TRIS Rating has affirmed the rating of “AA+” for Bangkok Metropolitan Administration, hereinafter is referred as “BMA”, with “stable” outlook. The rating is based on the importance of the Bangkok Metropolis (Bangkok) as Thailand’s administrative and economic center. The rating also reflects BMA’s reliable source of tax revenue, balanced budget policy, and strong financial profile which is derived from low leverage and a large amount of cash on hand. The rating, however, is constrained by the huge capital investments needed for public transportation and infrastructure projects, and an increase in BMA’s operating expenditures to pay for the public services BMA provides and the responsibilities delegated to BMA from the central government. Despite undertaking a number of costly responsibilities, BMA has a limited ability to seek additional revenue sources. In addition, some issues need to be carefully monitored, such as the timely availability of audited financial reports, BMA’s ability to balance its revenue streams and the financial obligations used to fund future investments, and the development of a concrete debt management framework. The “stable” outlook reflects BMA’s reliable revenue sources and conservative budget policy. TRIS Rating expects that BMA will continue to receive support from the central government at all times. New debts, or any contractual financial obligations, are expected to be carefully planned and take into consideration BMA’s revenues and debt service ability.
BMA is a local government which has the responsibility of providing public services for both residents and businesses in Bangkok. Being the capital city of Thailand, Bangkok is positioned as the social, political, and economic center of the country. In 2012, the gross provincial product (GPP) of Bangkok was the largest in the country, amounting to Bt3.69 trillion or 32.4% of Thailand’s gross domestic product (GDP). In terms of fiscal performance, most of BMA’s total revenue was from taxes, both local taxes collected by BMA and allocated taxes collected by other governmental agencies and remitted to BMA. Tax revenue is considered a highly reliable source of income, although the amount varies with the nation’s economy and the central government’s policies.
In fiscal year (FY) 2013, as the local economy continued to grow, BMA collected Bt63,061 million in revenue, an increase of 6% from the previous year. In FY2013, local taxes collected by BMA comprised 18% of BMA’s total revenue. The major component of the local tax revenue in FY2013 was property taxes, which accounted for 92% of total local taxes. The allocated taxes, collected by other governmental agencies, made up at 77% of BMA’s total revenue. Value added tax, land transfer fees, and automobile tax contributed 47%, 21%, and 20% of total allocated taxes, respectively. BMA reported expenditures of Bt68,508 million in FY2013, a 1% rise from the FY2012, as BMA set additional expenditures budget for an education project, a water drainage tunnel project, and other duties required by central government policies. As a result, BMA posted a net deficit of Bt5,446 million. Thus, the balance after capital expenditures to revenue ratio was -8.64% in FY2013. In addition, BMA's cash on hand dropped from Bt14,187 million at the end of FY2012 to Bt10,816 million at the end of FY2013. BMA’s operating expenditures accounted for 77% of total expenditures in FY2013; capital expenditures made up the rest. Operating expenditures increased to Bt52,802 million, a 7% rise from the previous year. The rise in operating expenditures will constrain BMA’s ability to invest in other infrastructure projects. BMA’s annual revenue and expenditure report, as published in the Royal Gazette, are lower than the actual as BMA has not yet consolidated the revenues and expenses from the extension phase of Bangkok mass transit system (BTS) project.
For the first nine months of FY2014, BMA’s revenue increased by 9% year-on-year (y-o-y) to Bt48,608 million. The rise was supported by an increase in land transfer fees, which rose 44% y-o-y from the previous year. At the fiscal year end, BMA expects to collect the revenue close to its budget of Bt65,000 million. BMA has approved Bt5,000 million in additional expenditures. As a result, BMA will likely incur a net deficit balance in FY2014. BMA will also post negative ratio of balance after capital expenditures to revenue for the third consecutive year.
In FY2013, BMA’s total debt was Bt11,198 million, down slightly from Bt11,345 million in FY2012. The major portion of the debt comprises the loan of BMA’s subsidiary, Krungthep Thanakom Co., Ltd. (KT) which borrowed to finance the construction of the BTS Silom extension phase (Taksin-Petchkasem). BMA’s debts also include the net present value of the electric train procurement expenditures, which is in part of the BTS’s procurement, operation, and maintenance contract. In addition, BMA’s debts include the net present value of hire purchase contracts for a car fleet and garbage trucks. In FY2014, BMA’s total debt will increase to approximately Bt12,125 million as BMA signed more rental contracts for garbage trucks.
Regarding debt service ability, BMA’s annual debt service obligations take into consideration the fees and charges payable under various long-term contracts. For example, BMA must make the service payments for the operation of BTS extension route and BRT bus, rent payments for fleets of cars and garbage trucks, and scheduled debt repayments. Due to the increase of the service fee of BTS and BRT operation and scheduled debt repayments, BMA’s ratio of debt service obligations to total revenue increased from 4% in FY2012 to 5.5% in FY2013. The ratio is expected to rise to 6.4% in FY2014.
BMA has a policy to continuously develop and invest in public services and infrastructure to facilitate investment and economic growth. These projects require large amounts of funds. In addition to a tax revenue allocation, the central government also grants BMA an annual subsidy. However, the subsidy is earmarked for certain purposes and is insufficient to fund all of BMA’s investment needs. Thus, BMA has attempted to find additional sources of fund for the investments, including the increase in tax rate or levying new taxes. However, tax collection is a sensitive issue because any tax increase requires a complicated and time-consuming Cabinet approval process. In addition, BMA has to consider the impact of any tax increase on the economy and the politics. TRIS Rating expects that BMA will carefully consider its investments in order to comply with the law and avoid impairing its financial strength.
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