The recent lowering of Thailand’s credit outlook from stable to negative by Moody’s Ratings' has sparked widespread discussions within economic and political circles.
The global ratings agency downgraded the outlook for both sovereign and major bank ratings, emphasizing the strong interconnection between these two sectors.
A deteriorating economy could weaken Thailand’s fiscal stance and lead to an increase in bad loans, posing significant risks to the nation's financial stability.
Moody’s is worried about the potential impact of US tariffs on Thai exports after US President Donald Trump announced reciprocal tariffs on April 2 on many goods from other countries.
Under Trump’s variable slabs, Thai products would have faced tariffs of up to 36 per cent, but he later suspended implementation for 90 days, while waiting for the outcome of negotiations.
Instead, he levied a flat rate of 10 per cent.
The implications of Moody’s revised ratings extend beyond the immediate concerns of investor sentiment.
They highlight structural issues in Thailand’s economy and invite urgent reflection on the country’s preparedness to navigate both domestic and international challenges.
Investor confidence: A warning signal
The ratings revision serves as an important gauge of Thailand’s fiscal health. Investors and economists have long voiced concerns about the country’s economic trajectory.
Kobsidthi Silpachai, the head of Capital Markets Research at Kasikornbank, likened the country’s situation to the "boiling frog syndrome”.
The analogy, pointing to indifference amid a deteriorating situation, underscores the gradual and often overlooked relegation of supply-side economics.
Factors such as an aging labor force, high household debt, insufficient investment and persistent corruption have created vulnerabilities in Thailand’s economic framework.
It is no wonder that the Stock Exchange of Thailand has been one of the world’s most underperforming stock markets for many months, Kobsidthi noted.
Anusorn Tamajai, dean of the Faculty of Economics at the University of the Thai Chamber of Commerce, elaborates on the implications for investor confidence.
While the shift from "stable" to "negative" has not increased financial costs or the cost of raising funds yet, it serves as a critical warning.
This outlook revision—unprecedented in recent years—signals Thailand’s weakening fiscal position and the need for proactive measures to address structural concerns, he said.
Will government borrowing costs increase?
The revision by Moody’s raises a crucial question on whether it will lead to higher borrowing costs for the Thai government.
Analysts largely agree that the impact is likely to be limited. Thailand rarely raises funds offshore, which minimizes the direct effects of the ratings change.
Nevertheless, the revision could indirectly shape perceptions of Thailand’s creditworthiness, potentially influencing future borrowing conditions.
Anusorn argues that Thailand must adopt more relaxed monetary and fiscal policies to stimulate the economy.
With financial costs currently stable and a credit downgrade unlikely in the near term, the government has a window of opportunity to implement measures that restore confidence and economic resilience.
Risk of credit downgrade
A negative outlook does not automatically translate into a credit downgrade.
As Kobsithi notes, such a downgrade would only happen in the event of severe financial or fiscal indiscipline.
For now, Thailand remains on a relatively stable footing, with its high international reserves providing a buffer against immediate risks.
Many analysts, however, view the outlook revision as a sobering reminder of the need for reforms.
Addressing supply-side stagnation and fostering investment are critical to maintaining Thailand’s credit rating in the long term.
A downgrade would have far-reaching consequences, including diminished investor trust, higher borrowing costs, and reduced economic growth potential.
External challenges: Navigating Trump’s tariffs
Thailand’s dependence on external demand exposes it to significant risks, particularly in the face of tighter US trade policies.
Thai exports, both directly and indirectly, are subjected to Trump’s tariffs, creating challenges for industries reliant on international markets.
This dependence underscores the fragility of Thailand’s economic model and the urgency of diversifying its trade partnerships.
Kobsidthi pointed to the rise of Vietnam as illustrative of the opportunity costs of inaction.
Vietnam’s robust free trade agreements (FTAs) with major markets have positioned it as a formidable competitor in the region.
Thailand’s lack of similar agreements limits its ability to capitalize on global trade opportunities, further exacerbating its vulnerabilities.
The risks of policy inaction
One of the most concerning aspects of Moody’s revision is the potential for policy inaction.
Doing nothing in response to these warnings would impose high opportunity costs, as seen in Vietnam’s success from leveraging FTAs.
Thailand risks falling behind in the global economic pecking order if it fails to address structural weaknesses and adapt to changing international dynamics.
Both Kobsithi and Anusorn emphasize the importance of proactive measures.
Relaxing monetary and fiscal policies, stimulating investment and fostering innovation are essential steps to rejuvenate Thailand’s economy.
A wait-and-watch approach on US government actions, as opposed to implementing forward-thinking solutions, could deepen Thailand’s economic challenges.
Strengthening resilience
To withstand external pressures such as Trump’s tariffs and safeguard its fiscal position, Thailand must adopt a multifaceted approach. This includes:
-Diversifying trade partnerships: Negotiating FTAs with major markets to reduce dependence on US demand.
-Fostering innovation: Investing in technology and industries that drive sustainable growth.
-Addressing demographic challenges: Implementing policies to mitigate the effects of an aging labor force.
-Reducing household debt: Promoting financial literacy and responsible borrowing practices.
-Stimulating investment: Creating incentives for both domestic and foreign investors to contribute to Thailand’s economic development.
Thailand’s outlook revision by Moody’s is a call to action. It highlights the need for structural reforms and proactive policies to ensure long-term economic resilience.
While the immediate consequences may be limited, the risks of inaction are too serious to ignore.
By addressing these challenges head-on, Thailand can restore investor confidence, protect its credit rating and position itself as a competitive force in the global economy, according to many economists.
Initial policy response
The Bank of Thailand’s Monetary Policy Committee recently cut its key interest rate by 0.25 percentage point to 1.75 per cent, citing risks associated with Trump’s tariff policy on global trade and its impact on Thai economic growth.
Exports account for approximately 65 per cent of the country’s GDP, underscoring the Thai economy’s excessive dependence on foreign trade.
This plays a key role in driving economic growth. Thailand's exports to the United States currently constitute 18 per cent of its total export volume.
The government has revealed plans to borrow 500 billion baht for economic stimulus even as the Finance Ministry’s Fiscal Policy
Office has lowered the economic growth forecast for this year to 2.1 per cent from the earlier projection of 3 per cent made in January.
Pornchai Thiraveja, spokesperson for the Finance Ministry, expressed optimism that Thailand’s economic growth could accelerate if the tariff disputes were resolved.
He also emphasized that Thai exports were strongly influenced by the ability of the United States and China to find common ground in their trade relations, as Thailand’s economy is heavily reliant on trade with both countries.
“It would be better for the Thai economy if the United States and China resolve their trade conflict,” Pornchai added.
