(Bloomberg) -- Thailand runs a “very alarming” risk of credit rating downgrades if the government doesn’t rein in its massive pile of debt to prop up Southeast Asia’s second-largest economy, according to the country’s biggest opposition group.
Prime Minister Paetongtarn Shinawatra’s administration appears to have no concrete plan to manage public debt and the rising interest burden, Sirikanya Tansakun, deputy leader of People’s Party, said in an interview in Bangkok on Wednesday. Thailand’s interest liability measured as a ratio to state revenue is set to exceed key thresholds monitored by some credit ratings companies in fiscal year 2026, she said.
“Interest burden will rise to about 13% of government revenue in 2026. That’s very alarming,” said Sirikanya, who often leads the opposition’s criticisms of the government’s economic policies. “That will be above the thresholds of the current investment grade ratings set by both S&P and Moody’s.”
Thailand’s sovereign rating has remained a couple of notches above junk grade at S&P Global, Moody’s Ratings and Fitch Ratings in recent years even though public debt ballooned during the pandemic as the government unveiled fiscal stimulus to shield the economy. A tepid post-pandemic recovery has put pressure on state finances, forcing the government to raise the legal cap on public debt to 70% of gross domestic product.
Thailand is rated Baa1 at Moody’s and BBB+ at S&P and Fitch — up to three levels above junk territory. S&P and Fitch both retained their ratings for Thailand in November with stable outlook, while Moody’s affirmed its rating in April.
A representative for S&P declined to comment, while Moody’s didn’t immediately respond to an emailed request for comments. Finance Minister Pichai Chunhavajira has said the public debt will start to decline from 2027 after peaking to about 66% in 2026.
Cash Stimulus
The ratio of interest burden to revenue is only one of the criteria used by rating companies to determine ratings changes — along with growth rate, fiscal deficit, debt serviceability and peer group metrics.
Higher government spending, financed partly through borrowing, is set to lift Thailand’s interest-to-revenue ratio to 12.2% in 2026, according to calculations by Bloomberg, based on estimates by the Fiscal Policy Office. That’s a significant increase from a projected ratio of 8.15% this year and 9% in 2025.
Paetongtarn’s new government is pressing ahead with cash stimulus worth billions of dollars to bolster the economy that’s forecast to expand 2.5% this year. Her cabinet members are also piling pressure on the central bank to cut interest rate and temper a rally in the baht to aid the economy.
Read: Thailand Readies $12 Billion for Handout to Perk Up Growth
Sirikanya said there is no urgent need to roll out massive stimulus and the government shouldn’t pressure the central bank to cut interest rates.
‘Sledgehammer’
“It’s like using a sledgehammer to crack a nut,” Sirikanya said, adding that the baht’s rapid gains should be curbed by normal currency interventions. “We shouldn’t use the short term factor to determine policy that will have a long-term impact on the economy.”
The threat of political instability will continue to cloud the outlook for the Thai economy and unnerve foreign investors, Sirikanya said, accusing Paetongtarn’s government of not doing enough to prevent judicial activism that threatens elected governments and political parties.
Thailand was plunged into a political turmoil last month after the Constitutional Court dismissed Srettha Thavisin as leader in an ethics violation case and disbanded Sirikanya’s former political party, Move Forward, with its top leaders banned from politics for 10 years. Surviving lawmakers of the party, which won the most votes in the country’s May 2023 general election, have since regrouped as People’s Party.
Paetongtarn drew some criticism earlier this week when she said her government would prioritize economic stimulus and flood relief over efforts to amend the 2017 military-drafted constitution. The ruling Pheu Thai Party, which leads the coalition, has also backtracked on a bid to amend some sections of the charter to curb the sweeping powers of the Constitutional Court to determine ethical standards that are ground for dismissals.
Read: Reborn Thai Opposition to Fight ‘Lawfare’ by Powerful Court
“The government isn’t doing enough to challenge the system, to prevent such unpredictabilities against the executive and legislative branches in the future,” Sirikanya said. “There’s no effort to amend laws to restore confidence in stability, when lawfare is worse than unrest.”
Sirikanya’s Other Remarks...
- Pushing pressure on central bank to cut rate will only affect sentiment, making investors anxious about fiscal and monetary policy alignment
- The baht strength provides a good opportunity for the government to come up with measures to boost investments
- The government should focus on debt restructuring to find ways to break the vicious cycle of tight lending
©2024 Bloomberg L.P.
