Review for Thai credit rating
Review for Thai credit rating
BANGKOK (AFP): New York-based Moody's Investors Service is to
review Thailand's sovereign credit rating for a possible
downgrade amid concerns about its economy, according to a
statement received here yesterday.
The agency, which assesses the risk of extending credit to
major borrowers, said the review was prompted "by concerns
regarding the soundness of Thailand's financial sector."
Thailand's sovereign credit rating -- the rating given by
Moody's to long term foreign currency debt issued by the
government -- is currently at "A2," signifying an upper-medium-
grade investment.
Moody's said "a large portion of the recent accumulation of
short-term foreign currency debt has been concentrated" in the
Thai financial sector.
The report noted that financial institutions had built up an
exposure to the property sector and were now experiencing an
increase in non-performing loans.
The Thai property sector has been hit by a combination of high
interest rates and oversupply, cutting into the bottom line for
developers and resulting in large scale non-performing debts in
the financial sector.
"In addition, other problems in their loan portfolios may yet
emerge since Thailand's export-oriented industrial sector is
experiencing financial strains in the wake of last year's dismal
trade performance," it said.
Moody's said the government's recently announced budget cuts
"should help to contain the unsustainable current-account
deficit."
The Thai finance minister recently presented a budget to the
cabinet for the year to September that slashed projected
government spending by 54 billion baht (US$2.1 billion) and state
enterprise investment by 40 billion baht.
However, Moody's added that maintaining the level of public-
sector saving was "critical at this juncture" due to falling
corporate profits and falling household saving.
"However, as the government is based on a loose coalition of
parties, its ability to implement these budget cuts, or make any
further fiscal adjustments that might be necessary, may be
constrained by political realities," it said.
The statement said the Bank of Thailand was maintaining a
tight monetary policy but the high interest rates were
"accentuating the financial pressure being felt by domestic
economic agents as well as continuing to serve as a magnet for
speculative and potentially destabilizing short-term capital
inflows.
"Differences at the highest policy-making levels regarding the
appropriateness of existing exchange rate and other policies are
also eroding confidence in macroeconomic management."