Fitch affirms Thailand's sovereign credit rating at 'BBB+'

Thailand's ratings balance its strong external finances and sound macroeconomic policy framework against weaker structural features, such as lower per capita income and World Bank governance scores, compared with its 'BBB' category peers, the report noted. While ongoing political uncertainty weighs on Thailand's credit profile, this may be partially alleviated in the near term after the Thai parliament agrees on a new prime minister.

Fitch forecasts real Thai gross domestic (GDP) growth of 3.7% for this year and 3.8% for next year, up from 2.6% in 2022. Fitch expects economic prospects will be reinforced by a tourism revival from key source markets, with the inflow of foreign tourists rising to about 29 million this year, from 11.2 million last year, reaching nearly 75% of its pre-Covid crisis level.

Private consumption is predicted to improve as the labour market steadily recovers. However, Thai exports will continue to face challenges from sluggish global demand and monetary tightening of trading partners.

The ratings firm stressed that Thailand's near-term economic and fiscal policy outlook is clouded by continuing political uncertainty following the May 14 general election. A joint session of parliament will be convened on July 13 to choose the next prime minister, but when a new coalition government will take office is still hazy. Effective policymaking may be constrained if the prompt formation of the coalition government does not take place.

In any case, Fitch believes such an outcome is unlikely to lead to major shifts in the government's key economic development strategy.

In Fitch's view, more protracted political strife could add to social stability risks and lead to disruptions to budget disbursements for the fiscal year ending September 2024.