Fitch Ratings has affirmed Thailand's long-term foreign-currency issuer default rating (IDR) at BBB+ with a stable outlook. Among the key ratings drivers are:
External strengths, structural constraints: Strong external finances and sound macroeconomic policy framework must be weighed against weaker structural features, such as lower per capita income and World Bank governance scores, compared with 'BBB' category peers.
Lingering political uncertainty also weighs on the country's credit profile, but this may be partially alleviated after parliament agrees on a new prime minister. Demographic headwinds could exacerbate the challenges to the medium-term growth outlook and fiscal consolidation plans.
Growth to strengthen: Fitch forecasts real GDP growth of 3.7% in 2023 and 3.8% in 2024, up from 2.6% in 2022. We expect the country's economic prospects will be bolstered by an increasingly broad-based tourism revival from key source markets, alongside robust private consumption as the labour market recovers steadily amid policy settings that remain supportive.
Merchandise exports will continue to face headwinds, given subdued global demand and the lagged effect of monetary tightening in advanced economies.
Strong tourism recovery: We expect international tourist arrivals to significantly increase to about 29 million in 2023, from 11.2 million in 2022, reaching nearly three-quarters of their pre-pandemic level. The tourism recovery outlook has improved in light of China's swift reopening.
A stronger-than-expected tourism recovery offers a key upside to near-term growth prospects, while a more pronounced global economic slowdown and domestic political uncertainty form the major downside risks to the economy.
Political uncertainty could continue: Effective policymaking may be constrained if the formation of the new government drags on for several months. Still, we believe such an outcome is unlikely to lead to major shifts in the government's key economic development strategy.
More protracted political strife, however, could add to social stability risks and lead to disruptions to budget disbursements for the 2024 fiscal year that starts on Oct 1 this year, although this is not our baseline assumption.
Mild fiscal consolidation: Fitch projects a general government deficit of 3.4% of GDP in fiscal 2023, down from 4.4% in fiscal 2022. The deficit reduction reflects stronger-than-budgeted tax revenues and the phasing out of pandemic-related spending, which offset extended relief measures to mitigate the impact of elevated energy prices.
The deficit is forecast to fall to 3.2% in fiscal 2024, aided by solid revenue collection, though sustained social welfare spending with additional relief measures advocated by major parties during the election campaign could constrain fiscal consolidation efforts.
Public-debt ratio to stabilise: Fitch forecasts gross general govern- ment debt (GGGD) will increase to 55.9% of GDP by fiscal 2025, equal to the median for 'BBB' category peers, and that the ratio will remain about 20 percentage points above the level seen in fiscal 2019.
Thailand's public finance metrics deteriorated significantly during the pandemic, eroding its fiscal strength relative to its peers, and constraining fiscal headroom from a ratings perspective against renewed shocks.
Our baseline case is for the GGGD/GDP ratio to stabilise over the medium term with an assumption of continued gradual fiscal consolidation. We believe the government's access to deep domestic capital markets and high share of local-currency debt in public debt stock with a relatively long average maturity mitigate the public finance risks.
Robust external finances: Thailand's resilient external position remains a core strength, providing a buffer against tight global financial conditions and geopolitical risks.
Fitch projects the current account will flip back to a surplus of 2% of GDP this year, and widen further to 3.9% in 2024, reversing average deficits of 2.8% for the past two years. Such a shift reflects our expectation of improving tourism receipts and an easing terms-of-trade shock on falling oil prices.
Ample foreign reserves: Fitch forecasts Thailand will maintain its large net external creditor position at 42.6% of GDP in 2023, well above the projected median level for 'BBB' (-2.2%) and 'A' (4.8%) rated peers.
Foreign-currency reserves have gradually rebounded since the fourth quarter of 2022 with the steady tourism recovery, despite bouts of market volatility. We expect reserve buffers will remain ample to cover 7.3 months of current external payments in 2023, in excess of the projected median of 4.2 months for 'BBB' and 'A' peers.
Measured monetary normalisation: We project headline inflation to average 2.0% in 2023, a significant reduction from 6.1% in 2022, and within the Bank of Thailand's target band of 1-3%. This reflects a combination of falling cost-push factors, a mild wage-price spiral and favourable base effects.
Headline inflation has decelerated quickly, but the Bank of Thailand is still likely to raise its policy rate by 25 basis points to 2.25% before an extended pause, given its focus on price pressures that may emanate from the continued tourism and consumption recovery.
Elevated household debt: Thailand's household debt-to-GDP ratio fell to 90.6% in the first quarter of 2023 from a peak of 95.5% in the first quarter of 2021, but the ratio remained above that of most regional peers.
Deterioration in the debt serviceability of highly indebted households and businesses constitutes a source of financial-sector vulnerability, although the banking sector appears resilient to such asset-quality challenges. We expect the banks to continue maintaining solid buffers against downside risks, supporting the neutral outlook for the sector.
