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Research Update:

Ratings On Thailand Affirmed At'BBB+/A-2' And 'A-/A-2'; OutlookStable

Primary Credit Analyst:

Agost Benard, Singapore (65) 6239-6347; [email protected]

Secondary Contact:

KimEng Tan, Singapore (65) 6239-6350; [email protected]

Table Of Contents

Overview

Rating Action

Rationale

Outlook

Key Statistics

Related Criteria And Research

Ratings List

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 22, 2014 1

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Research Update:

Ratings On Thailand Affirmed At 'BBB+/A-2' And'A-/A-2'; Outlook Stable

Overview

• Strong external profile, low government debt, and monetary policycredibility support the rating, while unstable politics and low incomeremain constraints.

• We are affirming our 'BBB+' long-term and 'A-2' short-term foreigncurrency sovereign credit ratings, and our 'A-' long-term and 'A-2'short-term local currency ratings on Thailand.

• The stable outlook reflects our expectation that macroeconomic strengthsare sufficient to counter the effects of ongoing political tension.

Rating Action

On May 22, 2014, Standard & Poor's Ratings Services affirmed its 'BBB+'long-term and 'A-2' short-term foreign currency sovereign credit ratings, andits 'A-' long-term and 'A-2' short-term local currency ratings on the Kingdomof Thailand. The outlook on the long-term ratings is stable. Standard & Poor'salso affirmed the 'axAA/axA-1' long- and short-term ASEAN regional scaleratings on Thailand. Our transfer and convertibility (T&C) assessment remains'A'.

Rationale

Thailand's strong external profile, modest government debt, and a track recordof effective monetary policy are factors that support the rating. However, thecountry's ongoing political instability and its relatively low-income economyconstrain the ratings.

A key rating strength for Thailand is its strong international investmentposition with ample external liquidity. A long run of surplus balance ofpayments has created a reserve buffer of an estimated 7.5 months of currentaccount payments. Net external liabilities are at a moderate 26% of GDP,nearly 70% of which is foreign direct investments and portfolio equityinvestments. On a narrow net external debt basis, Thailand is in a netcreditor position of more than 20% of current account receipts. Gross bankingand private sector external debt is about US$115 billion (end 2013), of whichroughly half is short-term debt. We believe refinancing this debt could bedifficult if the market sentiment toward Thailand deteriorates significantlyand sustainably.

Thailand's general government primary surpluses have kept general government


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debt at a moderate level. Although a rice price-support scheme and a series ofstimulus measures in response to a string of economic shocks have increasedgovernment debt, we expect net general government debt to remain comfortableat a little above 20% of GDP in the next three years. Likewise, generalgovernment interest of an estimated 7% of general government revenues onlyposes a moderate burden on public finances.

Stable inflation has been a pillar of macroeconomic stability and reflects anabove-average degree of monetary policy effectiveness. The country's inflationaveraged less than 3.1% over the past 10 years. This trend of modest inflationaugments monetary policy credibility and has helped to facilitate the growthof financial markets in Thailand. The floating currency also enhances monetarypolicy flexibility.

Political uncertainty has been a major credit weakness for Thailand in recentyears. Frequent, and at times extra-constitutional, changes in the governmentsince 2006 have delayed structural reforms and hindered governmentinfrastructure spending. The resultant uncertainty constrains economic growth,while flare-ups in protest activity risk hurting the country's vital tourismsector. Although the military imposed martial law this week, it insisted thatit was not trying to usurp power from the civilian government, which remainsin place. In our view, the army's action could help stabilize the situation byforestalling a potential violent conflict between opposing sides and bybringing the protagonists together to negotiate an interim solution so thatanother election can take place.

Nevertheless, the growing political instability over the past half a year hastaken a toll on consumption and investment, depressing near-term growthprospects. We project Thailand's per capita GDP at US$5,700 in 2014. Thisincome level is a key credit constraint, and will remain so in the medium termeven when growth returns to its trend rate as political conditions normalize.Besides Thailand's income level, the country's infrastructure, health, andeducation indicators are also more closely associated with sovereigns in lowerrating categories.

Outlook

The stable outlook reflects our expectation that Thailand will be able topreserve its external, fiscal, and monetary strengths in the face of thecurrent political turmoil within the next two years. We may lower the ratings,however, if political and institutional stability deteriorated beyond what wehave observed in the past seven years. This is likely if persistent widespreadviolence breaks out. We may also lower the ratings if the country's fiscal oreconomic indicators weaken significantly.

On the other hand, we may raise the rating if political uncertainties diminishmarkedly to help improve economic and financial indicators. Such a scenario islikely if the two key political factions in Thailand manage to negotiate alasting agreement.


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Research Update: Ratings On Thailand Affirmed At 'BBB+/A-2' And 'A-/A-2'; Outlook Stable

Key Statistics

Table 1

Kingdom of Thailand--Selected Indicators

2007 2008 2009 2010 2011 2012 2013e 2014f 2015f 2016f 2017f

Nominal

GDP (US$

bil.)

247 273 264 319 346 366 387 374 404 458 519

GDP per

capita

(US$)

3,918 4,300 4,151 4,992 5,394 5,677 5,976 5,752 6,196 7,020 7,926

Real GDP

growth

(%)

5.0 2.5 (2.3) 7.8 0.1 6.5 2.9 1.0 5.1 4.4 4.6

Real GDP

per capita

growth

(%)

4.7 1.9 (2.5) 7.2 (0.2) 5.9 2.3 0.7 4.8 4.1 4.3

Change in

general

government

debt/GDP

(%)

0.4 0.6 4.4 3.6 0.5 3.8 2.6 3.1 2.9 2.8 2.8

General

government

balance/GDP

(%)

0.7 0.6 (2.6) (0.2) 0.0 (1.1) 0.4 (0.8) (0.6) (0.5) (0.5)

General

government

debt/GDP

(%)

26.0 25.0 29.5 30.0 29.3 30.9 32.2 34.0 34.2 34.6 34.9

Net

general

government

debt/GDP

(%)

17.8 17.1 20.2 19.6 19.8 20.8 21.6 23.8 24.8 25.9 26.8

General

government

interest

expenditure/revenues

(%)

5.2 5.5 5.3 5.7 5.5 5.6 5.0 6.8 6.9 7.0 7.0

Oth dc

claims on

resident

non-govt.

sector/GDP

(%)

101.5 102.3 106.9 107.3 119.2 126.1 131.4 136.3 135.9 136.4 136.6

CPI

growth

(%)

2.2 5.4 (0.9) 3.2 3.8 3.0 2.2 2.4 2.7 2.7 2.8

Gross

external

financing

needs/CARs

+ usable

reserves

(%)

79.6 79.7 68.8 68.9 70.3 70.8 74.1 75.5 74.3 75.3 75.9


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Table 1

Kingdom of Thailand--Selected Indicators (cont.)

Current

account

balance/GDP

(%)

6.3 0.7 8.4 3.1 1.5 (0.4) (0.7) 1.8 1.8 2.2 2.6

Current

account

balance/CARs

(%)

8.1 1.0 11.3 4.2 3.2 (0.5) (0.9) 2.1 2.1 2.5 3.0

Narrow

net

external

debt/CARs

(%)

(20.8) (23.1) (39.2) (35.8) (32.7) (24.3) (12.5) (19.0) (18.7) (18.0) (18.8)

Net

external

liabilities/CARs

(%)

33.4 9.1 6.6 21.1 17.8 34.6 39.1 33.9 30.1 24.7 19.5

Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition

of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year

plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as

the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid

assets held by nonresidents minus financial sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net

external lending. CARs--Current account receipts. The data and ratios above result from S&P’s own calculations, drawing on national as well as

international sources, reflecting S&P’s independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Related Criteria And Research

Related Criteria

• Sovereign Government Rating Methodology and Assumptions, June 24, 2013• Methodology For Linking Short-Term And Long-Term Ratings For Corporate,Insurance, And Sovereign Issuers, May 7, 2013

• Methodology: Criteria For Determining Transfer And ConvertibilityAssessments, May 18, 2009

• Understanding National Rating Scales, April 14, 2005

Related Research

• Bulletin: Dismissal Of Thailand's Prime Minister Is Credit Negative, ButRating Not Affected, May 8, 2014

• Sovereign Defaults And Rating Transition Data, 2013 Update, April 18,2014

• Thailand's Rice Support Scheme Highlights Policy Risk But Won't Hurt TheSovereign Rating, March 12, 2014

• Election Woes In Bangladesh And Thailand Raise Risk But Don't YetUndermine Sovereign Ratings, Feb. 18, 2014

In accordance with our relevant policies and procedures, the Rating Committeewas composed of analysts that are qualified to vote in the committee, withsufficient experience to convey the appropriate level of knowledge andunderstanding of the methodology applicable (see 'Related Criteria AndResearch'). At the onset of the committee, the chair confirmed that theinformation provided to the Rating Committee by the primary analyst had been


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distributed in a timely manner and was sufficient for Committee members tomake an informed decision.

After the primary analyst gave opening remarks and explained therecommendation, the Committee discussed key rating factors and critical issuesin accordance with the relevant criteria. Qualitative and quantitative riskfactors were considered and discussed, looking at track-record and forecasts.The chair ensured every voting member was given the opportunity to articulatehis/her opinion. The chair or designee reviewed the draft report to ensureconsistency with the Committee decision. The views and the decision of therating committee are summarized in the above rationale and outlook.

Ratings List

Ratings Affirmed

Thailand (Kingdom of)Sovereign Credit RatingForeign Currency BBB+/Stable/A-2Local Currency A-/Stable/A-2ASEAN Regional Scale axAA/--/axA-1

Thailand (Kingdom of)Senior Unsecured BBB+Senior Unsecured A-Commercial Paper A-2

Complete ratings information is available to subscribers of RatingsDirect atwww.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected bythis rating action can be found on Standard & Poor's public Web site atwww.standardandpoors.com. Use the Ratings search box located in the leftcolumn.


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