สำนักข่าวหุ้นอินไซด์(20 สิงหาคม 2567)--------Fitch Ratings-Hong Kong-20 August 2024: The Thai parliament’s swift approval of a new Prime Minister, Paetongtarn Shinawatra, which received royal endorsement on 18 August, should help to preserve policy continuity, but recent developments highlight the potential for Thailand’s volatile politics to have an impact on policymaking and investor confidence, says Fitch Ratings.

Parliamentary approval of the new Prime Minister, supported by 319 members of the 500-seat lower house, followed the Constitutional Court’s earlier dismissal of the previous leader, Srettha Thavisin, for ethics violations in a cabinet appointment. The Court had also recently disbanded the Move Forward party, which won the most seats in the 2023 election, over constitutional breaches linked to its moves to amend the lèse majesté law.

We believe Shinawatra will generally adhere to policy positions held by the Thavisin administration, given that the Pheu Thai Party (PTP) remains the dominant party within the ruling coalition. We see the risk of delays to the budget for the financial year ending September 2025 (FY25) as low – the bill had been set for second and third readings in the lower house over the next month, before being sent for Senate and royal approval.

The new PM has stated the government will further study the much-delayed digital wallet scheme, which offers cash transfers worth THB10,000 (about USD290) to around 50 million eligible Thais and was estimated by the last government to cost about 2.4% of GDP spread over two fiscal years. Cancelation, adjustments or further delays can not be ruled out, but we expect fiscal stimulus to come through one way or another. Our latest forecasts, incorporating the scheme, project the fiscal deficit will increase to 4.3% of GDP in FY24 and 4.4% in FY25, from 2.0% in FY23, compared with medians for ‘BBB’ category sovereigns of 3.2% and 3.0%, respectively.

If the government does scale back the digital wallet scheme we believe it likely that it would use the fiscal resources freed up to finance other measures. There could be political pressure for further large-scale spending measures beyond FY25, which might make it difficult to resume fiscal consolidation over the medium term once the digital wallet scheme ends. This adds to uncertainty around the trajectory for the fiscal deficit and government debt, in particular if higher public spending provides only a short-lived boost to the economy rather than addressing structural growth impediments.

We believe the government's access to deep domestic capital markets and its favourable debt structure - with a long average maturity and mostly in local currency - partly mitigates risks associated with the large increase in general government debt/GDP since 2019. Nonetheless, higher debt may constrain the government’s fiscal capacity to respond to future economic shocks. When we affirmed Thailand’s rating at ‘BBB+’ with a Stable Outlook in November 2023 we stated that the government’s inability to stabilise the public debt ratio could be a driver of negative rating action.

Thailand’s frequent bouts of political volatility have, over time, hampered the effectiveness of policymaking. Governance indicators are less favourable than many ‘BBB’ category peers, and recent developments may reduce the improvement in World Bank Governance Indicators that we had anticipated in our November 2023 assessment. Political volatility also hinders the country’s efforts to boost confidence among foreign investors, local businesses and consumers.

We believe that Shinawatra’s appointment, and the relatively muted public response to the dissolution of the Move Forward party, suggests that the risk of widespread political unrest is low for now. However, a further escalation of political risk can not be ruled out. Political disruption sufficient to weaken economic policymaking effectiveness and growth prospects could lead to negative rating action.