It is welcome news for the government, especially the Ministry of Finance and the Bank of Thailand, as Fitch Ratings upgrades Thailand's economy from a negative outlook to a "stable" level. This reflects that public debt has begun to stabilize.
On 18 Sep 2023 GMT+7, Fitch Ratings announced that its economists revised Thailand's credit outlook from "negative" to "stable". They maintained Thailand's long-term credit rating for both foreign and local currency at BBB+, which is within the investment-grade category.
Fitch also kept the short-term rating at F1 and the country ceiling at level "A-".
The revision back to a "stable" outlook means that over the next one to two years, Fitch does not see sufficient pressure to downgrade Thailand’s credit rating if economic, fiscal, and political conditions proceed as expected.
However, this outlook change is not a rating upgrade, as the main rating remains BBB+.
Fitch stated that the change from "negative" to "stable" stems from increased confidence that the government debt-to-GDP ratio will stabilize in the medium term rather than continuously rise to unsustainable levels.
Meanwhile, Thailand's economy has managed global economic volatility and the energy crisis better than expected. Deflationary pressures have eased, and policy clarity improved after the general election in February 2023 GMT+7 and the smooth formation of a coalition government.
Having a government capable of continuing policies reduces short-term political uncertainty risks, although Fitch still views Thailand's politics as structurally risky with potential future conflicts.
Thailand's BBB+ rating is supported by strong external financial positions, high foreign reserves, and net creditor status, which cushion capital flow volatility and external risks.
The macroeconomic framework is credible, especially the Bank of Thailand’s monetary policy and commercial banks’ capital and liquidity buffers capable of absorbing risks.
Another strength is that most government debt is in Thai baht, has relatively long maturities, and relies mainly on domestic investors, reducing exchange rate and sudden foreign capital withdrawal risks.
Although public debt has risen significantly since before COVID-19, the borrowing structure remains relatively stable, and the government can access domestic funding without severe issues.
Fitch expects Thailand's budget deficit to gradually decline, with the government targeting a 4.4% of GDP cash deficit in fiscal year 2023 and 3.9% in fiscal year 2024.
However, using Fitch's accounting definitions, which differ from the government's cash calculations, Fitch forecasts an average budget deficit of 3.1% of GDP over fiscal years 2023-2024.
This outlook allows for a stable public debt-to-GDP ratio in the medium term, but the debt burden remains high compared to peers. The government must also handle costs related to welfare, an aging society, health, and cost-of-living support measures.
Therefore, debt stabilization should not be interpreted as the end of fiscal challenges, but as a reduced risk of uncontrolled debt growth compared to when Fitch last downgraded the outlook in 2025.
Fitch expects Thailand’s economy to grow about 2.3% in 2023, close to last year’s 2.4%, despite higher energy prices and a weaker-than-expected tourism recovery.
Key support comes from investments in artificial intelligence, data centers, cloud systems, electronics, digital infrastructure, and technology exports. These investments help offset energy costs and slower demand in traditional sectors.
Nonetheless, the challenge is whether Thailand can convert investments in data centers and AI into revenue, skilled jobs, technology transfer, and upgrades for Thai businesses. If these investments consume significant electricity and other resources but have limited domestic economic linkages, growth potential may be lower than expected.
Price pressures in Thailand have clearly shifted. Fitch notes that average inflation since April 2023 has been around 2.5%, after deflation of about 0.9% in February.
Fitch believes inflation will remain within the 1-3% target through the end of 2028, anticipating that the Bank of Thailand may keep policy interest rates around 1%.
Thai household debt remains high at about 85.9% of GDP, down from a peak of 95.5% in Q1 2021 after rapid increases during the COVID-19 pandemic.
This reduction is positive, but debt burdens still limit household purchasing power and hinder consumption recovery, especially for low-income groups, small businesses, and borrowers with high financial costs.
Fitch also assesses that the Thai banking system is generally stable, with relatively strong capital and reserves, but closely monitors the quality of household and small-to-medium enterprise loans.
Fitch views policy predictability as improved after the election and the formation of a coalition with sufficient support, reducing risks of policy disruption or sudden government changes in the near term.
However, political conflicts, policy continuity, and institutional effectiveness remain constraints on the credit rating and may affect the ability to push structural reforms and maintain fiscal discipline long term.
This reflects that markets and rating agencies consider not only GDP or public debt figures but also the government’s ability to set and implement consistent policies for citizens and investors.
However, from another perspective, Fitchmaintains Thailand's BBB+ rating, reflecting that the country has not yet overcome structural economic limitations causing relatively low growth, high public and household debt, and weak governance quality.
Although the rating is investment grade, the government’s key tasks are to sustainably reduce debt, turn technology investments into revenue, and enhance productivity rather than consuming resources that may limit GDP growth.At the same time,governance must be strengthened to build confidence.
If achieved, Thailand could potentially improve its credit rating from BBB+ to an upgrade in the future.
Let's give the Ministry of Finance and the Bank of Thailand some more time to continue their efforts.