In the aftermath of the announcement to borrow more and further fiscal stimulus approved by the cabinet on Tuesday, Kasikorn Research Centre has pointed out that nearly all Thai government borrowing is sourced domestically while over 94% is on a long term basis with keenly priced interest rates. Even if, by 2024, public debt rises to 70% of GDP, it will still be well behind nearly all western and developed economies and even some of its peers in Asia. However, in the medium and long term, it will present a challenge to the government to widen the country’s tax base or ramp up economic growth. The latter cannot be assumed easily given a range of chronic issues that have bedevilled Thailand’s economic development, not least political instability.

The Thai government has decided in principle to increase borrowing to fend off the economic effects of the virus emergency. Reports suggest that the country’s financial position was tightening ahead of its financial year’s end on September 30th. Economic policymakers have already accepted that 2021 will see, at best, marginal growth while the country will still struggle to attract 200,000 foreign tourists between now and the end of the year.

The Thai Minister of Finance Arkhom Termpittayapaisith welcomed the decision to extend the borrowing limit under the 2018 State Fiscal and Financial Disciplines Act and noted that the move was in line with its provisions which allowed a review of the public debt to GDP ceiling every three years depending on the country’s economic circumstances.

The Thai government has bowed to the inevitable and resolved to increase the country’s legal limit governing the percentage of public debt to GDP as stipulated by the State Fiscal and Financial Disciplines Act of 2018.

The move came after a meeting on Monday chaired by Prime Minister Prayut Chan ocha of the State Monetary and Fiscal Policy Committee which, acting under Section 50 of the law, agreed to extend the existing prescribed limit from 60% of GDP to 70%.

Law already allowed a review of the public debt ceiling every 3 years according to economic circumstances

The law allowed for a review of the public debt to GDP ratio every 3 years based on changing circumstances and for such a resolution to be forwarded to the cabinet and made public.

The move must now be endorsed by ministers and then published in the Royal Gazette.

The news has come as the cabinet, on Tuesday, in a separate but linked development, agreed further fiscal support measures for the last three months of 2021 to stimulated a fatigued and troubled economy amid a growing acknowledgement that the economic impact of the COVID-19 crisis will be with the country until at least the middle of 2024.

Fiscal Policy Office director announces fiscal stimulus boost for the domestic economy from October until the end of the year with ฿400 billion on the table

On Tuesday, following news that the cabinet had agreed on a new package of fiscal supports for the economy from October to the end of the year, Ms Kulaya Tantitemit, Executive Director of the Fiscal Policy Office at the Finance Ministry, briefed the media on how the money will be spent.

She said at least ฿400 billion of the extra ฿500 billion loan tranche announced by the cabinet in May in addition to the ฿1 trillion borrowing package taken out in 2020, will be applied to boost domestic economic consumption in the final quarter of 2021.

Stronger growth anticipated with measures eased, higher vaccination rates and more foreign tourists

The government expects to see stronger economic activity in that period with efforts being made to reopen the kingdom to foreign tourism, raising the vaccination rate and an easing of public health measures although she conceded that the second half of 2021 will not be as strong economically as the opening 6 months which included the first quarter when the economy contracted by a further 2.6%.

The outcome is a bitter blow to economic planners who thought the second half of this year would see the beginnings of a recovery.

The government is hoping that a slowly rising vaccination rate and some progress on reopening to foreign tourism will see a final figure achieved of 300,000 visitors to Thailand in 2021 with 200,000 arrivals in the fourth quarter.

This appears optimistic.

Growing problems over the proposed reopening of Thailand to foreign tourism now moved to November

The prospect of a significant resurgence of foreign tourism this year is receding with growing problems over the proposed reopening of Thailand including a statement this week by Bangkok’s Governor Aswin Kwanmuang that the capital city may not reopen to foreign tourists until mid-November.

Dysfunction hits reopening of Thailand to tourism as Health Minister dismisses October 1st date

All proposed reopenings, scheduled for October 1st, have already been postponed by public health officials insisting that rigorous health and safety protocols be followed as was the case with the Phuket Sandbox which remains the only scheme that allows non vaccinated tourists to enter without quarantine under highly restrictive and demanding conditions.

Most economists are predicting just 150,000 visitors in 2021 or 0.38% of the number seen in 2019

Most economic analysts and financial houses are still only predicting 150,000 foreign visitors this year despite the figure of 18,000 visitors seen in July boosted by the Phuket reopening, which, although the highest in 16 months, was still well under 1% of normal foreign tourist levels.

The projected figure for 2021 is only 0.38% of that seen in 2019 spelling another year of catastrophe for Thailand’s tourism-dependent economy, millions of workers and casual entrepreneurs who depend on it

Phuket Sandbox is a very limited success with the largest segment of arrivals being returning Thais

Thailand is currently operating a very restricted ‘new normal’ tourism regime which is extremely off-putting to an overwhelming proportion of former visitors to the kingdom because of the expense and inconvenience of highly controlled access to the country.

It is becoming increasingly unacceptable as other parts of the world open up with easy and liberal terms of access.

Siam Commercial Bank predicts 0.7% growth for 2021 followed by 3.4% in 2022, normality by 2024

The Fiscal Policy Office had been targeting 1.3% growth for the economy in 2021 but now says that this will be revised in October.

Meanwhile, Siam Commercial Bank’s Economic Intelligence Centre has reduced its projected growth for the economy from 0.9% to 0.7% this year while it predicts that it will not be returning to 2019 levels of economic activity until 2024 at the earliest.

It should also be noted that despite being a record year for foreign tourism, the Thai economy only grew by 2.27% in 2019 due to complications caused by the US-China trade war while the closure of the foreign tourism is damaging long term prospects for the industry and the prospect of it returning to former levels is also retreating with major shifts in the market outside Thailand and severe damage to the kingdoms foreign tourism infrastructure and environment.

Siam predicts 6.3 million tourists in 2022

Siam Commercial Bank’s economic analysts are currently projecting a 3.4% growth rate from 2021’s level for the country’s GDP in 2022.

This is based on the prospect of the COVID-19 virus receding with higher vaccination rates and increased external demand.

It is predicting 6.3 million foreign tourists next year. 

Minister of Finance welcomes move to extend the public debt ceiling giving officials breathing room

Commenting on the decision to extend the public debt ceiling, the Minister of Finance, Arkhom Termpittayapaisith said it would provide the government with more breathing room as it battled against an extended challenge with impeded economic conditions.

He expressed confidence in the government’s ability to repay the extra borrowings in the medium to long term with prudent management of the country’s finances and growth in GDP.

He highlighted that the decision on Monday was in line with statutory provisions which allow the government to review the public debt limit every three years.

‘The revision of the ceiling is in line with Section 50 of the 2018 State Fiscal and Financial Discipline Act which authorised the committee to revise it every three years,’ Mr Arkhom noted.

Tightening of the government’s finances anticipated by many economic analysts at this time

Insiders have long expected that the government may pursue such a course as the economy flounders in the face of the continued impact of the virus emergency both inside and without Thailand.

In August, the Bank of Thailand Governor, Sethaput Suthiwartnarueput, proposed increased public borrowing as not only reasonable but advisable and suggested that the government should borrow a further ฿1 trillion.

More borrowing is a strategy agreed by most economic experts including the World Bank and IMF

Mr Sethaput said that a 70% public debt to GDP ratio would not be problematic by 2024 if the economy began to show signs of recovery.

Bigger crisis than 1997 as taxis give up and central bank urges up to ฿1 trillion more in public debt

Both the World Bank and the International Monetary Fund have proposed a similar approach and have, at the same time, asked government planners to weight support towards the less well off and be more conscious of tackling inequality, a chronic problem for the Thai economy which has become decidedly worse since the spring of 2020.

Foreigners in Thailand have nearly ฿600 billion in the bank as inequality and poverty rise alarmingly

The Bank of Thailand boss, who, in a long and distinguished career, has served stints as a senior economist with the World Bank in Washington DC, has made similar pronouncements and suggested that the fiscal funds be targeted at the less well off particularly households which have been severely impacted by the pandemic’s knock-on effects.

Thai households have lost trillions and more in 2021 than in 2020 from this ongoing economic crisis

At the Finance Ministry, officials are well aware that households have lost more income in this last year of the pandemic economic crisis than the first and estimate that household income in Thailand has lost access to at least ฿2.6 trillion from 2020 to 2022 with 70% of this occurring this year.

The Bank of Thailand governor is on record stating that the government should act now to preserve the economy rather than waiting for it to decline and attempting to rebuild it later from a diminished economic base which may well contract further in 2021.

‘With such severe symptoms, the medicine must be strong and right to the point,’ Mr Sethaput, also a former aide to Prime Minister Prayut Chan ocha, said in August when he suggested that a 70% public debt to GDP level in 2024 would not be out of order.

Top banker advocated more supports to the less well off and households that have been hit hardest

He has advocated schemes such as subsidy payments and support for utility bills as essential measures augmented by moves to get the economy moving forward again in the coming months.

Within the Finance Ministry, officials were sounding a warning that the government’s tightening financial position, as it approached its end of year on September 30th, may have seen state investment and support projects placed in jeopardy.

Many economic forecasters had already suggested that it would run out of financial room to manoeuvre at this point.

‘If the ceiling had not been raised to 70%, investment projects carried out by state agencies and state enterprises that are awaiting loans to implement them would have been impeded,’ said an unnamed official. ‘We’re running short of fiscal space. If the ceiling hadn’t been raised, this would have had an adverse impact on several investment projects by state agencies and enterprises. The ceiling is only raised just in case, and no money has been borrowed yet.’

Government may have to look at widening the tax base and increasing taxes in the medium term 

Kasikorn Research Centre, the research arm of Kasikorn Bank, in reaction to the move, said that it does not pose a threat to short term stability but does mean that the government will be forced to look at either widening the tax base or ramping up GDP growth in the medium to long term.

Thailand has a series of chronic economic issues which continue to bite at the heels of the economy and hamper its development. Their impact will grow in the coming decade.

Thailand- the first large country with a fertility problem yet without wealth to easily fund healthcare for the old

They include its poorer than average education system, extremely high levels of household debt, inequality within the economy and a severe demographic challenge with a rapidly ageing population.

Two coups since 2005 have severely undermined confidence and Thailand’s economic prospects

Then there is the country’s inherent political instability which has seen two coup d’etats since the General Election of 2005, 16 years ago, which returned the democratically elected government of Thaksin Shinawatra to power by a landslide. 

These occurrences have had immeasurable negative economic outcomes for the kingdom undermining the country’s attractiveness to the right kind of international investment stunting its ability to spur economic growth in the long term.

The kingdom has since lacked the required democratic consensus to achieve much needed structural reforms to address inequality and the lopsided nature of Thailand’s economy.

Twin pillars of exports and foreign tourism may not be relied upon but cannot be ignored by policymakers 

To some extent, its twin pillars of export growth and formerly, a substantial foreign tourism industry, had managed to mask these problems in past years but these are now also facing challenges with a long road back for the foreign tourism industry and increased geopolitical tensions between China and the United States as well as other countries with interests in the Asia Pacific which remains a threat to future export growth.

2019 showed how vulnerable Thailand’s economy is to such shocks and tensions and this may, at any time, become an issue in the short and medium-term.

At the same time, economic development and prosperity in the country rest on the development of both these sectors, a fact that cannot be ignored or wished away by policymakers who dream of exotic and convoluted new vistas for a tired industrialised economy built on cheap labour in the latter part of the 20th century and an international foreign tourism boom born in the 1960s and which shuddered to a halt in April 2020.

Capacity to prudently manage its finances

On the other hand, the Thai government has shown a capacity before to prudently manage its finances and the projected 70% of GDP figure by 2024 would still compare well to western countries with the United Kingdom at 97.4%, France at 115.7% and the United States at 118.90%.

Even prudent Germany, after this crisis, will have a public debt to GDP ratio of 68.93% while the International Monetary Fund (IMF) has endorsed many developed economies who have a public debt to GDP ratio just in excess of 120%.

There are other factors financially which make the government’s strategy look reasonable.

Malaysia, Thailand’s neighbour, has also had to adapt to the economic impacts of the crisis and has been pumping in more fiscal stimulus to protect its economy until the storm blows over.

Singapore leads the way in the region with a public debt to GDP ratio of 131.9%.

98.2% of Thailand’s public debt is held by domestic players a significant fact that strengthens its position 

Kasikorn Research Centre is also pointing to the nature of Thailand’s public debt which is almost entirely held within the kingdom

98.2% of it is held by domestic players while also, impressively, 94% of it is long term with rollover terms subject to very low interest rates.

On the other hand, conservative and hawkish analysts are pointing to the future need of the government to manage government budgets carefully.

The most substantial portion of government expenditure constitutes the wages and salaries of public servants which must be paid by law.

Thailand’s economy faces a steep challenge to recover and address underlying issues like competitiveness

The budget breaks down as 50% comprising of such costs, while the other half goes on goods, services, supports and interest payments as well as these new short term fiscal supports for the wider economy.

Analysts predict the government will be looking at extending taxes on assets held in the kingdom including property taxes while other economists suggest the kingdom’s economy requires structural changes to address underlying issues and make it more competitive. 

This would consequently boost GDP growth.

One thing that is clear is that the economic challenge facing Thailand is a steep one, to rejuvenate an economy that was already in the doldrums and foundering even before the COVID-19 crisis hit. 

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Further reading:

Officials switch to prioritising economic recovery as CCSA expected to agree a new Covid approach

Richest man in Thailand says COVID-19 is like a World War, the kingdom could end up a big loser in the end

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

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Challenge of the virus and closure to tourism leads to major long term changes in the Thai economy

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

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

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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