Risk experts had been losing faith in Thailand before its political problems resurfaced.
The political unrest that erupted in late-November took the markets by surprise. However, ECR experts had been shaving their risk scores over a longer period, contrasting with an otherwise improving trend across the Asia region now that China is back on the front foot (see chart).
Scores for Thailand’s economic-GNP outlook have been downgraded the most of any risk indicator compared with a year ago, highlighting the fact nearly all growth drivers – spanning domestic and external demand – have been weakening.
Furthermore, all bar one of the sovereign’s political indicators score less than five out of 10 in Euromoney’s survey; government stability a paltry 3.9.
The slump has seen the sovereign slip further down the third of ECR’s five tiered groups below Turkey, to 51st place out of 186 countries.
Thailand’s risk score (now 55.5 out of a maximum of 100) had been steadily declining since the start of 2012, partly because of the fears of resurgent opposition to former prime minister Thaksin Shinawatra’s legacy given the attempts by his sister, Yingluck, the incumbent, to engineer his return and with pending corruption charges lying over her head and other government officials.
These risks were compounded in recent months by the US Federal Reserve’s warnings of a tapering of its quantitative easing (monetary expansion) programme, which sparked capital outflows, weighing down currencies, such as the Thai baht, in countries with twin deficit problems.
Having reverted from a surplus to a very small negative balance last year, Thailand’s current-account deficit grew to $6 billion during January to October of this year, according to the Bank of Thailand (the central bank), more than four times as large as the full-year total for 2012, with two months to run.
Concurrently, the budget deficit has widened to 3% of GDP or more, it is estimated, nudging public-sector debt ever closer to 50% of GDP, with debt servicing costs higher on the back of a rise in bond yields to more than 4%. Foreign exchange reserves have slumped since May.
These problems could worsen next year, given the government’s plan to lower personal income tax in January and the effects of the crisis on tourism and investor confidence constraining economic growth and weakening budget revenue. An extended constitutional crisis would bring government policymaking to a halt.
According to Nithi Wanikpun, a colleague of ECR expert Nuchjarin Panarode, at Nomura: “Twenty countries have already issued travel advisories to their citizens to avoid Thailand. It should be noted that [the] tourism industry contributes around 7.3% of Thailand’s GDP.”
Steffen Dyck, working alongside ECR expert Christian de Guzman at Moody’s – which has kept Thailand stable at Baa1 – states that the protests are “a credit negative for the sovereign”.
He adds: “While Thailand’s credit fundamentals still compare favourably with similarly rated peers, weaker growth will negatively affect the fiscal balance and contribute to rising debt ratios.”
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