Japanese rating agency explains the fundamentals of Thailand’s economy which may yet allow it to defy the new challenges posed by a deadly third wave of Covid 19 as business leaders urge officials not to impose a lockdown which may impinge on a thriving export sector which can help carry the economy through to the other side of this crisis.

For a government in the eye of a perfect storm with the third wave of the deadly virus crashing down on its domestic economy as it fights to launch a vaccination drive, a report published on Monday by a Japanese rating company provided some good news for a beleaguered Prime Minister and explains just why Thailand, despite the worst economic performance in twenty years last year and facing mounting headwinds this year, is still well placed at least on economic and financial terms, to weather the challenge. 

The story of the Thai economy is a paradox with, on the one hand, the hardship being suffered by the less well off and vulnerable, the tourism sector and small to medium-sized business while the fundamentals of the economy and financial reserves remain solid driven by exports and underlined by a strong financial sector. (Right) The CEO of Kasikorn Bank, Kattiya Indaravijaya. Kasikorn has just reported a 44.1% jump in profits for the first quarter of 2021 even with strong provision being made throughout 2020 and the first three months of this year against bad debts with non-performing loans recorded at 3.93%.

Thai Prime Minister Prayut Chan ocha welcomed the latest bulletin from Tokyo based analyst firm Japan Credit Rating Agency  published on Monday. The report heralded a stable outlook for the Thai economy despite the headwinds stirred by the third virus wave, supported by the country’s strong foreign reserves, its prudent budgetary management, a sound financial system and its strong industrial base which is currently driving a promising rise in exports.

The 36-year-old rating institution which advises Japanese firms and local authorities, provided a summary overview of the Thai economy even as Bank of Thailand officials are warning that the prospects for growth this year are diminishing.

60% of Thailand’s open economy is linked to the wider global economy and world trade environment

The report prepared by Mr Hiroshi Tonegawa and Yoshihiko Tamura highlights that Thailand’s economy is essentially linked to world trade and its export industry created by multinational firms who have located in the kingdom especially in the automotive and electronic sectors.

It highlights that exports of goods and services account for 61% of GDP while the kingdom’s imports are 59% of GDP. The kingdom is a classic middle-income economy with a GDP per capita rate of $18,410.

Economists praise the Thai government’s ฿1.9 trillion support programme initiated to defend the economy

The bulletin highlights that the economy saw a contraction of 6.1% last year and still forecast a growth rate of 3% for 2021.

It points to and praises the government’s ฿1.9 trillion support package which is still being rolled out to bolster the economy which, in itself, represents 12% of GDP.

In a recent update from the Bank of Thailand, senior director Suwannee Jatsadasak outlined that the cabinet at the end of March approved a ฿350 billion fund, of which, ฿100 billion will be used to fund an asset warehousing scheme for the decimated tourism industry while ฿250 billion was being earmarked for soft loans to business.

Smaller and medium firms hardest hit

The bank official suggested this third wave of the virus will hit smaller to medium enterprises hardest as with the previous waves. 

‘Given the third wave and the spread of the virus, this will hurt already vulnerable SME businesses,’ she explained. ‘However, the central bank has been closely monitoring the new wave of infections and is ready to implement additional measures to help borrowers hit by the pandemic both commercially and individually.’

Tweaks to ฿250 billion soft loan programme to widen the eligibility for the scheme and help more firms

She explained tweaks have been made to the soft loan scheme to include prospective borrowers or firms who have not had a credit line before from a financial institution as well as a higher state guarantee provision on the scheme raised from 30 to 40% to encourage lenders to be less risk-averse.

The scheme also now foresees extended repayment terms with interest rate caps although the guarantee expires within a 10 year period.

Analysts praise efforts to modernise industry and fiscal responsibility shown by the Finance Ministry  

On Monday, the Japanese rating firm noted the government’s ‘Thailand 4.0’ initiative and efforts to modernise its industrial base although a task force set up by the government and Deputy Prime Minister Supattanapong Punmeechaow in recent weeks, revealed that foreign direct investment into Thailand fell by 50% from 2016 to 2020 coming in at a figure of ฿360 billion.

Foreign investment into Thailand, in real terms, has fallen through the floor or halved since 2016

The firm also noted government borrowing had increased significantly to deal with the crisis but that it was being well managed with a public debt of 53% of GDP at the end of 2020, well within the government’s legal limit of 60% which is, in itself, extremely prudent.

Thailand retains its A+ rating with carefully calibrated state borrowing and a stable financial system

It noted that the Finance Ministry maintained a fiscal deficit of 4.6% last year and that this year is projected at a figure of 3.7%.

On this basis, the firm maintained its stable outlook for the economy and accorded Thailand an A+ rating.

Coming to this conclusion, the firm took into account the country’s banking system which it discerned has been relatively insulated from the effects of the pandemic thus far.

It noted the non-performing loan rate for banks at the end of 2020 was 3.11% and that the overall Capital Adequacy Ratio (CAR) was 19.6% well above Tier One status at 16.5%.

Thai banks report healthy profits for the first quarter of 2021, K Bank posted a year on year jump of 44.1%

These figures are, so far, borne out by preliminary banking results for the first quarter of 2021. 

These show that Thai banks are still managing to squeeze out improved profits despite the heavy economic impact of the virus on the small business sector and the less well off.

Kasikorn Bank is one of the biggest institutions and led by CEO Kattiya Indaravijaya. It announced profits for the first quarter of ฿10.6 billion, up 44.1% year on year.

Ms Kattiya disclosed that non-performing loans on the 31st of March 2021 were running at 3.93%, similar to the end of last year.

‘Given the fresh wave of infections and assistance measures the bank offered to customers, along with business operations amid the uncertainty, KBank set aside greater reserves in the first quarter this year than the previous quarter,’ she revealed.

TMB-Thanachart Bank reports a profit but it fell in the opening quarter with higher provisions

The success of the bank in the first quarter was driven by its non-interest income which rose by 19.3% and contributed ฿1.92 billion to the bottom line.

The merged TMB-Thanachart Bank also posted profits of ฿2.78 billion which were down by just over 33% on last year after it provided ฿5.248 billion for bad loans with an even higher ฿8.23 billion provision in the last quarter of 2020. 

Consistent current account surpluses although it fell for 2020 due to an absence of foreign tourism

The Japanese assessment of the Thai economy in the same way as Moody’s and Fitch have done in the past, have zeroed in on the country’s strong currency reserves which are driven by consistent current account surpluses.

Even for 2020, Thailand recorded a current account surplus of 3.3% which was down from 7% in 2019 because of the absence of foreign tourism income.

At the end of February 2021, the kingdom’s currency reserves stood at an impressive $245.3 billion. The rating agency highlighted this as 4 times the country’s entire short term loan commitments and in fact, was 1.43 times the kingdom’s entire external debt.

Economic stability is not an issue

This situation means that the country has been able to easily weather the economic fallout of the Covid-19 pandemic and can absorb even further shocks to the system despite its disastrous impact on vulnerable sectors of the economy.

Indeed, the most troubling aspect of Thailand’s profile for the Japanese rating firm was the ongoing political disturbances in the kingdom that began in July last year but have, to some extent, petered out due to a tough line adopted by police and prosecutors in 2021 and the rising threat from the virus.

Business leaders implore officials not to lockdown the economy or interrupt a thriving export performance

Business leaders have been urging the government not to impose a lockdown in the country as the public is already taking precautions with many staying at home with a consequent loss to retailers.

In this way, they are arguing the country’s manufacturing and export sector can still carry the kingdom forward even as its foreign tourism industry, which accounts for 11% of direct GDP but up to 20% of wider economic activity, remains shut.

This was the point raised recently by Sanan Angubolkul, the newly installed Chairman of the Thai Chamber of Commerce.

‘Though the government has not enforced a complete lockdown across the country, people don’t dare leave their homes for fear of the outbreak,’ he stated this week. ‘But as long as the government does not order a countrywide lockdown, the manufacturing sector, which is important to exports, can continue to support the economy.’

March saw Thailand achieve a record for the amount of goods shipped from the kingdom abroad

The latest figures for exports in March provided some badly needed encouragement to the government as the door begins to close again on an early resumption of foreign tourism to drive the economy.

Thailand’s total exports for March hit $24.2 billion rising 8.47% from last year. The Ministry of Commerce highlighted last week that March saw the highest figure attained so far for goods shipped from the kingdom.

The figure showed a jump of 19.8% from February in what has been a consistent rise since the third quarter last year when the US economy rebounded. 

Indeed, this week, the ministry referenced the latest efforts by the Biden administration in the United States to stimulate its economy and the successful rollout of its vaccination campaign as key factors.

It also noted the International Monetary Fund (IMF) has just revised upwards its global economic forecast for GDP growth in 2021 by 1% to 6% which, given the open nature of the Thai economy, also spells good news.

Crisis highlights the paradox of Thailand’s economy and the lost opportunity of those left behind

The growth in exports in March was underpinned by a 109% jump in rubber exports from last year all of which gives Thailand’s economic planners a base from which to plan an economic bounce back from their devastating third wave.

The current state of the Thai economy highlights its paradoxical nature between the state of the country’s financial reserves and what is acknowledged as a financially solid position contrasted with the acute and all too real loss of income and vulnerability of the country’s less well off at this time with household debt rising to historically high levels.

It sometimes feels that there are two economies in Thailand or two stories to be written. Ultimately, it’s the story of Southeast Asia’s second-largest economy, one that has long been defined by inequality and lost opportunity.

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Further reading:

3rd virus wave now spells not just economic loss but financial danger as kingdom’s debt level rises

Still time to avoid lockdown says Health Minister as 3rd virus wave dwarfs all infections to date

Thai economy is still in reverse despite rising confidence and a virus threatening a 3rd wave

Reopening of Phuket still not officially approved although it is the ideal test for a broader move

Minister urged not to be afraid to borrow in 2021 as fears grow for a quick foreign tourism revival

Economy to rebound as the year progresses driven by exports and a return of mass foreign tourism

Door closing on quick foreign tourism return as economic recovery is delayed to the end of 2022

Phuket’s plan to self vaccinate on hold as Interior Ministry orders private sector out of vaccine deals

Refloat of foreign tourism in the 2nd half of 2021 with vaccines pushed by minister and industry for the sector

Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019

Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis

Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries

Steady as she goes economy driven by exports and public investment with a 3.3% growth rate forecast for 2021

Thailand’s tourism boss targets thousands instead of millions as public health is prioritised above all

Thailand unlikely to reopen doors to mass-market tourism before the end of 2021 until after a full vaccination

Strengthening baht predicted as investors bet on a reopening of Thailand to mass tourism in 2021

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US move against Thailand on trade is a warning as Thai exports to America boomed in September by over 19%

Thailand’s trade agenda may be complicated and thwarted by raised tensions in the Indo Pacific region

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