OREANDA-NEWS. Fitch Ratings has affirmed Thailand's Long-Term Foreign and Local Currency Issuer Default Ratings at 'BBB+' and 'A-' respectively. The issue ratings on Thailand's senior unsecured foreign and local currency bonds are also affirmed at 'BBB+' and 'A-' respectively. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed at 'A-' and the Short-Term Foreign Currency IDR at 'F2'.

KEY RATING DRIVERS

The affirmation and Stable Outlook reflect the following key rating drivers:

- Thailand's core external, fiscal, macroeconomic policy strengths remain firmly in place. However, negative pressures have emerged from weaker-than-expected GDP growth driven by highly levered household balance sheets, weak investment spending, and an uncertain political environment.

- Robust External Finances. Thailand's external balance sheet is a strength compared with its rating peers on both a sovereign and whole-economy basis. Fitch expects the country to report sovereign net foreign assets of roughly 38% of GDP in 2014, significantly higher than both the 'BBB' median (0% of GDP) and 'A' median (11% of GDP) peer groups. A sizeable contraction in imports has also swung Thailand from a modest current account deficit in 2013 to a current account surplus equivalent to 3.8% of GDP in 2014. Fitch anticipates another sizeable surplus in 2015 driven by a lower oil prices.

- Sound Public Finances. While the general government deficit has increased, Thailand's government debt ratio of 33% of GDP is still notably below the 'BBB' median (41% of GDP) and 'A' median (48% of GDP) peer groups. A fiscal sustainability framework limits broader public debt debts to 60% of GDP, but the country has no formal medium-term fiscal strategy in place.

- Strong Macroeconomic Policy. Thailand has a sound macroeconomic policy framework as exhibited by low and stable inflation relative to the 'BBB' range peer medians. The economy has also demonstrated continued resilience despite repeated shocks.

- High Private-Sector Leverage, Lower Growth. Economic growth in 2014 (0.7%) was disappointing, and high private-sector leverage has impacted our view of medium-term growth prospects. Thailand's ratio of private-sector credit to GDP (159%) is a significant outlier to both the 'BBB' median (61%) and 'A' median (107%) peer groups and is largely driven by a sharp increase in household indebtedness (now 85% of GDP). Regulatory oversight of the financial sector has recently improved, but pockets of risk have built up across state-owned special financial institutions and other non-bank financial institutions.

- Political Instability. Unresolved social cleavages and uncertainty over the timing and execution of a transition back to democratic rule continue to weigh on business confidence and broader governance indicators.

RATING SENSITIVITIES

The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are well balanced.

The main factors that could, individually or collectively, lead to negative rating action are:
- Persistently lower economic growth accompanied by the emergence of macroeconomic imbalances.
- Renewed political instability on a scale sufficient to have a significant impact on Thailand's economy.
- A sharp and sustained rise in Thailand's government debt ratios.
- Evidence that contingent liabilities stemming from broader public-sector debts and a highly leveraged private sector will crystallise on the sovereign balance sheet.

The main factors that could, individually or collectively, lead to positive rating action include:
- A pick-up in trend GDP growth above expectations - without the emergence of imbalances - leading to a narrowing of income divergence with the 'A' rating category.
- Resolution of social and political cleavages sufficient in scale to improve governance and development indicators.

KEY ASSUMPTIONS

- The global economy performs broadly in line with Fitch's Global Economic Outlook.