Plans announced by the Bank of Thailand to issue guidance to financial institutions in the opening quarter of 2023 on reining in excessive consumer lending for foreign holidays and expensive smartphones to tackle Thailand’s ฿15 trillion in household debt, 35% of which is credit card borrowing.
A former minister who last week warned Thai economic policy chiefs to prioritise the conservation of the kingdom’s foreign exchange reserves ahead of a deteriorating world economy in 2023 has questioned recent official Thai economic data in relation to export growth and domestic consumption. On Monday, the Secretary-general of the National Economic and Social Development Council (NESDC) Danucha Pichayanan described the prospects for next year as ‘quite worrisome’ but said that Thailand’s key economic agencies were monitoring the situation. Meanwhile, the Bank of Thailand, while maintaining its more dovish monetary policy, thought to be driving funds out of Thailand, has announced plans to issue guidance to financial institutions and lenders in the first quarter of 2023 to rein in consumer borrowing for such things as expensive smartphones and foreign holidays as it underlines the need for action in reducing the country’s level of household debt which was recorded at ฿15 trillion at the end of June this year.
Former minister at the Prime Minister’s Office, Dr Kobsak Pootrakool, who last week warned of a potential economic crisis for the kingdom in the middle of next year, has this week raised concerns about economic data emerging from the Thai government over the past few months.
In particular, the economist, who now holds a senior position with Bangkok Bank, one of Thailand’s largest lenders, has questioned figures for export growth in 2022 which shows a consistent pattern of growth when compared to figures for last year.
Dr Kobsak contends that seasonally adjusted, the figures show a net loss in export volume for some periods and, in particular, a contraction of 3% for July 2022.
Economic stability concerns raised last week about prospects for 2023 by Dr Kobsak Pootrakool recognised this week by the country’s top agencies
The former government fixer under Prime Minister Prayut Chan ocha also raised concern about official figures showing a 16% to 17% boost in domestic consumption earlier this year, attributed to the country’s full reopening measures, by claiming sales did not increase at all.
At the same time, the concerns raised by Dr Kobsak about economic prospects for 2023 appear to be gaining traction with Danucha Pichayanan of the National Economic and Social Development Council (NESDC), the government’s key economic advisory agency, on Monday, citing a recent communiqué from the International Monetary Fund (IMF) on the dangers currently posed to the world economy and the damage that current instability in the world’s financial markets, driven in part by the hawkish policy being pursued by the United States Federal Reserve, is causing to emerging world economies.
Economist points to events in Sri Lanka, Pakistan and Argentina as lessons for Thailand to learn from while showing the need to preserve currency reserves
Last week, Dr Kobsak pointed to the economic emergencies seen this year in Sri Lanka, Pakistan and Argentina as examples of the impact of such policies and warned that Thailand had to protect and conserve its critically important foreign currency reserves even if this meant letting the value of the Thai baht float or depreciate.
Warning to central bank to preserve Thai foreign exchange reserves for a brewing 2023 economic storm
‘This year, problems in emerging market countries such as Sri Lanka, Pakistan, Bangladesh, Egypt and Argentina can be seen. All have gradually received help from the IMF and when the world economy is really in recession. Who will be the next domino?’ he asked this week.
Need to boost foreign tourism and inward investment as priorities including the government’s long term visa programme launched on September 1st last
The former senior government official has identified foreign tourism and inward investment as key goals that the government must pursue at this time including increasing the budget for the promotion of Thailand as a holiday destination and emphasising the kingdom’s long-term investment programmes particularly the long-term visa initiative with reports this week that the government is to establish a new agency to handle applications for the new visa programme for wealthy, talented and high earning foreigners which was launched on September 1st and which has generated strong interest.
In the first 12 days of the new visa initiative, there were reported to have been 400 applications, 20% of whom were US nationals, 10% from the United Kingdom and 15% from China.
The 10-year visa which offers flexible working conditions, no tax on offshore income and a range of other tangible benefits, is also reportedly drawing interest from among the 300,000 or so expats who already live in Thailand.
Finance Ministry, NESDC and Bank of Thailand monitoring threat in 2023 of a downturn – ‘we’re afraid the Thai economy will be hit hard’
On Monday, referring to the darkening economic clouds outside Thailand, Mr Danucha, the Secretary-general of the National Economic and Social Development Council (NESDC) said that all state agencies were monitoring this threat.
‘Now three key economic agencies, the NESDC, Finance Ministry and the Bank of Thailand have been very closely monitoring the world’s economic situation,’ he disclosed. ‘The global economic recession issue is quite worrisome, as the Thai economy is on a recovery path. If a global economic recession happens as feared, we’re afraid the Thai economy will be hit hard.’
The International Monetary Fund (IMF) has warned that up to a third of the world economy will go into recession next year with the stronger dollar sucking reserves and funding out of developing economies, causing acute market instability.
At the same time, Deputy Prime Minister Supattanapong Punmeechaow, who coordinates economic issues for the government, has pointed out that he is still confident that the Thai economy will grow by at least 3% this year.
Baht continues to depreciate against the dollar
On Tuesday, the Thai baht again breached the ฿38 to the dollar barrier for the second day and stood at ฿38.13 as money flows out of the kingdom.
However, there is evidence that the baht is being managed with it pulling back two days in a row to a value ฿38 to the dollar on Monday and Tuesday.
The decline of the baht is due to the more hawkish monetary policy of the Federal Reserve compared to Thailand’s central bank with Mr Thanawat Patchimkul, Executive Director of the Foreign Investment Strategy Department at DBS Securities, Vickers (Thailand) predicting that by the end of 2022, the interest rate in the United States will reach 4.5% after stronger than expected labour data late last week confirmed the resilience of the US economy which is still expected to grow even in 2023 but at something like 0.3%, according to the bank.
This may be a bright spot for Thailand in 2023 as the kingdom is a key food exporter with the United States being its largest export market with a depreciated baht making Thailand’s exports more competitive.
Thai politician describes the economy in 2022 as the ‘Siamese Tick’ as he criticises the government and economic performance since the coup in 2006
The bank predicted that the ASEAN region would grow moderately well next year with Vietnam’s economy leading the way.
‘Big economies will see lower GDP. DBS Bank expects the US economy to grow only 0.3% in 2023, Europe by 1%, while the Japanese economy will accelerate to a positive 1.8% in 2023, driven by the services sector. After opening for tourists China’s economy will fare better. But there is still uncertainty about how to manage COVID. As for the ASEAN group, there will still be good expansion. The standout will be Vietnam,’ Mr Thanawat said.
Another executive at DBS Bank, Mr Aphaporn Sawangpuck, Executive Director of the Securities Research Department, also emphasised Thailand’s $4.2 billion trade deficit in August and noted that the kingdom’s improved number of foreign tourists has been unable to compensate for the elevated value of imports driven by higher energy costs.
Thailand is currently the slowest growing economy in Southeast Asia, a fact that drew a scathing comment, in recent weeks, from the Deputy leader of the Pheu Thai Party, Pichai Naripthaphan when he said that the kingdom had changed from being one of the tiger economies of Southeast Asia in 2006 before the army coup that year to the ‘Siamese tick’ of today.
Foreign Exchange reserves are falling steadily, down by 23% since January and with the dollar up by 18% against the baht since the 17th of February
Figures released on the 7th of October show Thailand’s Foreign Exchange Reserves including gold holdings, special drawing rights and other assets, standing at $199.4 billion, the first time since 2017 that this measurement for international reserves has fallen below $200 billion having been recorded at $259.2 billion at the end of January this year.
This comes as the Bank of Thailand, at the end of September, confirmed that it was intervening to preserve the value of the baht and what it termed volatility in the currency market.
However, the central bank said the fall in foreign exchange reserves was mainly due to a revaluation because of a stronger dollar.
Currency reserves have fallen by 23% since January 2022 with the baht falling by 18% against the dollar since its highest point this year on the 17th of February.
Governor of the Bank of Thailand insists on sticking with his gradual approach to monetary policy to preserve the kingdom’s weak GDP growth in 2022
Despite the warnings of danger ahead and the flow of capital out of the kingdom, the Governor of the Bank of Thailand, Sethaput Suthiwartnarueput insists that the central bank’s gradual and measured approach to monetary policy is the right one to safeguard the fragile recovery while also protecting already indebted borrowers from a more severe rate rise.
‘We can’t raise rates hard and fast as we need to balance the three objectives,’ the governor explained after the bank raised interest rates on Wednesday 28th September last by 25 basis points to 1%. ‘The Thai policy response is different from other countries as we want to ensure a smooth take-off.’
The bank is expected to raise interest rates one last time before the end of 2022 to 1.25%.
Sting in the Tail as central bank rolls out plans to rein in consumer lending in the opening months of 2023 to tackle ฿15 trillion in household debt
However, there may still be a sting in the tail for borrowers or at least prospective borrowers as the bank has announced what appears to be a credit squeeze to be introduced at the beginning of 2023 when it plans to issue guidance to retail banks on loans in an effort to rein in excess expenditure on such things as foreign holidays, top of the range smartphones and consumer products.
Thai household debt stands at a massive ฿15 trillion according to bank’s information at the end of June
The bank will also target credit card debt which is thought to account for up to 35% of the country’s sky-high household debt level.
This comes as a surprise as analysts had in recent months been briefed that Thailand’s ฿15 trillion in household debt at the end of June was linked to asset purchases with a survey in August showing that the average debt per household in the country was ฿501,711.
The bank currently says that household debt is 80% of GDP having risen to above 90% at the height of the pandemic while insisting that the issue must be tackled.
Deputy Governor Ronadol Numnonda has outlined three main tactics namely actions by the bank designed to reduce debt going forward, an upgrade of measurement systems to improve the quality of debt while providing more information and the issuance of guidance relating to financial management to the public.
Bank aiming to improve loan quality and leading with guidance to all financial institutions and lending concerns as a first step to deal with the issue
In the first quarter of 2023, the bank will issue guidance to all financial institutions and other related concerns on personal loans and credit card lending aimed at reining in excesses and improving loan quality going forward.
In April 2019, a Bank of Thailand policy initiative on car loans caused a sharp slowdown in new car sales and was a key factor in an economic slowdown that year prior to the pandemic emergency.
In July, former labour minister Narumon Pinyosinwat warned of a deterioration of loan quality in Thailand this year amid international economic turmoil outside the country.
She called strongly for government-sponsored debt restructuring mechanisms to be introduced to deal with the emerging problem.