August 21, 2024
BANGKOK – Thailand’s Parliament swiftly approved Paetongtarn as the new prime minister on Sunday, highlighting the nation’s ongoing political volatility. Paetongtarn, who received royal endorsement on August 18, is set to take the helm after a series of dramatic political developments.
The appointment comes after the Constitutional Court dismissed the previous leader, Srettha Thavisin, for ethics violations related to a Cabinet appointment. In a separate ruling, the court also disbanded the Move Forward Party, which had won the most seats in the 2023 election, citing constitutional breaches linked to its attempts to amend the lèse majesté law.
The new prime minister, supported by 319 members of the 500-seat lower house, is expected largely to adhere to the policy positions of Srettha’s administration. The Pheu Thai Party (PTP) remains the dominant force within the ruling coalition.
One key focus will be the fate of the digital wallet scheme, a significant cash transfer programme estimated to cost about 2.4% of GDP over two fiscal years. The new PM has indicated that the government will further study this initiative, leaving open the possibility of cancellation, adjustments, or delays.
The rating agency warns that political pressure for large-scale spending measures beyond FY25 could hinder fiscal consolidation efforts. This uncertainty surrounding the fiscal deficit and government debt trajectory is further complicated by concerns that increased public spending may only provide a short-lived economic boost without addressing structural growth impediments.
Despite these challenges, Fitch said it believed that the government’s access to deep domestic capital markets and favourable debt structure provide some mitigation against risks associated with the substantial increase in government debt since 2019. Nonetheless, increased debt may limit the government’s fiscal capacity to deal with future economic shocks.
The rating agency emphasises that Thailand’s frequent bouts of political instability have historically hampered effective policymaking. The country’s governance indicators lag behind many “BBB” category peers, and recent developments may impede anticipated improvements.
While the risk of widespread political unrest appears low at present, Fitch cautions that further escalation of political risk cannot be ruled out. Any political disruption significant enough to weaken economic policymaking effectiveness and growth prospects could potentially lead to negative rating action.
“When we affirmed Thailand’s rating at ‘BBB+’ with a Stable Outlook in November 2023, we stated that the government’s inability to stabilise the public-debt ratio could lead to negative rating action,” Fitch stated.