Any growth at all now for 2021 is questionable as the head of the Public Debt Management Office suggests the government may be able to borrow beyond the 60% public debt to GDP limit set down by law. The extended crisis, according to some economic analysts, will see many firms finally reaching the ‘end of their tether’ with the combination of a shortage of purchasing power, capital flight, hyped public health regulation but most of all, continued uncertainty, making business viability increasingly impossible for many and borderline for even more.
A top financial official has suggested the government may have the power to exceed the 60% public debt limit enshrined in the State Fiscal and Financial Disciplines Act of 2018 as the economic crisis facing the kingdom has grown sharply. Its effects may well be now far greater than the 1997 Financial Crisis as GDP prospects for 2021 slide backwards and capital increasingly flows out of the country’s financial markets abroad while, at home, businesses are being shuttered and households, that can, are borrowing to stay afloat.
As Bangkok on Tuesday night entered into a second nighttime curfew with up to 88 military and police checkpoints throughout the city, the increasingly perilous position of the economy is coming into focus.
Starting from Monday, as well as curfews, the metropolis and 9 key provinces surrounding it, entered into what is a semi lockdown with many retail outlets, including shopping malls, closed for a period of two weeks.
Temporary morgue facilities in freight containers at top Thai hospital as the public health crisis worsens
The emergency situation comes with reports, on Tuesday, that Thammasat University Hospital has had to make use of two freight containers to provide morgue facilities in order to cope with the spike in deaths that has occurred.
The hospital highlighted the situation to make people aware of the deadly and serious nature of the current risks from the Delta virus strain that is driving the surge in infections which is expected to see daily infection levels top 10,000 over the coming week.
‘We want to let people know the real situation we’re facing and will be facing in the next week or so,’ a statement from the hospital explained.
It comes as Dr Prasit Watanapa of Siriraj Hospital has urged the Thai public, at this time, to disregard the information about different vaccines and to accept any jab offered in order to deal with the short term crisis the country is facing.
Cabinet approved ฿42 billion support package
The cabinet, meeting on Tuesday at Government House, approved a ฿42 billion package limited to the 10 provinces impacted by the limited lockdown which are Bangkok, Nakhon Pathom, Nonthaburi, Pathum Thani, Samut Prakan, Samut Sakhon, Narathiwat, Pattani, Yala and Songkhla.
Prime Minister Prayut Chan ocha, who recently tested negative for the COVID-19 virus after coming into contact with an infected businessman in Phuket on July 1st, took to Facebook to outline the package.
It includes up to ฿7,500 per person for Section 33 employees in a range of business areas within the provinces over the coming three months, a package for employers worth up to ฿10,000, debt relief measures and discounts on electricity and water bills for July and August.
Overwhelmed health services in Bangkok forced the semi lockdown which will be a ‘killer’ blow to firms
At the Bank of Thailand, a senior and respected figure signalled that the downside from the latest developments, driven by rising levels of deaths, infections and an overwhelmed health service, is coming as a shock to the system with capital already for some time in flight out of the country.
One senior analyst, Maria Lapiz, of Maybank Kim Eng Securities Thailand, summed up the situation by pointing out that the latest developments could well be the killer blow for many struggling firms who have been hanging on since last year in anticipation of some sort of economic recovery in the domestic economy which apart from some short spurts of activity, has not materialised.
Reopening of foreign tourism economy now challenged as Phuket initiative stalls with infection fears, hyper-regulation and heightened uncertainty
The reopening of the country to foreign tourism including the much-vaunted Phuket Sandbox scheme has also been jeopardised by the latest developments both in relation to external demand, the government’s ability to create a safe environment and growing problems in Phuket partly due to the Delta surge but also linked with hyper-regulation surrounding the initiative there which is turning off short term tourists.
Although visitors continue to arrive on the holiday island, many are thought to be interested in longer stays and travellers who see the scheme as a more attractive option to the already used Alternative State Quarantine system.
The island is projected to host up to 14,000 foreign tourists in July which would suggest some real improvement to be confirmed later by the national tally for the month.
Thailand’s economy has failed to fully recover from last year’s disastrous and prolonged lockdown which has hit the kingdom’s hugely tourist-dependent economy harder than many others.
Since then, the country has been buffeted with further emergencies with the latest Delta virus-driven wave representing the most significant threat yet faced by the population.
Lacklustre vaccine rollout leaves the country’s economy more vulnerable to the latest wave of infection with firms at ‘the end of their tether’
The situation has been exacerbated by a lacklustre vaccine rollout ranked by independent analysts as one of the slowest in the world.
Since the beginning of June, it has seen only 12 million doses administered to approximately 9% of the population. Most of these jabs were with the Sinovac vaccine which is less effective against the fast-spreading Delta variant of the COVID-19 virus although it still offers protection particularly from death or acute illness.
‘The economic hit will be increasingly bigger with each lockdown even if the length of the lockdown is the same,’ Ms Lapiz, the Bangkok based analyst pointed out on Monday. ‘This is because many companies are already nearing the end of their tether after so many months of ever-shrinking revenues and stubbornly high cost of existence.’
Bangkok and adjacent provinces impacted by the lockdown account for 50% of the country’s GDP
The scale of the impact of Monday’s lockdown, which will be for at least two weeks, will be significant as the area concerned accounts for 50% of the country’s GDP.
The public, since mid-June, when infections and deaths began to spike, had already become extremely cautious with many staying at home leaving public transport in the capital deserted.
This followed earlier restrictions imposed on restaurants and other commercial activity in Bangkok, its adjacent hinterland and the four southernmost provinces.
Baht sinks by 5% in one month
The bad news is coming as the Thai baht has fallen to a 14 month low against the US dollar.
It fell by 5% alone in the last month since this latest outbreak, seen by many as a fourth wave driven by the far more infectious Delta variant.
The Thai currency has fallen by 9% since the end of the year to ฿32.68 against the US currency on Tuesday.
Impact of these latest public health measures on business and the economy will be severe
Ms Lapiz, like top officials within the Bank of Thailand, sees the consequences of the latest move as being both broad and deep.
What is happening is bad news with fears for the purchasing power of Thai households, a record low in consumer confidence announced for June and a growing concern that the ongoing malaise has begun to spill over significantly into corporate earnings and the performance of larger Thai firms reliant on the domestic market.
Many analysts are suggesting that the revised lower growth rate of 1.8% set by the Bank of Thailand at its last Monetary Policy Committee meeting now looks like an aspiration which is highly unlikely to be achieved.
Some form of herd immunity must be the key goal to help revive the economy say economists
Many economic analysts are focusing on the government’s bungling of the vaccine rollout.
A successful vaccination drive and the attainment of some essence of herd immunity is seen as the key factor that promises some hope for a return to normalcy.
The delay in rolling out vaccines has been made more complicated and challenged by the unprecedented outbreak caused by the Delta variant which has overwhelmed the public health service in Bangkok and its environs and raised doubts about the government’s reliance on the Sinovac vaccine.
Top official and economists warn of a big ‘downside’ economic impact of the government’s decisions
On Monday, Chayawadee Chai-Anant, a senior director of the Bank of Thailand who last week confirmed strong capital outflows from the kingdom since late last year, was warning of the downside from the latest developments
Baht falling with confidence in Thailand waning as foreign tourism closure and virus drive funds out
The damage caused by this latest reversal has yet to be fully estimated but forecasters are of the opinion that the prospect of economic recovery for Thailand has just received a severe setback.
Control measures destroying business confidence
The senior official expressed a fear that the surge in infections and the public health measures being deployed to deal with the emergency will not only dent business confidence but will also delay the vaccination campaign.
At the very least, any prospect for GDP growth in 2021 has been weakened.
‘This policy may be more severe than expected and will likely affect economic activity more than forecast,’ she explained. ‘It’s highly likely that the baseline will shift lower.’
Radhika Rao works as an economist with DBS Bank Ltd in Singapore.
Like Ms Chayawadee, at the Bank of Thailand, she believes the ‘downside risks are rising’ for the Thai economy right now.
‘While expectations were that this year would provide breathing room for the economy owing to vaccine availability, the economic impact is likely to mount until the rollout reaches critical mass,’ Ms Rao explained. ‘Rebound expectations hinge on public spending and exports, while a weak consumption clouds private sector investment trends.’
Government employees ordered to work from home, official unemployment numbers surging to highs
The range of public health measures and orders covering Bangkok and its neighbouring provinces include a work from home injunction for government employees and a strong advisory to private firms to follow suit.
This will have a devastating impact on the already struggling retail sector, much of which is already shuttered.
Economists are predicting a surge in unemployment which in Thailand should be regarded with a degree of caution as official employment data only accounts for a proportion of the economy that is registered including employees covered by Section 33 of the Social Security Act.
Nevertheless, despite a record high of 1.96% being unemployed at the end of the first quarter, the highest level in over 12 years, the number has grown through the second quarter and this latest development is expected to see it surge further in the third quarter.
Crisis greater than the Financial Crisis of 1997 with household and private sector debt at worrying levels
Thailand is in the midst of the greatest financial and economic crisis in modern times.
Bank of Thailand Governor Sethaput Suthiwartnarueput was already on record even before the current outbreak took off in mid-June, as indicating that this crisis, because of its prolonged nature and continued uncertainty, represents a bigger one than the Financial Crisis of 1997.
The situation for the domestic economy is made even worse by the continued growth in household and, on a wider scale, private sector debt which the central bank now regards as its greatest priority as it has accepted that the path for GDP growth or contraction in 2021 is not within its control given the scale of the challenge governed by external factors
Household debt has already surged according to the latest figures to an out of control level, rising to 90.5% of GDP in the first three months, a 19 year high from 89.3%, the figure at the end of 2020.
Households living on borrowed time and money
This is now in official danger territory with nearly 60% of the borrowing being unsecured and consisting of credit card debt and personal loan advances.
The explanation for the continued growth in unsecured credit is clear.
Many Thai households are now surviving on borrowed money and borrowed time as the virus crisis escalates rather than being brought under control by an effective vaccination programme.
Economist and business leaders urge the government to focus resources on purchasing better vaccines in larger volumes and not so much on supports
The critical nature of this crisis is causing many economists and business sector figures to come forward with warnings to the government not to make the mistake it made last year by focusing on support for extended lockdowns but rather to focus its efforts and resources on purchasing more and better quality vaccines.
One of these voices is Kampon Adireksombat, the Deputy Managing Director of SCB Securities, a division of one of Thailand’s largest banks, Siam Commercial Bank.
He says the government’s priority now must be ‘to secure more quality vaccines rather than compensating those affected groups and stimulating the economy.’
He warns that there is a very real danger of completely disrupting and injuring the economy by making firms both accept such lockdowns and consequently become dependent on government support which the Finance Ministry can already ill afford.
‘If we lock down without ramping up vaccinations, new cases may temporarily drop before rising again,’ he explained. ‘We will be in the ugly cycle of lockdowns and compensation. This will hurt the economic outlook next year.’
Top official at the Public Debt Management Office suggests that the government can exceed 60% public debt limit set by law after September
A top government official floated the idea on Monday that the State Fiscal and Financial Disciplines Act of 2018 which stipulates that public debt should not be more than 60% of GDP may not impede the government borrowing beyond the legal limit as the law specified some leeway which allows ministers to justify such a course of action if required.
Patricia Mongkhonvanit is the Director-general of the Public Debt Management Office and is at the heart of efforts by the Ministry of Finance to fund the government as the kingdom’s economic prospects appear to be verging on another significant downturn.
The suggestion itself is a clear indication that the government has also reached its own limit and is looking for an alternative way forward.
Still within the limit by the end of September
Nevertheless, Ms Patricia told reporters that at the end of September or the end of the 2021 financial year, the public debt will still be within the prescribed limit.
She indicated that, at that point, officials would have fully disbursed the ฿1 trillion loan facility put in place at the onset of the pandemic and ฿100 billion of the new ฿500 billion loan facility which was rushed through cabinet at the end of May and approved by parliament in mid-June.
The concern now is that anticipated growth in 2021 is receding with a looming downside which could see Thailand experiencing closer to zero growth or even a contraction of the economy this year based on the deteriorating outlook.