Fitch Revises Outlook on Thailand to Stable; Affirms at ‘BBB+’

Fitch Ratings has revised its Outlook onThailand's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stablefrom Positive and has affirmed the rating at 'BBB+'.


The Outlook revision reflects the evolvingimpact of the global COVID-19 outbreak on Thailand's economy through itstourism sector as well as lingering uncertainty in Thailand's politicalenvironment following the country's transition to civilian rule. The 'BBB+'rating reflects Thailand's sound external and public finances, which serve ascushions against economic and financial shocks. These strengths are balanced byweaker structural features relative to peers, including lower World Bankgovernance scores and, to a lesser extent, lower income per capita.

Fitch forecasts that Thailand's economicgrowth will weaken to 1.0% in 2020, from 2.4% in 2019, on account of theCOVID-19 pandemic. This would mark a second consecutive year of slowing growth,and the lowest pace of expansion since 2014. A combination of factors led tothe economic slowdown last year to 2.4%, from 4.2% in 2018, including weakerexternal demand amid US-China trade tensions, a sharp appreciation of the baht,delayed approval of the budget for the fiscal year ending-September 2020(FY20), and drought conditions in the agricultural sector.

The growth outlook for 2020 is subject toconsiderable downside risk due to the uncertainty surrounding the duration ofthe virus shock. Thailand's tourism sector is especially vulnerable. The sectorand related business account for around 20% of GDP, according to the Bank ofThailand (BoT). Preliminary figures indicate that tourist arrivals for themonth of February declined by almost 44% year-on-year. Our baseline assumes theglobal outbreak is gradually contained, setting the stage for a gradualrecovery of tourism inflow.

In the meantime, there are other factorssupporting growth. In particular, the long-awaited approval of the FY20 budgetwill help to boost infrastructure investment in the remainder of 2020; thebudget was delayed by over four months due to the lengthy formation of the newgovernment coalition and legal issues about the validity of some parliamentaryvotes. The government has also adopted various relief measures to supporttourism and other sectors, such as extending the income-tax return deadlinefrom March to June 2020 and tax deductions. More recently, the governmentapproved an estimated THB400 billion (2.4% of GDP) stimulus package, whichincludes targeted soft loans for small and medium enterprises (SMEs) toalleviate the impact of COVID-19 on the slowing economy. Additional stimulusmeasures, such as tax benefits, debt payment extensions and financialassistance, may be adopted to maintain the debt-service ability of householdsand small private businesses if downward pressure on the economy persists inthe next couple of quarters.

We expect momentum to regain traction in2021, with growth projected at 3.8% as external and domestic demand graduallyrecover in line with regional trends. Continued public expenditure andimplementation of the government's infrastructure programme under the 20-yearnational strategy and the Eastern Economic Corridor should support modesteconomic growth in the coming years, which Fitch estimates at 3.5% over themedium term. Thailand will nevertheless continue to face structural challengesfrom an ageing population and human capital constraints.

The BoT cut its benchmark policy rate by25bp to a historical low of 1.0% at its last policy meeting on 5 February,adding to two rate cuts of a cumulative 50bp since August. We expect one morerate cut in 2020 to bolster the economy in the near term. Headline consumer inflationincreased to 0.7% year-on-year in February 2020, well below the BoT's 1%-3%target band. We expect inflationary pressure to remain muted for the remainderof 2020.

Fitch expects Thailand's record of soundfiscal management to remain intact, supported by the enactment of the FiscalResponsibility Act in April 2018. We forecast a wider general governmentdeficit (Government Finance Statistics basis) of 1.3% of GDP in FY20, from 0.8%in FY19, due to the reduced government revenue and the government's stimulusmeasures. Fiscal measures from the recent stimulus package are unlikely tosignificantly widen the FY20 budget deficit, and we project the government tohave fiscal space to counter a prolonged economic downturn. We expect thegeneral government debt-to-GDP ratio to gradually increase to 43.3% by FY24,from 35.9% in FY19, as the government utilises its fiscal space to boostinfrastructure investment. Thereafter, we project the debt ratio to revert to adownward trend.

Fitch forecasts Thailand's externalfinances to remain robust relative to peers, a core strength of the country'scredit profile. We forecast the current account surplus to remain high at 5.8%of GDP in 2020. Official reserves covered an average of 8.2 months of currentexternal payments in 2018-2019; we forecast coverage of 8.7 months and a netexternal creditor position at around 44% of GDP in 2020, both well above the'BBB' and 'A' median peer levels.

Thailand's political environment remainsdivisive, exacerbated by the ruling coalition's thin parliamentary majority andvocal opposition. However, the coalition's majority increased somewhat afternine members of parliament from the Future Forward Party joined a coalitionparty supporting the government. As such, the coalition government will likelybe less constrained in parliament, reducing risks around its ability toimplement its policy agenda and ensures policy continuity.

Nevertheless, a degree of lingeringpolitical uncertainty remains. In late February 2020 Thailand's ConstitutionalCourt dissolved the Future Forward Party - a main opposition party thatreceived the third-highest share of seats in the legislature - over claims ofillegal donations to political parties. These actions have led to limiteddiscontent at university campuses.

Fitch believes financial-sector risks willbe contained amid the economic downturn. Thailand's household debt-to-GDP ratioat the end of 3Q19 was 79.1% (seasonally adjusted), which remains high comparedwith peers, and households' ability to service debts may worsen as economicconditions deteriorate. However, Thai banks are well-capitalised, with highexcess provisions and sound liquidity, providing a buffer against potentialshocks, particularly for low-income households.


Fitch's proprietary SRM assigns Thailand ascore equivalent to a rating of 'BBB+' on the Long-Term Foreign-Currency IDRscale.

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows:

  • External Finances: +1 notch, to reflect strengths in Thailand's external finances not captured in the SRM, including its large net creditor position and strong external liquidity.
  • Structural Features: -1 notch, to reflect lingering uncertainty in Thailand's political environment.

Fitch's SRM is the agency's proprietarymultiple regression rating model that employs 18 variables based on three-yearcentred averages, including one year of forecasts, to produce a scoreequivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-lookingqualitative framework designed to allow for adjustment to the SRM output toassign the final rating, reflecting factors within our criteria that are notfully quantifiable and/or not fully reflected in the SRM.


The main factors that could, individually or collectively, trigger positive rating action are:

  • A resumption of resilient growth without the emergence of imbalances.
  • Lower social and political tensions, for instance, reflected by improved governance and development indicators or a record of political stability.

The main factors that could, individuallyor collectively, lead to negative rating action:

  • Renewed political disruption on a scale sufficient to negatively affect Thailand's economy.
  • A significant and sustained rise in Thailand's government-debt ratios; for example, due to fiscal deterioration or the appearance of contingent liabilities on the sovereign balance sheet.


The tourism sector is subject to a slowrecovery as the global COVID-19 outbreak is gradually contained.


Unless otherwise disclosed in thissection, the highest level of ESG credit relevance is a score of '3' - ESGissues are credit neutral or have only a minimal credit impact on the entity,either due to their nature or the way in which they are being managed by theentity.

Thailand has an ESG Relevance Score of '5'for Political Stability and Rights, as World Bank Governance Indicators havethe highest weight in the SRM and are therefore highly relevant to the ratingand a key rating driver with a high weight. Thailand's rating reflects a higherlevel of risks in the political environment relative to peers.

Thailand has an ESG Relevance Score of '5'for Rule of Law, Institutional and Regulatory Quality, and Control ofCorruption, as World Bank Governance Indicators have the highest weight in theSRM and are therefore highly relevant to the rating and a key rating driverwith a high weight.

Thailand has an ESG Relevance Score of '4'for Human Rights and Political Freedoms, as World Bank Governance Indicatorshave the highest weight in the SRM and are relevant to the rating and a ratingdriver.

Thailand has an ESG Relevance Score of '4'for Creditors Rights, as willingness and ability to service debt are relevantto the rating and a rating driver, as for all sovereigns.

For more information on our ESG RelevanceScores, visit www.fitchratings.com/esg

Additional information is available onwww.fitchratings.com