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Thai finance minister pushes rating upgrade

Publication Date : 15-01-2013


Thai Finance Minister Kittiratt Na-Ranong placed the biggest bet on the 2.27-trillion baht (US$75.2 billion) infrastructure investment plan when trying to convince Moody's Investors Service that Thailand should win an upgrade in its sovereign credit rating.

In a meeting with Moody's analysts who are in Bangkok as part of the company's annual review of the Kingdom's sovereign rating, he said the investment as well as policies to rebalance the economy and political stability would brighten the country's long-term outlook.

"Moody's review is not focused on current affairs, but forward-looking aspects. The infrastructure investment is a long-term policy, as it would be legally binding for this and subsequent governments. This should convince rating agencies of the long-term bright prospects of the Thai economy," said Kittiratt, who is also a deputy prime minister.

At a seminar on the Asean Economic Community hosted by TV Channel 3, he said the draft bill for the seven-year investment plan should be submitted for the Cabinet's approval this month, or by February at the latest.

The government tentatively plans to provide 8 per cent of the needed funds through revenue of involved state enterprises, 69 per cent through borrowing by government and state enterprises, 9 per cent through annual fiscal budgets, and 14 per cent through public-private investment.

Of the total budget of 2.2 trillion baht, 64 per cent will fund 31 rail-related projects, 24 per cent will go to 13 road projects, 7 per cent to seven water-transport projects, and 4.75 per cent to four air-transport projects.

He said the borrowing, to be approved on an annual basis like conventional budgets, would ensure smooth execution and allow Thailand to achieve a balanced budget in 2016. The government plans to reduce the 2014 budget deficit to 3 per cent of gross domestic product, from 4 per cent this year. The deficit will then be cut to 2 per cent of GDP in 2015.

"The investment is to make Thailand the Asean centre for trade and investment," he told the audience.

To Moody's analysts, Kittiratt said the country was rebalancing the economy by trying to reduce reliance on export and boost domestic consumption through several measures such as the rise in the daily minimum wage to 300 baht nationwide, which would consequently boost economic growth.

The analysts met with Kittiratt yesterday. He also told the rating agency that the government had pushed for massive investment on infrastructure mega-projects, which would contribute to long-term economic growth.

He told Moody's that the government of Prime Minister Yingluck Shinawatra enjoyed political stability and was ready to go ahead at full steam to move the country forward and implement all policies. The situation is different from 2006 when the military staged a coup d'etat and the country lacked political stability.

He said groups of people with starkly different political stances had expressed ideas and treated one another on a softer basis, resorting more to the parliamentary process to solve political tensions. This suggests that renewed political strife is less likely to erupt.

Thailand's rating is now "Baa1".

Meanwhile, Moody's said in the just-released "Asia-Pacific Sovereign Outlook 2013: Resilient to Global Headwinds" that sovereign credit fundamentals in the Asia-Pacific region should remain resilient to both global headwinds during 2013 and the persistence of extraordinary easing by the US Federal Reserve. Although growth in the region is expected to remain flat at 5 per cent, it will continue to grow faster than any other region. While China's growth has moderated, it should remain relatively robust in the near term.

"Importantly, banking systems in the Asia-Pacific are generally sound and well positioned to continue to support growth without posing significant contingent risks to their respective sovereigns. Financial soundness indicators, such as capital adequacy, liquidity [low loan-to-deposit ratios], and asset quality, are generally robust enough to withstand either a normalisation of interest rates, or a range of adverse economic shocks emanating from the global economy," it said in the report.

Moody's further expects growth in Asia and the Pacific to pick up only slightly over the near term, and remain below long-term averages in 2013 and 2014. This expectation is especially so with the large economies in the region. Notably, Moody's expects China's annual real GDP growth to remain at around 7.5 per cent and thus avoid a hard landing - although below the past decade's average of 10 per cent.

For 2012 and 2013, Moody's expects the region's GDP-weighted average current-account surplus to hover around 1 per cent of GDP after having peaked at 5 per cent in 2007. As a result of this projected lower current-account surplus, the growth of aggregated international reserves in the region, which amounted to roughly $6.5 trillion (197 trillion baht) as of September 2012, will slow further.

Nevertheless, the Asia-Pacific region will maintain its top position in terms of total reserves, which are projected at $7 trillion by the end of this year.

Nevertheless, rising geopolitical tensions over the past year have emerged over maritime territorial disputes and will have significant economic ramifications if not constructively managed. Elections over the next year may also impact the outlook for reform in several countries.

*US$1=30.1 baht


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