TRIS Rating affirms the issuer rating on Bangkok Metropolitan Administration (BMA) at “AA+”, with a “stable” outlook. The rating is based on the importance of the Bangkok metropolis as the capital city and economic center of Thailand. TRIS Rating expects BMA to receive ongoing support from the central government. The rating also reflects BMA’s reliable tax revenue, its balanced budget policy, and the large amount of cash on hand. The rating, has however, taken into consideration BMA’s budgetary constraint in relation to the huge capital investments needed for public transportation and infrastructure projects.
KEY RATING CONSIDERATIONS
Strategic importance as Thailand’s administrative and economic center
Bangkok is the capital city of Thailand and contributes more to the nation’s economic output than any other city in the country. According to the Office of the National Economic and Social Development Council (NESDC), the gross provincial product (GPP) of Bangkok in 2017, at current market prices, was Bt5 trillion, equal to 32.5% of the nation’s gross domestic product (GDP).
From 2013 to 2017, the GPP of Bangkok grew faster than the GDP of the country. The average economic growth of Bangkok was 4.6% per year, higher than the nation’s average growth rate of 2.8% per year. The Thai economy is forecast to grow by 2.5%-2.7% in 2019, after rising by 2.6% in the first half of the year. The growth rate for 2019 is expected to be lower than the average rate, as a result of a significant drop in exports and slower growth in the number of international tourist arrivals. TRIS Rating expects Bangkok’s economy will grow in tandem with the economy of the nation.
The economy of Bangkok has always been less volatile than the economies of other provinces, owing to the more diverse spectrum of economic activities in Bangkok. The major economic sectors are commerce, manufacturing, financial services and insurance, accommodation and food service, and real estate. These five sectors account for about 59% of Bangkok’s economic output, according to the NESDC.
Reliable tax revenue
Over 90% of BMA’s total revenue is from taxes, which are considered to be reliable sources of income. Tax revenue can be classified into two types: local taxes and allocated taxes. Local taxes are collected by BMA while allocated taxes are collected by other government agencies and distributed to BMA. Typically, local taxes account for 18% of BMA’s total revenue. Allocated taxes have made up the main portion (77%) of BMA’s revenue. During the fiscal years (FY) 2014-2018, total tax revenue increased by 6.5% per annum.
Four key taxes comprised about 83% of BMA’s total revenue during the past three years: property taxes, value added tax, land transfer fees, and automobile tax. The amounts collected under these four taxes hinge on the country's economic condition. In addition, the government occasionally reduces one or more of these taxes to stimulate consumption. For example, in FY2016, the government reduced the tax rate of land transfer fees in order to stimulate the property sector. Therefore, although tax collection is projected to increase moderately year by year, collection could be negatively affected by economic fluctuations and changes in government policy.
Balanced budget policy
BMA has exhibited sound budgetary performance, in accordance with its balanced budget policy. According to the BMA Budgetary Law B.E. 2529, BMA plans its expenditures in accordance with projected revenues. A conservative revenue projection will cap planned expenditures at an appropriate level. In a fiscal year when revenue receipts are less than the budgeted amount, BMA has the flexibility to adjust its capital investment budget, especially for new projects. However, additional expenditures, if necessary, can be approved once auxiliary sources of revenue are verified. Auxiliary revenue could be in the form of cash on hand or actual revenue collected in excess of the budget.
Sufficient revenues to cover operating expenditures
BMA continues to post good financial performance. In FY2018, BMA posted total revenue of Bt86.4 billion, a 9.0% increase from the previous year. BMA reported total expenditures of Bt72.3 billion in FY2018, compared with Bt75.6 billion in FY2017. As a result, BMA recorded a net surplus of Bt14.2 billion. The ratio of the balance after capital expenditures to revenue increased to 16.42% in FY2018 from 4.66% in FY2017.
In FY2019, BMA’s revenue is forecast to be around Bt83 billion, while the budget is planned for Bt80 billion in expenditures. As a result, BMA expects to incur a surplus of around Bt3 billion. For FY2020, BMA plans a balanced budget: revenue and expenditures each equal to Bt83 billion. Over the projected period of FY2021 and FY2022, TRIS Rating forecasts that BMA’s revenue will grow moderately, in tandem with the rise of the economy.
High operating expenditures limit investment
A high level of operating expenditures will constrain BMA’s budget for other infrastructure projects. BMA’s expenditures can be classified into two categories: operating expenditures and capital expenditures. Operating expenditures accounted for around 75% of total expenditures annually for the past five years. In FY2018, operating expenditures amounted to Bt56.3 billion, a slight decline of 0.6% from the previous year. Personnel expenditures are one of the key components of BMA’s operating expenditures, accounting for 32% of total expenditures in FY2018.
During FY2013-FY2018, BMA spent around Bt15-Bt19 billion in capital expenditures per year. As Bangkok is the center of the nation’s economic activities and has the highest population density, there is high demand for public services. BMA needs to continuously develop infrastructure in order to serve the growth needs of businesses and residents. Subsidies from the central government are an alternative source of funds. However, subsidies depend on government approval, which is generally a lengthy, time-consuming process. BMA has, in many instances, operated through Krungthep Thanakom Co., Ltd. (KT), its subsidiary, as a conduit in contracting and obtaining financing for some key infrastructure undertakings in Bangkok.
BMA’s debt includes obligations from KT
At the end of September 2018, BMA’s total debt was Bt14.7 billion. TRIS Rating considers BMA’s debt to include (i) KT’s loans, (ii) the net present value of the electric train procurement expenditures, in accordance with the operation and maintenance (O&M) agreement, (iii) an outstanding supplier credit from BTS Group Holdings PLC (BTS) as the electrical and mechanical (E&M) contractor for two Green Line extension projects, and (iv) the net present value of hire purchase contracts for fleets of cars and garbage trucks which have tenors of five to seven years, respectively.
Green Line skytrain concession to avoid the need for future debts
In FY2019, BMA’s total debt will increase substantially following the acquisition of two Green Line skytrain extension projects from the Mass Rapid Transit Authority of Thailand (MRTA) at a cost of around Bt51.8 billion. BMA is also responsible for investing in the E&M systems for both projects. The cost of the two E&M systems is around Bt20 billion. Currently, BMA is in the process of granting a new concession for the Green Line skytrain to the concessionaire. BMA expects the project’s debts will be transferred to the concessionaire in exchange for the concession, obviating the need for BMA to carry huge debts.
BMA’s liquidity position remains strong. In FY2018, BMA had a budget surplus of Bt14.2 billion. Cash on hand rose to Bt45.2 billion at the end of FY2018, from Bt22.5 billion at the end of FY2017. TRIS Rating expects BMA to maintain an appropriate level of cash on hand to support its liquidity position, as a cushion for any shortfall in revenue collection.
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BASE-CASE ASSUMPTIONS
TRIS Rating’s assumptions for the performance of BMA during FY2019 to FY2022 are as follows:
• Revenue to range from Bt83 billion to Bt86 billion per annum.
• Expenditures will not exceed revenue, in line with the balanced budget policy.
• The total debt to revenue ratio will rise to over 90% from FY2019 onward if BMA acquires the two Green Line extension projects from MRTA.
RATING OUTLOOK
The “stable” outlook reflects BMA’s reliable revenue sources and balanced budget policy. TRIS Rating expects BMA to continue receiving support from the central government at all times.
RATING SENSITIVITIES
BMA’s rating could be upgraded if BMA has a clear financial management framework for its investments and operations. In contrast, a rating downside case may occur if BMA loosens its financial discipline or runs a budget deficit for a prolonged period. A change in legal framework that limits support from the central government would also be a negative credit factor.
COMPANY OVERVIEW
BMA is Bangkok’s local government, organized in accordance with the Bangkok Metropolitan Administration Act B.E. 2528 (the BMA Act). BMA, supervised by the Ministry of Interior, is responsible for the management of the Bangkok metropolis, which is divided into 50 districts. Bangkok is the capital city of Thailand and the nation’s center of cultural, educational, political, and economic activities.
According to Article 89 of the BMA Act, BMA is authorized to perform 27 principal functions regarding the development and management of public services in various areas, such as infrastructure, security, health, education, environment, and public welfare. The main objectives are the provision of adequate infrastructure and public services for the well-being of Bangkok’s inhabitants and to facilitate social and economic development.
Bangkok is overseen by two main bodies, the Bangkok Metropolitan Council (BMC) and BMA. BMC is the legislative branch, the members of which are elected for a four-year term. The BMC convenes to consider all affairs under the responsibility of BMA. BMA is the administrative branch, which is headed by a governor who is elected for a four-year term by a majority of the registered voters in Bangkok. The governor appoints four deputy governors as executive administrators. The governor and his management team are responsible for policy formulation, while all operating activities are undertaken by permanent officers which are supervised by the Permanent Secretary of BMA.
After the coup d’?tat in May 2014, the National Council for Peace and Order (NCPO) appointed 30 BMC members to assume legislative responsibilities in 2014 and a new governor of BMA in 2016. The NCPO was dissolved after a new cabinet was appointed following the general election in 2019. TRIS Rating believes a new BMA governor and BMC members will be elected in 2020.
RELATED CRITERIA
- Rating Methodology for Local Government, 23 August 2017
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