Fitch Ratings Affirms Thailand’s BBB+ Status: Outlook Stable

Fitch Ratings confirmed Thailand’s long-term foreign-currency issuer default rating (IDR) at “BBB+.”  A decision that reflects an equilibrium between the country’s strong external finances, its effective macroeconomic policy, and exact structural difficulties. Regardless of a lower per capita income and World Bank governance ratings compared to BBB-rated peers, Thailand keeps a stable outlook, as the election of a new prime minister may reduce political instability.

Tourism Recovery
Thailand’s GDP growth is expected to increase to 3.7% in 2023 and 3.8% in 2024 from 2.6% in 2022. This growth is primarily attributable to a widespread resurgence in tourism, increased private consumption due to a recovering labor market, and favorable policy settings. Nonetheless, sluggish global demand and monetary tightening in developed economies may continue to pose challenges for exports of goods.

Tourism in Thailand is on the brink of a major rebound. Due to China’s sped-up reopening, foreign arrivals are projected to almost triple from 11.2 million in 2022 to around 29 million in 2023. The foreseeable trajectory of the global economy and domestic politics may threaten this recovery, but a stronger-than-anticipated surge in tourism could spur expansion.

Unstable Politics
Ongoing political instability could briefly impact Thailand’s economic and fiscal policies. The next prime minister is scheduled to be chosen by a joint session of parliament on July 13, but the timetable of the new government’s inauguration remains uncertain. Even if the formation of the government takes longer than anticipated, Fitch believes the probable effect on Thailand’s main economic strategies will be minimal.

Decreased Foreign Deficit
Fitch predicts a decline in the general government deficit to 3.4% of GDP in 2023, from 4.4% in 2022, due to robust tax revenues and decreased pandemic-related expenditure. However, continuous social welfare expenditures and suggested relief measures could hinder consolidation efforts.

Fitch projects the gross general government debt to remain constant over the medium term, regardless of the major strain on public finances caused by the Covid-19 pandemic due to progressive fiscal consolidation and strong domestic capital markets.

Robust Financial Health
Thailand’s strong external position and expected current account surplus of 2.0% of GDP in 2023, rising to 3.9% in 2024, illustrates the country’s robust financial health. Additionally, the country has substantial foreign-exchange reserves, which provide a firm barrier against global financial uncertainties and geopolitical risks.

Slowing Inflation
Due to declining costs and favorable base impacts, Fitch expects that Thailand’s inflation will hold steady at 2.0% in 2023, within the Bank of Thailand’s target range. Nonetheless, the bank is anticipated to raise its policy rate marginally to counteract possible price pressures resulting from the recovery of tourism and consumption.

Increased Household Debt
Despite Thailand’s household debt-to-GDP ratio staying high relative to regional peers, the country’s banking industry looks resilient to prospective asset-quality challenges. The sector is anticipated to maintain substantial buffers against downside risks, supporting a neutral outlook.

ESG Score
Thailand’s ESG (Environmental, Social, and Governance) significance scores for Political Stability and Rights and Rule of Law, Institutional and Regulatory Quality, and Control of Corruption are ‘5’ and ‘5[+]’, accordingly Despite enduring political instability, the country’s medium ranking on the World Bank Governance Indicators demonstrates strong institutional capacity, high regulatory quality, and a well-established rule of law.

In summary, Thailand’s economic outlook is defined by its strong external finances, optimistic GDP growth, and tourism revival. Despite obstacles such as continuing fiscal consolidation and high household debt, Thailand’s resiliency is evidenced by its robust fiscal buffers and external position

On the other hand, the Thailand Elite Visa program is expected to positively impact Thailand’s economy by attracting affluent foreign nationals who wish to stay in the country for an extended period, whether for business, leisure, or retirement. With a residence visa valid for up to 20 years and a variety of lifestyle benefits, this visa option is gaining popularity and contributing to the recovery of Thailand’s tourism sector.

SOURCE: Fitch Ratings