Politics may shape sovereign rating trends in some Asean Nations: S&P

Three countries are highlighted in the report, including Malaysia and the Philippines where shifts in political forces are feared to undermine support for their sovereign creditworthiness. Most parts of Southeast Asia have stable sovereign credit trends despite the global economic uncertainties in recent years. This is because of their strong external balance sheets and steady growth in domestic demand. But these 

attributes balance the impact of weak external developments only if political and policy stability exist, the report said.

In Thailand, the main uncertainty is when political normalisation will happen to allow policymakers to focus on issues that affect the long-term growth potential of the economy, said S&P Global Ratings analyst Kim Eng Tan.

"The current Thai government is pushing to adopt a new constitution that critics said would lead to unstable elected governments and weaken democracy," he said. 

Continued political instability is damaging the economy's potential even as international competition intensifies with the rapid development of Vietnam and Myanmar's opening.

"A further slowdown in Thailand's economic growth trajectory could erode its sovereign credit metrics over the next few years even without a possible violent confrontation in the country," Tan said.

In Malaysia, the 1MDB saga has dominated political discussions in the country for more than a year. Most recently, 1MDB returned to the headlines again when it missed an interest payment on a bond it had issued. But what looms larger than the potential financial losses related to the company is the threat to Malaysian political stability - making the company an important development for the government's credit standing.

In the Philippines, the key question is whether political stability will continue after the presidential election. A return of political confrontations could weaken the improving trend for sovereign credit metrics.