Washington based monetary policy institute warns the Covid-19 virus is still the master of the economic situation as the human suffering in Thailand takes its toll and takes on a very different pattern to western countries because of the imbalanced nature of the economy. It comes as the government gets ready to kick off an upgraded public vaccine rollout from June 7th.

The Executive Board of the International Monetary Fund (IMF), on Thursday, urged the Thai government not to ‘taper’ off fiscal support to the economy as it predicted any economic recovery would be slow and still very much dependent not on economic movements, but on those of the Covid-19 virus. It urged Thailand’s economic leadership to look closely at an easing of monetary policy and called for innovative measures to be considered. It also called on the government to expand even further its fiscal support programme.

As the government’s vaccination drive ramps up from Monday, June 7th, the International Monetary Fund in Washington (inset right) urged economic officials in Thailand to bolster fiscal support to the economy and to look at ‘unconventional’ monetary easing measures. It comes as the Deputy Director-general of the Trade Policy and Strategy Office at the Ministry of Commerce, Wichanun Niwatjinda (centre), has confirmed the inflation rate will be between 0.7% to 1.7% for 2021.

The Thai government is currently fighting a battle on two fronts as it pushes forward with the kingdom’s vaccine rollout with stubbornly high levels of infection and deaths. There are real fears that the disease is seeping into the country’s vital manufacturing base in provinces near Bangkok which is the engine currently driving Thailand’s vital export trade.

On Friday, officials with the Centre for Covid-19 Situation Administration (CCSA) announced 2,631 new infections with a further 31 deaths with Dr Apisamai Srirangson highlighting 52 clusters of infection in 32 of Bangkok’s 50 districts with the capital representing 34.4% of all local cases.

AstraZeneca doses a win for the government

On Monday, Prime Minister Prayut Chan ocha and Minister of Public Health Anutin Charnvirakul will both be at Bang Sue Central Vaccination Center in the Din Daeng area of Bangkok to kick off a more intensive vaccination campaign.

This comes as 1.8 million doses of the country’s locally produced vaccine were delivered in the last 24 hours, a significant win for the government.

IMF predicts that the economy will grow by 2.6% in 2021 based on a second-half late recovery

Despite this, the government’s economic team, backed by the prime minister, is urgently pressing ahead with the reopening of the country to foreign tourism without quarantine beginning on July 1st in Phuket.

The International Monetary Fund (IMF), on Thursday, predicted that the Thai economy will grow by 2.6% in 2021. 

This is predicated on a recovery in the domestic economy in the third and fourth quarters of the year coming in conjunction with the vaccine rollout taking hold and boosting confidence. 

Thai consumers are warier about spending

A consumer survey published this week by the Hakuhodo Institute of Life and Living shows a drop in an index measuring willingness to spend among even affluent consumers.

‘The third wave of the pandemic has caused intense anxiety among Thais,’ said Chutima Wiriyamahakul, the business director of the Bangkok based think-tank.

World monetary authority links economic recovery to the path of the Covid-19 virus both inside and outside the kingdom in the coming year

The executive board of the IMF, the international financial organisation of 190 countries which fosters international monetary cooperation and is headquartered in Washington DC, on Thursday, admitted that Thailand’s path to economic recovery was uncertain. 

It predicted it would be both slow and very much linked to the ongoing impact of the Covid-19 pandemic both inside and outside the country.

It also highlighted the critical nature of foreign tourism to the overall Thai economy as it reviewed the 6.1% contraction for 2020.

Call for ‘unconventional’ monetary easing policies despite Thailand’s record low-interest rates

The IMF body, however, suggested that the government, in its economic approach, should look to monetary policy easing as a response to the critical challenge now faced by the country. 

It suggested ‘unconventional’ measures should be adopted by the kingdom in this area.

It also warned the government should resist any moves to withdraw support until the fragile domestic economic and battered foreign tourism sectors come back to life.

Fears that the government’s tightening financial predicament may constrain it further later this year

‘Given the large output gap and fragile inflation expectations, many directors saw scope for further monetary easing, including unconventional monetary measures if downside risks materialise to enhance the impact of the financial measures and fiscal stimulus,’ a statement from the board said. ‘Premature tapering should be avoided’.

Many economists are concerned that the government’s ฿3.1 trillion budget package, passed on Wednesday in parliament, already shows a 5.7% cutback in expenditure despite plans by it to use the new ฿500 billion borrowing measure to provide fiscal stimulus and financial supports this year and into 2022.

Lower tax receipts impact finances in 2021

There are indications that demand for these funds could emerge with figures for tax revenue showing a fall which has prompted the Finance Ministry to adjust its mid-term fiscal plan from 2022 to 2025. 

It is anticipated the tax revenue for 2021 will be off by as much as ฿200 billion.

The government is projecting a 58.6% public debt figure below the 60% legal threshold for the end of the financial year on the 30th of September 2021 but this will depend on GDP performance in quarter three which is still highly uncertain.

The lower tax take is also indicative of lower economic activity.

Headline inflation rate shows that this, at least, is not another issue to concern planners during this crisis

Thailand’s headline inflation rate is likely to come in between 0.7% and 1.7% for 2021 according to a briefing this week from the Deputy Director-general of Trade Policy and Strategy Office at the Ministry of Commerce, Mr Wichanun Niwatjinda. 

It followed confirmation that the consumer price index rose to 2.44% year on year for May, the second straight month of an increase but lower than most analysts’ expectations. The figure for April had been 3.41%.

The impact of government subsidies for utility bills is a key variable in these figures going forward depending on whether it extends the subsidies beyond June.

The ministry expects the index to gain by 1.59% in the third quarter and down to 1.35% in the fourth quarter of the year.

These figures give economic planners within government one less issue to worry about, at least in the short term.

Thailand’s household debt burden is a symptom of an imbalanced economy and an impediment to recovery

The Monetary Policy Committee of the Bank of Thailand meets again on June 23rd but it has indicated already that its record low-interest rate of 0.5% is unlikely to be changed while the bank has also repeatedly over the past year highlighted the growing danger of Thailand’s skyrocketing levels of household debt.

This is where the particular issues with the Thai economy and the impact of the pandemic come into relief.

The high personal debt burden precludes the central bank and the country’s economic leadership from loosening the purse strings to boost economic activity through this channel. It has been highlighted by economists for nearly a decade now as a barrier to growth.

At the end of 2020, in line with earlier fears expressed by the Bank of Thailand, household debt was confirmed at ฿14.2 trillion or 89.3% of GDP.

Credible household savings rate but the pattern of bank deposits in Thailand is very different from developed economies, it is imbalanced

Thailand, in 2019, had a 10% household savings rate which is the percentage of disposable income saved. This compared favourably to many countries worldwide except for countries such as the United Kingdom, Sweden and United States which have levels ranging from 16% to 19%.

At the outset of the economic emergency caused by the pandemic in 2020, there was some indication, even from top bank officials, that bank deposits had swelled in Thailand and evidence of a build-up in savings similar to what was happening elsewhere in the world.

10% of bank accounts hold 93% of deposits

Unlike other countries, however, these savings were not held by a broad selection of the working population. 

This is due to the unequal pattern of deposits in Thailand.

A reputable and in-depth survey in late 2019 showed that 10% of bank accounts in Thailand accounted for no less than 93% of funds while 19% of accounts have less than ฿500.

Survey says that 10% of Thai bank accounts have 93% of funds with 19% having less than ฿500

It is reported since the end of 2020, that this phenomenon of rising bank deposits has begun to reverse sharply.

Thailand facing a credit crunch as 3rd virus wave craters the kingdom’s economic recovery plans

This has been accompanied by reports of rising capital outflows from Thailand confirmed by official figures showing a negative current account balance since November 2020 and a suggestion that large corporate firms had begun using deposits to pay ongoing overheads and costs.

Savings rate was impacted last year by the pandemic and poverty, even by Thai standards, has spiralled

There is also evidence that the gross savings rate in the kingdom was impacted last year from April to October 2020 falling from 34.85% to 24.8% for that initial six month period of the economic emergency. 

This would be the reverse of what was seen in western countries.

There is undeniable evidence that the pandemic has raised poverty levels in the kingdom to an official figure of 8.8% for 2020 or 6 million people.

This followed an improvement in poverty levels in Thailand between 2018 to 2019 when the figure declined to 6.2%.

Poverty in the kingdom had grown substantially from 2015 to 2017 from 4.85 million to 6.7 million people living below Thailand’s definition of poverty which is set at an income of less than $1.90 per day or ฿59 according to the World Bank’s international poverty line. 

That’s under ฿2,000 per month.

Even in years of growth driven by exports and tourism from 2015 to 2017, 40% of Thai household saw their household consumption levels shrink

This information and data, of course, excludes the grey or hidden economy in Thailand which has been hit hardest by the loss of the foreign tourism industry and the reduction in earnings.

This economy accounts for anywhere between 45 and 55% of domestic economic activity in the kingdom.

The scale of the damage here may never be known but the human cost and suffering inflicted by this pandemic in economic terms are just as real.

At the same time, there is an ongoing reduction in earnings by workers who are not defined as living in poverty but are nonetheless struggling with meagre incomes. These are concentrated in the hotel and hospitality sector where salaries have been cut by over 50% or where the workers are surviving on government subsidies.

The imbalanced nature of Thailand’s economy can be seen in the fact that despite economic growth from 2015 to 2017 driven by exports and surging tourism, over 40% of Thai households in that period saw household consumption shrink according to the World Bank.

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Further reading:

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