Strong public opposition to the reopening of Thailand to foreign tourists from mid-October and the flight of capital from the kingdom could spell a difficult problem for the government to manage and will require leadership as confidence in its ability to manage the virus crisis is shaken. Only exports, expected to rise by 10% in 2021, offer some ray of hope in the months ahead.
The Thai baht is falling after a precipitous drop in the last week as the calamity of the emerging 4th virus wave with rising infection levels and deaths, at the same time, causing it to sink below ฿32 to the US dollar. It comes as the country’s population and its government look to be in disagreement about the risk of reopening the country to international tourism while the slow withering of the foreign tourism industry continues to undermine its economic and investment prospects.
Thailand, on Wednesday, through the Ministry of Public Health confirmed 53 deaths and 4,786 infections.
The Thai baht hit a 13 month low against the US dollar on Tuesday and Wednesday mornings as the country’s economic prospects dimmed due to the onset of what looks like a stronger outbreak of the Covid-19 virus in Bangkok, Southern Thailand and provinces at the heart of the kingdom’s manufacturing economy.
The fall of the baht has seen it lose 6.4% of its value against the greenback since the beginning of the year making it the second worst-performing currency in Asia for 2021.
Domestic economy and a defunct foreign tourism industry is still shedding jobs a year after closing
Underlying the figures is not only the woe besetting the domestic economy, stymied by a rising wave of Covid-19 virus infections but the continued deterioration in the position of companies that were part of the now-defunct foreign tourism industry which continues to shed jobs.
The decimation of the country’s foreign tourism sector is sapping confidence in the Thai economy overall as the industry is also linked to inward investment.
A report on Tuesday from the Tourism Council of Thailand (TCT) indicated that 550,000 jobs alone were lost in the second quarter of 2021.
Outflow of funds seen at the end of last year when the country’s capital account turned negative
Even more significant, and rising in prominence as an issue, is the massive outflow of funds that began in November 2020 when Thailand’s capital account suddenly turned negative with a massive outflow of funds from the country into foreign investments from Thai account holders.
Billions of dollars exiting Thailand since last year
This was confirmed by the Bank of Thailand on Tuesday when Director Pawinee Jitmongkolsa-mer briefed the media along with senior director Chayawadee Chai-Anant.
Ms Pawinee revealed that a whopping $17.8 billion exited Thailand in the last quarter of 2020 setting a record compared to an average of $3.1 billion outward external investment per month from 2010 to 2019.
There was also a record level of capital outflow seen in May.
Changes introduced in 2019 to combat a then strengthening baht which was impacting exports
The movement of funds and investments abroad was encouraged by a liberalisation of the regime which began at the end of October 2019 as the country’s exports suffered at the hands of a strengthening baht and the US-China trade war.
Central bank boss plans to loosen capital controls and decide on broader lending curbs by year’s end
Indeed, at the end of last year, in December, in the aftermath of the US Presidential Election and the confirmation of Joe Biden as incoming president, the baht broke through the ฿30 to the dollar barrier briefly in end of year trading before beginning its descent in value to this week’s new low point.
Baht may move lower as importers seek to hedge their future market trades and buy dollars
On Tuesday, market analysts, traders and strategists such as Poon Panichpibool of Krungthai Bank suggested that as the baht has breached the ฿32 to the US dollar barrier, then it may quickly move to ฿32.50 as importers will move to hedge their positions by buying dollars.
The response, on Tuesday, by the Bank of Thailand was one of confidence as it announced it was making moves to further liberalise the current situation.
Officials are reported to be considering allowing transactions over the current limit of $200,000 to go ahead without supporting documentation.
Even more liberal measure to allow outflows
Ms Pawinee said a new, even more liberal regime will be implemented towards the end of the year. ‘Current rules are not balanced and not in line with the country’s fundamentals at the moment,’ she explained.
Ms Chayawadee Chai-Anant pointed out that while outgoing investment funds included money taken out of the stock market, there was still a net inflow of funds into the Thai bond market.
Bank official – no cause for worry
The top bank official said the current levels of capital outflow and the declining baht were not causes for concern. ‘There are no worrying signs yet and we are monitoring it,’ she said.
Ms Pawinee told reporters that she saw the sharp decline in the value of the baht as being linked to the sudden surge in Covid-19 cases and the potential to hamper and stymie economic development.
Tourism industry sank to a new low in the second quarter even as Phuket reopening goes ahead
The briefing by the bank came as Chamnan Srisawat of the Tourism Council of Thailand told the media that confidence within his industry had hit a record new low in the second quarter.
This is despite the government proceeding with the planned reopening of Phuket which proceeds on Thursday the 1st of July.
The ‘Phuket Sandbox’ scheme has been dogged with changes and additional public health requirements driven by political concerns as an ever more sceptical public is becoming disgruntled due to the government’s handling of the crisis.
The people of Thailand, by and large, are in disagreement with the government’s current plan to fully reopen the kingdom to foreign tourism by mid-October which is seen by many economists as essential if the country wishes to see any GDP growth for 2021.
The policy outlined by the PM, General Prayut Chan ocha, is to allow open access to fully vaccinated foreign tourists to areas of Thailand where 70% of the local population has been fully vaccinated.
Nearly three quarters oppose reopening the kingdom to fully vaccinated foreign tourists
A significant poll by the National Institute of Development Administration (NIDA), published in the Bangkok Post on Sunday, showed virulent opposition to the policy outlined by the prime minister last week.
73.46% of Thai people were in disagreement with even a strong majority of 53.55% expressing themselves as in total disagreement with such a course of action.
On the other hand, some 26.01% of people agreed with only 12.43% of people giving it their full support.
Public confidence slides in the government’s handling of the Covid-19 crisis since the 3rd wave arose
A similar number to those opposed also felt the government’s plan was doomed to failure with 71.62% saying the planned reopening would not happen.
It comes amid a slide in public confidence in the government during June in its handling of the crisis because of a perceived mismanagement of the country’s vaccination drive and rising scepticism among the population since the 3rd wave outbreak in early April which has seen the country ravaged with over 250,000 new infections and a death tally in excess of 2,000 people.
Tourism sector boss predicts only a trickle of foreign visitors as firms shut their doors, 550,000 jobs lost in just the last 3 months, in the second year of crisis
In spite of the government’s unpopular plan to reopen, Mr Chamnan predicted that the number of foreign tourists who would visit Thailand this year, at best, would be marginal compared to the figure for 2019 when just shy of 40 million visitors contributed nearly ฿2 trillion to the local economy.
His main preoccupation was the tourism businesses and firms who will not survive in the coming months
He pointed out that no less than 550,000 full-time jobs had been axed in the industry within the past three months from April to June as the third wave of the virus reduced hotel occupancy rates from 20% in the first quarter to only 10% in the second, a disaster for the industry now suffering for over a year.
36% of all tourisms firms are not operational
The latest wave has decimated any form of domestic tourism which had emerged in January and severely dented confidence among the public and tourist industry operators alike, notably domestic airlines.
He said 36% of all tourism business concerns were currently financially shattered and had closed their doors with 4% having gone permanently out of business already.
The pandemic, since April 2020, has seen 2 million workers in the tourism sector laid off.
‘Most tourism operators only have the cash flow for up to six months. If the outbreak can’t be controlled and the economy does not get better by then, more businesses will be closed down,’ Mr Chamnan said.
Only hope or bright spot for Thailand right now is a spike in exports with a 45% surge in May shipments
The only bright spot for Thailand’s economy right now is surging exports which experts predict will see a 10% gain on last year’s figures.
Last week, the Ministry of Commerce reported a 41.6% gain for May which, when gold, oil and weaponry were excluded, showed an even more impressive rise of 45.9%. This followed a 25.7% rise in April and 12% increase in March from last year.
Minister of Commerce, Jurin Laksanawisit, attributed this progress to an overall global recovery as developed economies begin to recover from last year’s shock to the system and the progress of vaccination efforts.
Trade surplus of $1.49 billion, imports also rose by 21.5% in the opening five months of 2021
In the opening five months of the year, Thailand exported $109 billion in goods which represented a 10.8% gain while imports for the same period rose by 21.5% to come in at $107 billion.
The net trade surplus for the period was $1.49 billion.
However, according to bank officials on Tuesday, the country’s capital account for May showed a marked uptick in outgoing funds.