Sep 1, 2010, 9:57 GMT
Bangkok - Thailand's economic performance in the first half of 2010 proved better than expected, but the county's ability to withstand future shocks depends on stable politics, Fitch Ratings warned Wednesday.
Thailand's gross domestic product (GDP) grew more than 10 per cent in the first half of the year despite two months of Bangkok street protests and a government crackdown that left 91 people dead and parts of the capital in flames this spring.
Exports stoked the growth, which surprised analysts at Fitch Ratings, which had changed its outlook on Thailand's local currency to negative, or A-, in April, one of only two downgrades in Asia this year.
'On the local currency side, we're more concerned with the government's capacity to service debt in its own currency,' Andrew Colquhoun, head of Fitch's sovereign ratings for the Asia-Pacific, said Wednesday.
Fitch's rating for Thailand's sovereign risk is BBB, below Malaysia's A- but above India's BBB- and Indonesia's BB+.
Colquhoun noted that while Thailand's export performance has been strong this year, there were worries about low local consumption and declining tax revenues compared with expenditures.
'Basically, the story told is one of declining manoeuvre room in the public finance of Thailand or less flexibility in the government budget to respond to the shocks that will probably continue to appear,' Colquhoun said at Fitch's annual conference in Bangkok.
Colquhoun blamed the inadequate revenues in part on Thailand's volatile political scene. The kingdom has had four governments since 2006.
'So long as the life expectancy of governments in Thailand remains less than it is in other BBB countries, it's more difficult for the authorities to get a handle on the public finance issues, such as pushing through the measures needed to raise revenues for greater expenditure,' Colquhoun said.
He raised similar worries about China, which has an A+ rating.
'The share of China's investments in GDP is now 50 per cent, which in our view is unsustainably high,' Colquhoun said.
'If the world economy was to experience a double dip [recession], the Chinese authorities' ability to use investments as a stimulus tool may be restricted.'
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