The Kingdom and the government must strive hard to keep up the vaccination drive to have any chance of overcoming the virus crisis but the underlying problems of Thailand’s ailing economy are also still impacting the situation and the pandemic has exacerbated them.

As Thailand passes its ฿500 billion borrowing decree in parliament, it is looking at a potential GDP gain of 1.8% for this year which is far short of where the country needs to be, given last year’s setback. There is also growing concern at the tightening budgetary situation in government and a divergence between the kingdom’s prospects and the wider world economy. Even as the borrowing bill was debated and passed by parliament, Prime Minister Prayut Chan ocha emphasised to the assembly that the Covid-19 challenge was still far from being met and defeated.

loan-bill-passes-1.8-percent-GDP gain-projected
Prime Minister Prayut Chan ocha at the House of Representatives for Wednesday night’s debate on the ฿500 billion borrowing measure initiated by the cabinet on May 18th last and which was passed on Thursday by a commanding margin. The PM indicated that the struggle against the Covid-19 virus may take some time yet and that the government will need adequate funding.

The Prime Minister, this week, told the House of Representatives that there was still no certainty on when the Covid-19 pandemic emergency would come to an end.

He made the remarks as he urged the parliament to approve the borrowing bill for ฿500 billion, agreed by the cabinet on May 18th, which the government says it needs to pay for Covid-19 vaccines, research and programmes to assist the public and rehabilitate the damaged economy.

The bill was passed by the House on Thursday by a strong majority of 270 to 196 votes with two abstentions and one MP who did not vote at all.

Borrowing programme to be managed by the Minister of Finance Arkhom Termpittayapaisith who guaranteed the 60% of GDP limit will be upheld

The borrowing programme will be managed by the Minister of Finance Arkhom Termpittayapaisith who will have to put in place all borrowing contracts under the provision by September 30th next year.

Speaking to parliament during the debate on the provision, Mr Arkhom made a commitment that the public debt level in Thailand will be maintained by the government at below 60% of GDP as required by law.

Kingdom must vaccinate 400,000 people per day to stay on course for recovery, 5.2% of people already have received one dose with 8.3% in targeted areas

The passage of the bill comes as authorities in Thailand are pushing ahead with the kingdom’s vaccination programme targeting at least 400,000 vaccinations a day, a figure that will have to rise as high as 700,000 towards the end of the year as the programme, from August, will be targeting the full adult population and after that, there will be a requirement for a large number of second doses to complete the inoculation courses.

In recent days, the government has revealed that over 5.2% of the population has now received a first dose while an 8.3% rate of the population in strategically important economic areas, being targeted by officials to protect the manufacturing and foreign tourism sector, has been achieved.

Government’s financial position is thought to be constrained going forward at this critical time

There is mounting concern in Thailand that the government is facing constraint in its financial position as evidenced by the borrowing bill itself and last week’s budget for 2022.

The budget for next year of ฿3.1 trillion represented a 5.7% cut on expenditure levels for 2021.

During the debate on the borrowing provision, a Pheu Thai MP from Nan province made his view known.

Cholnan Srikaew told the assembly he was concerned the measure was not enough while also expressing scepticism about the transparency of the government’s spending plans.

More serious than the Financial Crisis of 1997

While business leaders such as Supant Mongkolsuthree, the Chairman of the Federation of Thai Industries, are urging the government to press ahead with the vaccination programme, others are warning any prospect of economic recovery will take some time.

The Governor of the Bank of Thailand, Sethaput Suthiwartnarueput, said recently that this crisis, because of its long-term nature, is more severe than the Asian Financial Crisis of 1997.

He said it will be the first quarter of 2023 before any prospect of a full economic recovery is seen. This is a view shared by financial analysis firms, the World Bank and the International Monetary Fund.

IMF urges government to loosen nation’s purse strings as finances tighten with the tax take down

Last week, the IMF warned the government not to taper off expenditure and called for an unconventional approach to monetary policy.

Divergence between Thailand’s economic outlook and developed countries highlighted by ballooning household debt levels and lacklustre growth prospects

It comes as there is increasing concern about a divergence between the kingdom’s economic policies and the return to growth in developed countries where the public has managed to save and build up funds during the pandemic in comparison to ballooning household debt in Thailand which reached 89.2% of GDP at the end of 2020.

On Friday, Kasikorn Research Centre pointed out that the Thai economy will still grow by 1.8% this year driven by a promising performance in exports which the firm expected will now see 9% growth. 

Bank economic unit predicts a maximum of 1.2 million foreign tourists this year visiting Thailand

It also, significantly, suggested a range of 250,000 to 1.2 million for foreign tourist arrivals which would be a significant reduction of the projection this week set out by the Tourism Authority of Thailand (TAT) when it confirmed the July 1st opening of Phuket and other measures.

It said it was targeting 3 million visitors this year.

1% GDP gain in Quarter 2 because of a low base from 2020 when the economy shut down at the outset of the pandemic causing a severe contraction

The economic analysis arm of Kasikorn Bank also suggested that despite a 2.6% contraction in Quarter 1 of 2021 using a year on year measurement basis, the second quarter will show a 1% gain, significantly, because of the low base from last year when the country’s economy effectively shut down at home at the outset of the pandemic.

The economy in 2020 contracted by a massive 12.2% in Quarter 2 making this quarter’s performance seem altogether less impressive.

The firm is projecting a 5% growth rate in the final quarter of the year.

However, the overall projected growth rate for 2021 at 1.8% will be disappointing, considering the 6.1% reverse in 2020 and will leave Thailand struggling to reach its medium and long term economic goals.

Higher public and private investment levels seen

The Assistant Managing Director of Kasikorn Research, Nattaporn Triratanasirikul, highlighted a smaller growth in domestic consumption this year of 0.9% but also revealed that private investment is up at 3.5% from 1.5% and public investment from 6.1% to 8.5%.

The centre suggested that bad debt loan provisions may creep up as it revealed that 26.6% of retail bank customers based on a sample of 300, were having difficulty making repayments. 

On this basis, it predicted the non-performing loan ratio within the banking sector to rise to between 3.2% and 3.5%

Country cannot afford a new virus wave or stalled levels of vaccinations until the end of 2021

However, the economic research centre warned that failure by the government to carry forward its vaccination programme of at least 400,000 doses per day which is linked with an ability to counter the third virus wave by the end of July would spell bad news.

It specifically identified the danger of another wave or clusters emerging which might further counteract or hamper economic recovery efforts.

Economic prospects compared to western economies appear dim even with 14% of GDP potentially invested in financial stimulus measures in 2020 and 2021

Thailand is currently about 5 to 6 months behind the United Kingdom and the United States in achieving its vaccination goals and reopening its economy.

However, the recovery, now gaining momentum in western countries including Europe, suggests that governments there will reap dividends for their generous public and business support measures which saw massive levels of government expenditure during the crisis which is still ongoing.

In the case of the UK, this was 26% of GDP compared to Thailand’s not inconsiderable 14.2% based on GDP for 2019 and the two loan packages amounting to ฿2.4 trillion. 

Revised OECD growth rate for the world announced in May at 5.8% highlights Thailand’s poor economic performance for 2021 because of no foreign tourism

In the United States, the figure including the year’s $1.9 trillion stimulus package pushed through by the Biden Administration, also came to 14% while in Europe, the expenditure, considered by some economists in recent weeks to have been too generous and which is still in place, amounts to as high as 40% of GDP in some countries for example such as Germany.

Yet, Thailand’s recovery prospects are pretty bleak compared to the projected GDP gains in developed countries with the United States on course for a 6.9% growth rate in 2021 and the United Kingdom looking at 7.5%. 

The divergence between Thailand’s prospects and the overall world economy can be seen in the revised Organisation for Economic Co-operation and Development (OECD) projection in May showing that the world’s economies will grow by 5.8% on average this year.

Pandemic may be overcome towards the end of the year but all the old problems facing Thailand’s ailing economy remain and have been made worse

There may yet be an improvement in the kingdom’s outlook if the vaccination programme goes well but the reasons for this is the country’s critical dependency on foreign tourism revenue to spur economic activity.

Nevertheless, the underlying problems in the ailing Thai economy are still at play, even during the pandemic.

These include its ageing population, structural inequalities, ballooning household debt levels, lack of inward investment and failure to upgrade its economic and manufacturing base fast enough while facing competition from younger economies such as Vietnam.

All these issues have been exacerbated by the pandemic and must be addressed sooner rather than later, but perhaps on another, brighter day.

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Further reading:

IMF urges government to loosen nation’s purse strings as finances tighten with the tax take down

Failure to pass the ฿500 billion borrowing decree could lead to the dissolution of parliament

Baht to strengthen later in the year even after July as foreign tourists will return says top bank economist

Economic picture continues to darken as cabinet approves new ฿700 billion loan to plug the gap of higher deficits

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

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

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

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