S&P downgrades Thailand's sovereign rating outlook

Staff of the Ek Crane logistics firm hand out free face masks to people on Bang Na-Trat Road in Bangkok on Tuesday. (Photo by Wichan Charoenkiatpakul)

S&P Global Ratings has revised its outlook on Thailand to stable from positive on Covid-9 uncertainty, with a possible downgrade given persistently sluggish economic recovery.

The firm, however, affirms the country’s BBB+ long-term and A-2 short-term foreign currency sovereign credit ratings.

“We are revising our outlook on Thailand to stable from positive due to our expectations of slower political adjustments under the economic and social uncertainties associated with the Covid-19 outbreak,” said S&P Global Ratings.

“We expect Thailand’s political transition under the elected government to be delayed during the Covid-19 outbreak-induced state of emergency.”

The government has declared a state of emergency from March 26 to April 30, as Thailand has been struggling in its battle with Covid-19 transmission.

The government has also imposed a curfew, banning all people nationwide from leaving their homes from 10pm to 4am starting from April 3.

The stable outlook reflects the ratings agency's view that the Covid-19-induced economic uncertainty and the subsequent state of emergency declaration could delay political transitions expected under the civilian government over the next 12 months.

“We may raise the ratings if there is greater certainty about the evolution of the multiparty parliamentary system in line with arrangements set out in the Constitution,” said the international credit ratings agency.

“Over time, we expect this to increase the responsiveness of the political system in addressing social demands and help to resolve longstanding political uncertainty in the country.”

A downgrade is possible if the country’s economic recovery is persistently slower and weaker than the agency’s forecast, S&P Global Ratings said.

This could increase the pressure on the current policymaking process and raise the likelihood of abrupt political changes, it added.

Thailand’s economy is projected to see a 2.5% contraction along with a 5% decline in exports, according to the ratings agency.

Government measures to alleviate the economic impact are expected to widen the fiscal deficit to 5.5% of GDP, raising net government debt to 31% of GDP in 2020.