medium term, he said.A robust financial and corporate sector, the government’s fiscal stabilisation and the country’s strong eternal finances are key rating strengths for Thailand.Nonetheless, Fitch will need to see some detail on the new government’s fiscal and broader economic programme to see how this will impact inflation and how the political divisions are bridged in the next few months.

Thailand’s financial sector has so far remained resilient in response to the global financial crisis and domestic political instability. However, a jump in government expenditures could heighten inflationary risks resulting in further pressure on credit quality in the banking system.Fitch views that weakening origination standards in corporate and retail portfolios and concentration risks in corporate lending as well as higher funding costs could pose medium term risks. Strong capital, reserve coverage and profitability should help offset these to some extent.

Also, stricter prudential measures and more restrictive monetary policy settings by the Bank of Thailand could help.Thailand’s credit rating by Fitch is BBB+ while its rating of the local currency long-term senior debts is A- which means stability. MCOT online news

via Fitch Ratings views Thailand’s peaceful election as positive for country’s credit rating.

Director of the Bank of Thailand’s Domestic Economy Department Methee Supapong suggests that the increase to the daily minimum wage, to 300 baht as proposed by the new government, be gradual. He adds that it will have to be approved by the tripartite committee representing the state, employers, and employees, before implementation.

He noted that increasing the wage to 300 baht at once could greatly affect inflation, and that it would be difficult to implement.

Methee suggested that the new government focus on investing in infrastructure projects, as the lack of proper infrastructure is restricting the nation’s development and economic prosperity.

Regarding the new government’s desire to keep policy interest rates low, the director said the most urgent task for his agency is to keep inflation at a level favorable to long-term economic growth.