Thailand. Summary. Economic Indicators

Transcription

1 Thailand Summary Moody s Baa1 / S&P BBB+ / Fitch BBB+ 1 Economy: Agriculture 8%, Industry 36%, Services 56% Among Thailand s key strengths are the size and diversification of its economy, the second largest in the Association of Southeast Asian Nations (ASEAN) after Indonesia. The economy has proven resilient to major shocks in recent years, including the tsunami in Japan, the floods of 2011, political noise, and El Niño in Credit risk remains low in part due to the composition of Thailand s public debt stock, which is almost fully domestic and widely owned by local financial entities. Currently, Thailand s external liquidity is also good, with foreign-exchange reserves exceeding the entire stock of external debt and among the highest current account surpluses in the world. The political stalemate and its impact on the economy represent the main negative for Thailand, and turmoil is likely to continue. We expect GDP growth to be around 3.5% over the next few years. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 6,276 6,134 5,023 3,311 3,113 3,454 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Sources: Lazard, Citibank, Haver Analytics, IMF 85

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency A- Local Currency A+ BBB+ A BBB A- BBB- BBB+ BB+ BBB BB BBB Moody s S&P Fitch Moody s S&P Fitch As of December Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Local Yield Thailand 2010 GBI-EM Global Div As of December Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 86

3 Thailand Strengths Large, Diversified, and Open Economy Thailand is the second-largest economy in ASEAN after Indonesia, with key sectors including manufacturing and agriculture. While manufacturing is the larger sector, agriculture employs almost 40% of the workforce. 2 Thailand s economy has shown resilience, rebounding strongly from major shocks in recent years including the impact on its manufacturing sector of the tsunami in Japan, which is a major trading partner, particularly for cars and electronics, and major floods in Thailand s economy is open, with trade accounting for more than 150% of GDP, underscoring a competitive manufacturing sector that is well integrated in global supply chains. 3 Low Rollover Risk for Public Debt One of Thailand s key credit strengths is the lack of currency risk on its government balance sheet, given the combined external debt of the central government and public enterprises represents only 2.1% of GDP. Further, given Thailand s deep financial system bank assets were more than 100% of GDP with total financial system assets over 300% of GDP at the end of 2016 most public debt is held locally among insurance companies, banks, and the publicly held government pension fund and social security office. 4 The country s high national savings also provides an important buffer. Strong External Position At the end of June, Thailand s external debt was 66% of GDP, but it has foreignexchange (FX) reserves of US$180 billion (93% of GDP), which provide 140% of coverage. 5 The current account surplus continued to surge in on the back of a dynamic tourism sector, with the current account totaling US$45 billion in June, a hefty 21.2% of GDP. The financial account has offset some of the current account surplus, with foreign direct investment (FDI) and portfolio outflows surpassing 8.5% of GDP. Fiscal and Public Debt Discipline Thailand has historically maintained tight fiscal policy, running small deficits below 3.0% of GDP over the past decade. The government has clear fiscal rules that limit the size of the fiscal deficit. This year, the fiscal deficit is expected to total around 2.5% of GDP. In addition, the government is implementing quasi-fiscal expenditures to support agriculture companies, small and medium enterprises, and infrastructure projects totaling 13.0% of GDP. Meanwhile, the debt to GDP ratio has stabilized around 45% for the past five years with central government debt totaling close to 35% of GDP. Weaknesses Economic Growth Despite solid structural fundamentals and an average growth rate of 3.0% in the past decade, growth remains low by regional standards. Relatively low economic growth is attributable to several factors, including political noise and structural problems, such as low investment levels and poor education. The government is working to increase capital expenditures, but progress has been slow. A key driver of economic growth is China, which has become an important trading partner. Thailand tends to grow 0.25% less when China s GDP growth declines by 1%. 87

4 Lazard Emerging Markets Debt Volatile Politics Political risk has worsened since the September 2006 coup that removed populist Prime Minister Thaksin Shinawatra from office. Since then, the political landscape has been characterized by conflicts between pro-thaksin red shirts and anti-thaksin yellow shirts. The red shirts are mostly rural workers but also include students and those who are opposed to the urban elites and the military. The yellow shirts typically represent the urban middle class and ultra-nationalists. The anti-thaksin coalition was in power from December 2007 until July 2011, when Yingluck Shinawatra, Thaksin s sister, won new elections in a landslide. The Shinawatra government was removed by a military coup on 22 May The military established a junta (National Council for Peace and Order NCPO) that has ruled the country since then. An interim constitution was written and the newly established national legislature elected General Prayuth Chan-ocha as a new prime minister. A new constitution was submitted to a popular referendum and approved in 2016, giving more power to the army. A new election is expected to take place in 2018 with Thailand returning to civilian rule after three years of military government, although the military will still hold substantial power and the ability to block government initiatives. The elections have been delayed twice as they were initially schedule to take placed in 2016 and. Monetary and Exchange Rate Policy Inflation/Monetary Policy The Bank of Thailand (BoT) has a single mandate: to maintain price stability. This single objective is expressed through an inflation-targeting framework that was adopted in Since 2015, the BoT targets calendar-year average headline inflation of 2.5% ± 1.5%, having switched from targeting core inflation in previous years. Monetary policy decisions are made by the Monetary Policy Committee (MPC). The committee is composed of seven members: three internal BoT governor (Chairman of the MPC) and two deputy governors and four external members that have a fixed term of three years with a maximum of two consecutive terms. The MPC meets every six weeks and is responsible for monetary policy and exchangerate management. In addition to the monetary policy objective, the BoT is tasked with maintaining financial stability and managing foreign exchange. The BoT implements monetary policy primarily by setting the policy interest rate, the overnight repurchase (repo) rate, which the central bank uses to control the overnight interest rates and the short-term fixed income market. In addition to the policy rate, the central bank has the option of using direct liquidity facilities. The central bank relies on four channels of monetary-policy transmission: the credit channel, the asset price channel, the expectations channel, and the exchange rate. Over the past years, 12-month headline inflation has been 2.0% 2.5% on average, while core (ex-raw food and energy) has been 1.0% 1.5% on average. Over the past 10 years, core-inflation changes year-over-year have never breached the 4% ceiling and reached a peak of 3.75% in the third quarter of 2008 in response to the shock in commodity prices. Note that due to a high share of food (48%) and transport (25%) in the headline CPI basket, headline inflation has both a higher average and a higher volatility than core inflation. Looking back at, inflationary pressure remains subdued and monetary policy has been accommodative. Both core and headline inflation are currently below the lower bound of the target range, with headline averaging 0.68% year-over-year and core averaging 0.52% year- 88

5 Thailand over-year in the three months through October. While headline inflation is no longer posting persistent deflation, core inflation remains low. Indeed, while headline inflation has been pushed up by energy prices in, core inflation has actually declined to 0.54% on average in the first 10 months of vs. 0.74% in the same period of In this context, monetary policy remains accommodative, with the policy rate at 1.50%, just 25 basis points above the record lows set during the global financial crisis. Looking ahead, inflationary pressures are likely to remain subdued and monetary policy should remain accommodative. The BoT expects inflation to rise gradually in 2018, with headline inflation rising to 1.2% and core inflation rising modestly to 0.9%. Meanwhile, economic growth in is expected to remain steady at 3.8%, the same as in. The growth trajectory is one of consistent, but gradual recovery, with 0.9% GDP growth posted in 2014, 3.0% in 2015, and 3.25% in The continued gradual growth recovery in 2018 is expected to be driven mainly by net exports, especially merchandise exports and tourism. In this context, we expect policy rates to remain on hold in Exchange Rate Policy The Thai baht (THB) is a convertible currency that has traded in a managed floating exchange-rate regime since July Under this regime, the BoT does not target a level for the exchange rate, but intervenes in both the spot and/or forward markets onshore and offshore to smooth excess volatility in a manner consistent with the inflation-targeting framework. The BoT also seeks to maintain national competitiveness, as measured through the Nominal Effective Exchange Rate (NEER), which comprises currencies of important trading partners and not just the US dollar. Balance of Payments: Thailand s current account balance should reach a surplus of US$47 billion in, or 11% of GDP, versus a 12% of GDP surplus in This is mainly due to the pickup in global trade, particularly in electronics, that is boosting exports even as domestic demand remains subdued. Looking toward 2018, the current-account surplus should continue to shrink gradually as domestic demand recovers, helping to boost imports. The consensus forecast for Thailand s current account surplus in is about 7.4% of GDP. Exports should be supported by global demand for manufactured goods, which represent 88% of Thailand s total exports receipts. Indeed, with the United States, Japan, China, and European Union representing 50% of export destinations, our relatively constructive outlook for these economies is a key support for Thai exports. At the same time, domestic demand recovery should push up imports, reducing the current account surplus. We expect the currency to remain broadly stable, with risks skewed towards depreciation over the course of The NEER is about 6% stronger than its five-year average, which seems to be the implicit target of the BoT. That has pushed the central bank to intervene more heavily in currency markets, to offset the appreciation pressure from the large current account surplus. Meanwhile, the THB real effective exchange rate is currently in line with its 10-year historical average, reinforcing our expectation of exchange-rate stability. 89

6 Lazard Emerging Markets Debt Inflation USD/THB Inflation Reference Rate As of December Source: Bloomberg REER REER Median since Dec 1999 Median last 10 yrs Median last 5 yrs As of December Source: JP Morgan, Lazard 90

7 Thailand Country Background Size Capital Population 513,120 KM 2 (51st) Bangkok 68.2 Million Religion Buddhist (official) 94.6%, Muslim 4.3%, Christian 1.0%, Other 0.1% Median Age 37.7 Years Literacy Rate 92.9% Independence Political System Government Leadership Next Election 1238 (Traditional Founding Date; Never Colonized) Constitutional Monarchy King Maha Vajiralongkorn, Prime Minister General Prayut Chan-o-cha Economy Agriculture 8.3%, Industry 35.8%, Services 55.8% Labor Force Agriculture 31.8%, Industry 51.5%, Services 16.7% Merchandise Exports Export Partners Currency As of November Source: CIA Automobiles and Parts, Computers and Parts, Jewelry and Precious Stones, Polymers of Ethylene in Primary Forms, Refine Fuels, Electronic Integrated Circuits United States 11.4%, China 11.1%, Japan 9.6%, Hong Kong 5.3%, Malaysia 4.5%, Vietnam 4.2% Thai Baht (THB) 91

8 Lazard Emerging Markets Debt Country Timeline 1997 Asian financial crisis: The baht falls sharply against the dollar, leading to bankruptcies and unemployment. The IMF steps in. Chuan Leekpai becomes prime minister New Thai Love Thai party wins elections after partial re-run of poll. Leader Thaksin Shinawatra forms coalition government Thaksin Shinawatra begins a second term as PM after his party wins February's elections by a landslide. As violent unrest continues in the south, Prime Minister Thaksin is given new powers to counter suspected Muslim militants in the region. In November the death toll in violence since January 2004 tops 1, Military leaders stage a bloodless coup while Prime Minister Thaksin Shinawatra is at the UN General Assembly. Retired General Surayud Chulanont is appointed as interim prime minister in October General elections mark the first major step towards a return to civilian rule. The People Power Party (PPP), seen as the reincarnation of Thaksin s Thai Rak Thai (Thais Love Thais) party, wins the most votes Return to civilian rule. Samak Sundaravej of the Thaksin-linked People Power Party (PPP) is sworn in as prime minister. Ousted premier Thaksin Shinawatra returns from exile The pro-thaksin Pheu Thai party wins a landslide victory in elections. Yingluck Shinawatra the sister of Mr Thaksin Shinawatra becomes prime minister Police disperse 10,000-strong protest in Bangkok calling for overthrow of Prime Minister Yingluck Shinawatra. New Pitak Siam (Protect Thailand) movement led by retired General Boonlert Kaewprasit unites yellow-shirts and others who see the government as a puppet of exiled former PM Thaksin Shinawatra Constitutional Court orders Prime Minister Yingluck Shinawatra and several ministers out of office over alleged irregularities in appointment of security adviser. Army seizes power in coup. Coup leader General Prayuth Chan-ocha is made prime minister Voters approve a new constitution giving the military continuing influence over the country s political life. King Bhumibol Adulyadej, the world's longest reigning monarch, dies at the age of 88 after 70 years on the throne. Source: BBC Notes 1 As of December 2 As of December. Source: Haver Analytics, IMF 3 As of December. Source: Haver Analytics, IMF 4 J.P. Morgan Local Markets Guide, J.P. Morgan, September 2013; As of December Sources: Haver Analytics, IMF 5 As of December. Source: Haver Analytics, IMF 92

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