Thailand: Risk Assessment
Country Risk Rating
|A4||A somewhat shaky political and economic outlook and a relatively volatile business environment can affect corporate payment behavior. Corporate default probability is still acceptable on average.|
Business Climate Rating
|A3||The business environment is relatively good. Although not always available, corporate financial information is usually reliable. Debt collection and the institutional framework may have some shortcomings. Intercompany transactions may run into occasional difficulties in the otherwise secure environments rated A3.|
Growth to stabilize in 2016
After rebounding in 2015, growth is expected to stabilize in 2016. The economy will continue to benefit from the stimulus package rolled out by the authorities in 2015. This involves an infrastructure investment program spread over 8 years and representing 15% of GDP, aimed at modernizing the country's land transport and logistics systems. However, despite a more stable political situation, the steps taken by the government to restore investor confidence are likely to remain modest. Moreover, the Chinese economic slowdown, the poor health of the Japanese economy and low commodity prices will continue to put pressure on the country's exports. Household consumption is expected to rebound slightly. Farmers will benefit from subsidies, the government has introduced incentives for house purchases and inflation is likely to remain modest. However, household debt will continue to put pressure on retail sales.
Moreover, despite the bombing in August 2015, political stabilization and the end to the coronavirus epidemic should enable the tourism sector, which represents 10% of GDP, to rebound. After the drought of 2015, agricultural harvests are expected to recover.
Nevertheless, Thailand is set continue to be penalized by structural constraints and substantial overcapacity, as the country suffers from a lack of skilled labor and investments in R&D. In addition, the recurrent political instability has worsened the business climate.
A Financial situation that remains solid
Despite the government's introduction of budget stimulus policies, the deficit will remain stable and the public debt sustainable in 2016. The public debt, over 95% of which is held by residents, will remain below the 60% cap fixed under the Constitution.
Externally, the current account balance is expected to worsen slightly in 2016 but will remain in surplus. Lower oil prices will help keep the country's energy bill under control. However, exports of goods will be hit by the Chinese economic downturn. Despite the recurrent political crises, Thailand will continue to be a preferred manufacturing base for the automotive and electronic industries.
The precariousness of the political stability and the decline in available liquidity, due to the tightening of US monetary policy, makes the country vulnerable to a crisis of investor confidence. Nevertheless, the level of foreign exchange reserves is comfortable (7 months of imports), providing the country with a satisfactory ability to resist sudden capital flight.
Elections postponed until 2017 due to delays in drafting the Constitution
Following the removal of Yingluck Shinawatra on 7 May 2014, the army declared martial law on 20 May 2014 citing the risk of civil war. On 22 May, the head of the army, General Prayuth, announced a Coup d'état, a curfew, the suspension of the Constitution and the creation of the National Council for Peace and the Maintenance of Order. On 21 August, he was appointed as Prime Minister by the Parliament and he then formed a government, one third of which is composed of military officers. He has also indicated that no elections can take place until the necessary reforms have been implemented. Initially scheduled for the end of 2015, the elections have been postponed on several occasions. The National Reform Council rejected another draft Constitution in September 2015, so the parliamentary elections cannot take place before mid-2017. The government wants to hold a referendum on the future Constitution before fixing a date for parliamentary elections, the results of which remain uncertain. Indeed the pro-Thaksin candidates have won all the polls since 2001 due to their popularity in rural areas. However, the policy conducted by the military government is likely to gain the support of the rural population and the provisions of the new Constitution could limit the role of the elections to determine the parliament and the government. New bouts of political instability can be expected, as Thai society is deeply divided and the succession of the King, a symbol of continuity and political stability, remains uncertain.