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."