Prime Minister Prayut Chan ocha, in an appeal for unity in the face of economic adversity last week, highlighted as a key reason for the problems besetting Thailand it’s traditional reliance on money from tourists. The new government’s economic team is currently pushing increased public investment and domestic consumption until the pandemic storm cloud clears. This will necessitate, according to one senior banker, ฿1 trillion more in extra government funding or borrowings. It comes as Thailand’s banks appear to be holding their own with ample liquidity and lending to business on the rise.

Behind Thailand’s closed borders, a new consensus is emerging among economic experts, planners and the new government economic team that the kingdom needs to move away from its dependence on both tourism and exports as a result of the current Covid 19 pandemic. On Monday, a seminar organised by a House of Representatives committee heard calls from both a senior banker and an economics expert for a hike in taxation on Thai firms and an expansion of the tax base to promote an economy more reliant on domestic consumption. It comes as the new Minister of Labour has promised his department, alone, will create over 90,000 jobs and has appealed to other government departments to create further employment opportunities.

Following a speech by Thai PM Prayut Chan ocha last week as he highlighted the country’s dependence on exports and tourism, there has been a range of calls supporting a switch in the economy towards domestic consumption. This is being pushed by some leading economic experts and at least in the short term, is the policy being pursued by the government. Indeed, the policy is nothing new being touted by the junta government from as early as 2015. The Executive Committee Chairman of Kiatnakin Phatra Bank, Banyong Pongpanich (left), on Monday, called for a higher corporation tax rate and more tax on property to fund the government’s support plans to alleviate the worst effects of the Covid 19 recession while the new Minister of Labour, Chonburi MP Suchart Chomklin, is vowing that his department and the government will create hundreds of thousands of jobs to order.

Last week, in an address to the nation on live TV, Thai Prime Minister Prayut Chan ocha told the public that the kingdom had become so dependent on exports and foreign tourism that, economically, it had been one of the countries hardest hit by the Covid 19 virus emergency. ‘Thailand has been caught up in that global storm because our country has been so dependent on money from exports and money from tourists,’ he said.

His thinking was echoed by a speaker on Monday at a seminar hosted by the House of Representatives Fiscal and Monetary committee which heard a top Thai banker issue a call for an increase in taxation through higher corporate tax on companies and an extension of the tax base particularly on asset ownership which would avoid hurting the poorest in society.

Call for a hike in corporation tax from 20 to 25%

Banyong Pongpanich, the Executive Committee Chairman of Kiatnakin Phatra Bank, told the gathering that the corporate tax rate should be raised from the current 20% to 25% to boost the government’s revenue.

He made the remarks while also calling for the Thai government to find ฿ 1 trillion more for its economic support plan which is currently underway, involving a borrowing requirement of ฿ 1.9 trillion.

The banker said this extra funding would be needed as the economic impact of the Covid 19 emergency would persist for some time with further economic consequences still in store.

He called for the Thai government to also look at privatising state assets.

Economy contracted by 12.2% in the second quarter hit by an unprecedented global slowdown

His comments came as the National Economic and Social Development Council (NESDC) confirmed that the Thai economy, in the second quarter of the year, had contracted by 12.2%, the worst result since 1998 but marginally less than the Asian Financial Crisis at that time. 

The Secretary-General of the council, Thosaporn Sirisumphand, also confirmed that Thailand’s economy would contract by 7.5% this year although the Bank of Thailand, in its most recent assessment, has indicated that this figure will be 8.1%. This figure or range is supported by a prediction from Standard Chartered Bank, this week, that Thailand’s GDP would suffer an 8% contraction.

Mr Thosaporn also highlighted that the world’s economy would contract by 4.5% this year and only China and Vietnam would escape a reduction in their respective GDPs for 2020.

Standard Chartered Bank sees a growth rate of 2% in 2021 with a slow improvement or uptick here

Standard Chartered Bank economist, Tim Leelahaphan, also foresaw that if the Covid 19 virus crisis peters out in 2021, Thailand may well be in a position to recover but for 2020 and even into 2021. Any uptick will be slow. The bank has projected Thailand’s economy to grow by 2% in 2021.

‘While we believe the second quarter saw the worst of the Covid-19 impact on Thailand’s economy, we now expect a slower recovery ahead. Domestic activity, currently the main economic driver, remains weak, while external sources of growth are unreliable,’ Mr Tim said.

Economist from Thammasat University calls for a wider tax base and the use of digital technology to wean the exchequer off tourism receipts

At Monday’s House Committee seminar, Juthathip Jongwanich, an associate professor at Thammasat University’s Faculty of Economics, also called for higher taxes. 

He indicated that the government should raise taxes and deploy digital technology to achieve a widening of its base of taxation.

Mr Juthathip said Thailand must move away from it’s dependence on tourism and exports and create an economy more focused on domestic consumption. However, he pointed out that in order to achieve this, the government must tackle the chronic problem of household debt in Thailand.

The move away by Thailand’s economic planners from tourism was a key policy initiative of the junta government in 2015 when the new economic team took the helm but appeared in be overtaken by a surge in Chinese tourists creating record numbers for the tourism industry up to 2018 and 2019.

Jobs to order – self-reliant economic model emphasised as the new Labour Minister announced his department will create 91,444 jobs

The move towards more self-reliance in the Thai economy was further boosted on Tuesday when newly installed Labour Minister, Suchart Chomklin, announced that his department would create no less than 91,444 jobs for Thai workers.

The new minister said he had ordered his department to prepare the jobs which would see 42,367 new positions created particularly within the Eastern Economic Corridor.

These would include jobs for bachelor degree holders down to school leavers. Many of these positions would be in the provinces of Chonburi, Chachoengsao and Rayong.

The minister also revealed that a further 49,077 jobs would be found by his department for Thai workers abroad in countries such as Taiwan, Israel, Malaysia, South Korea, Singapore and Japan.

Mr Suchart said that other ministries had been tasked with preparing positions for Thai workers and that his department alone, the Department of Labour, would provide 30,000 new jobs.

Minister warns of fear stalking workers

In recent days, the new minister, a Palang Pracharat MP from Chonburi, has described part of the problem ailing the economy, now, as the fear being instilled in workers.

Mr Suchart promised to set up a labour exchange centre within the Labour Ministry to match the unemployed with jobs in the industry. He also promised to pay particular attention, personally, to new graduates entering into a difficult labour market caused by this deep recession.

‘What I will do is to set up a national labour centre in my ministry,’ the minister said. ‘The centre will lower unemployment by matching unemployed workers with industrial firms.’

Real unemployment number is 2 to 3 million, far lower than the previous estimate said Mr Suchart

He also has claimed that the unemployment level, at present, is not seven or eight million as feared but more like two or three million. The minister said he received his information from the National Economic and Social Development Council (NESDC) who had provided him with their calculations. On that basis, he asserted, these figures could not be wrong.

New lending licences announced

Thailand’s Bank of Thailand also announced a decision, this week, to broaden the range of loan intermediaries in the country in an effort to expand financial services and lending to the less well off.

The move will allow for the advance of more peer to peer lending which may greatly improve the dynamism of the Thai economy.

This activity is governed by the Credit Information Business Act of 2002.

Banking system is weathering the storm

The ability of Thailand to weather the Covid 19 storm so far and the fact that, at least, the domestic economy is showing signs of improvement is underpinned by the stability of the banking system.

This week, the Bank of Thailand, through its Banking Supervision and Risk Assessment Department, gave an overview of how the tough second quarter had played out within the banking sector.

Bad loans rose marginally to a rate of 3.09% from 3.04% but the key figure was a plummet in bank profits from ฿53.3 billion in the first quarter to ฿31 billion in the second quarter due to higher risk provisions.

A key finding was that the Covid 19 recession, which Thailand is now officially in, had impacted big business in Thailand substantially in the second quarter.

However, Tharith Panpiemras, the senior director of the central bank highlighted the healthy state of combined bank finances.

Lending to business in the second quarter was up as banks played their part in helping firms

He highlighted a combined capital base of ฿2.9 trillion. The combined bank capital adequacy ratio was 19.2%. 

Bank reserves stood at just over ฿743 billion. Significantly, the banks had quite a generous liquidity situation with a coverage ratio of over 183%. The non-performing loan coverage ratio was above 144%.

Bank interest rate margins had dropped from 2.9% to 2.6% despite a growth in lending of 5% in the second quarter. This compared with just 4% in the first three months.

The banks have also seen continued growth in mortgages, as, despite the Covid 19 crisis, the demand for home ownership continues. There was also a rise in consumer lending. 

Despite this, however, over 65% of all bank loans in Thailand are to business, a proportion which has grown during the pandemic as the banks responded to government programmes and provided support for small and medium-sized firms.

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