Moody’s claims a ‘resilient’ economy

Moody’s claims a ‘resilient’ economy

Agency maintains Thai credit rating with stable outlook, but public debt expected to rise

Moody’s Investors Service affirmed Thailand’s credit rating and kept its outlook at stable, said Patricia Mongkhonvanit, managing director of the Office of Public Debt Management.

On Thursday, Moody’s affirmed the Thai government’s ratings on the Baa1 issuer and unsecured local currency ratings.

The Baa1 ratings affirmation reflects Moody’s expectation that Thailand will continue to demonstrate economic resilience to future shocks, underpinned by its large and diversified economy and strong macroeconomic policy effectiveness, the agency said. rating.

While Moody’s expects Thailand’s public debt to rise and remain well above the pre-pandemic norm, leaving the government with weakened fiscal strength for some time to come, Thailand’s fiscal measures will always be stronger than the most Baa-rated peers.

The government is likely to accelerate its pace of fiscal consolidation over the next 2-3 years once the economic recovery takes hold, Moody’s said.

The stable outlook indicates balanced risks for Thailand’s credit profile. Thailand’s economic strength could benefit from productivity gains, including from the ramping up of the Eastern Economic Corridor, to a greater extent than Moody’s currently expects.

Moody’s expects Thailand’s real GDP growth to exceed potential rates for the next 2-3 years as the effects of the pandemic fade, although the global shock of the coronavirus invasion Ukraine by Russia will slow the recovery.

The rating agency predicts that the Thai economy will grow by 3.4% in 2022 and 4.8% in 2023.

Tourist arrivals are expected to resume this year, albeit gradually, after borders reopened in Thailand and other countries, as well as an easing of quarantine rules and testing requirements for tourists, Moody’s said.

Moody’s expects tourist arrivals to reach around 15% of pre-pandemic levels by the end of 2022, before climbing to around 50% in 2023.

Tourist arrivals are not expected to return to pre-pandemic levels until late 2024 or early 2025.

The rating agency’s base case scenario incorporates a view that tourist arrivals from China will pick up from 2023, while the number of Russian tourists will decline significantly this year due to the war, before rising again. slightly in 2023.

Looking further ahead, Thailand continues to face structural challenges that will weigh on potential growth. Its rapidly aging population will limit labor supply, while subdued competitiveness and shortages of higher-value skills will weigh on labor productivity, Moody’s said.

The pandemic has led the government to record large budget deficits in 2020 and 2021 to support the economy, sharply increasing the public debt burden.

Thailand’s prudent fiscal policy in the past has given it significant fiscal space to respond to the economic shock.

Thailand’s budget deficit was 4.5% and 7.9% of GDP for fiscal 2020 and 2021, respectively.

Moody’s expects the government to continue running deficits of 3-4% over the next 2-3 years to support the still-fragile economic recovery.

As a result, Moody’s expects public debt to remain on a slight upward trend, reaching 52-54% of GDP from 2022 to 2024, from 51% in 2021 and a much lower level of 34% in 2019. At this point, economic conditions and social environments are likely to create the conditions for tighter deficits that can reduce the debt burden, the rating agency said.