Fitch Warns Political Hurdles Could Lead to Downgrade

Fitch Ratings has warned that political bargaining within a new coalition government could delay Thailand’s planned deficit reduction and complicate proposed VAT increases, raising the risk of a sovereign credit-rating downgrade. In a report published on 10 February 2026, the agency said the country’s election outcome points to policy continuity under a Bhumjaithai-led administration, but stressed that fiscal choices will determine the sovereign rating outlook. Failure to cut the deficit in line with targets could undermine confidence, Fitch said.

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Fitch assessed that Bhumjaithai and its allies are likely to form a coalition government, reducing the risk of post-election disruption and potentially delivering greater stability than in the past. However, it noted Thailand’s long history of political unrest and that the country has seen three prime ministers since the May 2023 election. The agency said coalition stability will influence whether structural political uncertainty can be reduced and fiscal policy made more predictable.

Under the medium-term fiscal framework (MTFF), Thailand aims to narrow the budget deficit from 4.4% of GDP in FY2026 to 2.1% by FY2030, with public debt expected to peak in FY2028. The plan relies on phased VAT increases to 8.5% in FY2028 and 10% in FY2030, which Fitch described as “politically difficult”. The agency shifted Thailand’s outlook to “negative” in September 2025 due to weaker fiscal metrics.

Fitch said it is monitoring whether the incoming government prioritises structural reforms or short-term stimulus, citing measures such as the “Khon La Khrueng” co-payment scheme, estimated to cost 0.8% of GDP, alongside SME support and household debt measures. Additional coalition-driven spending without offsets could make deficit reduction harder.

Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas said the caretaker government would continue working during coalition formation and insisted fiscal discipline would be maintained. “Everyone knows the country must focus on restructuring the economy and crucially this must be anchored in fiscal discipline, because foreigners are watching Thailand’s direction,” he said, adding that the government would not pursue populist-style policies.

Jindarat Viriyataveekul, director-general of the Public Debt Management Office, said Fitch’s remarks were not overly worrying and that continuity in leadership should help maintain the FY2027–30 framework. She said the plan aims to cut the deficit to no more than 3% of GDP by FY2029 and keep public debt below 70% of GDP.

The Finance Ministry projects continued deficits through FY2030, with spending of 3.780 trillion baht and an 860 billion baht deficit in FY2026, rising to 3.903 trillion baht in spending and a 481 billion baht deficit by FY2030. Assoc Prof Dr Athiphat Muthitacharoen of Chulalongkorn University said stability alone is insufficient and highlighted concerns over VAT feasibility, widening the tax base and capping annual public spending growth at 1%, compared with typical increases of 3–4% since Covid-19.

The Nation reported that rating agencies will assess whether the government can align economic support measures with a credible deficit-reduction path and strengthen revenue collection, as tax revenue has declined from about 17% of GDP to around 15%. Personal income taxpayers number around 4.7–4.8 million, with average annual growth of 1.8% from 2014 to 2023. Any VAT increase, academics say, would require long-term planning and relief measures to ensure fairness.

Key Takeaways

• Fitch warns coalition bargaining could delay deficit cuts and VAT rises, risking a downgrade.

• Thailand plans to reduce its deficit from 4.4% of GDP in FY2026 to 2.1% by FY2030 under the MTFF.

• Officials insist fiscal discipline will be maintained despite political pressures and continued deficits.

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Adapted by ASEAN Now Nation 13 Feb 2026

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