On Tuesday, Bank of Thailand Governor Sethaput rejected the term ‘crisis’ despite slower growth. However, the clash with PM Srettha deepened as, on Wednesday, Mr Srettha insisted on using the word again. The divergence in government and central bank thinking may soon raise market concerns.

As Thailand enters a challenging year, GDP growth projections are already tumbling. The disconnect between Prime Minister Srettha Thavisin and his central bank governor appears also to be growing wider. It may soon become a problem. At this time, the Bank of Thailand is working to rein in household debt, a move which may itself impair GDP performance this year while the Prime Minister speaks of stimulus measures and an expansionary policy in order to prime the economic engine. The central bank’s message is that there are no quick fixes or as the Prime Minister likes to say ‘quick wins’ that will haul Thailand out of its economic quagmire.

On Wednesday, Prime Minister Srettha Thavisin doggedly repeated his government’s claim that the economy is in crisis. It followed comments on Tuesday by Bank of Thailand boss, Sethaput Suthiwartnarueput, insisting it was not. Instead, Mr Sethaput pointed to an array of chronic long-term problems calling for structural reform of the economy.

The difference of opinion between Prime Minister Srettha Thavisin and the central bank has raised its head again. On Wednesday, Mr Srettha again affirmed the economy was in crisis.

At length, the PM promised further stimulus measures and appeared to ignore Tuesday’s comments from the Bank of Thailand boss. 

On Tuesday, Governor Sethaput Suthiwartnarueput made it clear that real structural change to the Thai economy is required to address the problem.

Governor’s comments come after disappointing news from the Ministry of Finance this week on last year’s economy and growth projections for 2024

Bank of Thailand (BoT) Governor Sethaput Suthiwartnarueput responded on Tuesday to concerns about the country’s economic health. His comments come in the wake of bad news from the Fiscal Policy Office at the Ministry of Finance.

In essence, it projected lower GDP growth for 2024 and new figures suggesting a slower, revised growth rate in 2023.

Mr Sethaput accepted growth will be slower than expected. However, he insisted it did not warrant the term ‘crisis’. He emphasised that short-term stimulus measures cannot address underlying structural problems hindering growth.

Prime Minister Srettha Thavisin’s push for a major stimulus initiative previously led to an earlier clash. In particular, the digital wallet programme, is strongly opposed by the BoT. At the same time, many political pundits now see the scheme as dead in the water.

Srettha’s Digital Wallet giveaway plan shot down last week, any effort to pursue it would be foolhardy

In short, this came after a National Anti-Corruption Commission (NACC) report last week stating that the plan may be illegal. 

Digital Wallet plan blown out of the water by corruption body on Tuesday warning of illegality

The corruption watchdog cited a number of concerns and has created a minefield for the cabinet if it pursues the measure. Despite the political rhetoric and posture, this is now very unlikely. Certainly, it would be an exercise in political foolhardiness.

The economy grew by only 1.8% in 2023, below the BoT’s projection last year of 3.6%.

Mr Sethaput now argues for long-term structural improvements over short-term stimulus as the only way forward to sustainable growth.

Thailand’s overreliance on China and its fading manufacturing base are growing causes for alarm.

Bank of Thailand boss accepts the recovery has slowed and that economic growth is disappointing, however, it is not a ‘crisis’. Economic reform is needed

Bank of Thailand Governor Sethaput Suthiwartnarueput addressed concerns about the Thai economy. 

He acknowledged that growth in 2023 was slower than expected. However, he pushed back against labelling it a ‘crisis.’

He highlighted that short-term stimulus measures do not effectively address the structural issues at the core of the economic challenges.

At the same time, they could weaken the country’s financial stability.

‘What we’re seeing is a recovery that is there, but is slower than expected. That’s not the same thing as a crisis,’ stated Sethaput in an interview.

The BoT governor emphasised that addressing the country’s long-term potential growth requires structural change and improvements in productivity. The government cannot rely on short-term stimulus measures.

Bank of Thailand opposed the Digital Wallet plan. In time, the ongoing controversy and tension between the PM and central bank boss will be problematic 

Prime Minister Srettha Thavisin has been advocating for significant consumption-led stimulus. In particular, he has promoted the Pheu Thai government’s ฿500billion digital wallet programme. 

Certainly, Sethaput and the BoT oppose the idea. The central bank argues that such short-term measures fail to address fundamental issues hampering sustained economic growth.

The disagreement between the Prime Minister and the BoT has been a growing controversy.

At this time, it is something that is beginning to worry financial markets. Thailand is facing growing concern about corporate bonds with ฿1 trillion worth of instruments maturing this year. 

On Tuesday, Bangkok-based Asia Plus Securities warned that there is concern about several construction firms and the wider sector.

Government closely monitoring Thailand’s corporate sector bond market. Fears of a pending crisis 

Similarly last week, the Bank of Thailand while assuring that the bond market is strong, revealed that 10% of funded firms were at higher risk.

At the same time, Thailand’s highly profitable banks have an insignificant exposure to such firms.

Bank replied to comments about deflation raised by Prime Minister in previous onslaughts, in particular, a broadside launched on social media channel X

Previously, Srettha expressed concerns about high interest rates despite negative inflation for three consecutive months. However, he emphasised that he is not pressuring the BoT to cut rates.

The Prime Minister, in one of these onslaughts on the bank, made his views known on Twitter or X.

PM again attacks central bank on interest rates as deputy Finance Minister raises bond concerns

Sethaput countered the interest rate argument, noting that the current inflation readings are impacted by government subsidies. In brief, he doesn’t consider negative inflation a significant concern. 

At the same time, he noted that Thailand is a country with one of the lowest borrowing rates in the world. In general, only Japan and Switzerland have lower rates.

He added: ‘If you want to raise the long-term potential growth rate, you’ve got to do the structural stuff. You’ve got to get productivity up. But the way to get there isn’t just by engaging in short-term stimulus type measures.’

Pressure is being brought to bear ahead of the bank’s next Monetary Policy Committee meeting on February 7th. It is expected not to alter interest rates

The BoT’s Monetary Policy Committee at its last meeting in November 2023, maintained the policy interest rate at 2.50%. Meanwhile, this is the highest rate in a decade, a fact that appears to irk the PM and his ministers. 

The upcoming rate-setting meeting on February 7, 2024, will be closely watched. It comes amid exchanges and indeed a controversial split in thinking between the government and the central bank.

At length, there have been recent meetings between Prime Minister Srettha and Governor Sethaput to discuss interest rates. Afterwards, Sethaput described the latest tête–a–tête as ‘cordial’.

The central banker used the meeting to highlight the importance of maintaining central bank independence. He emphasised that Thailand’s current interest rate is relatively competitive.

Shocking economic data and projections from the Finance Ministry show that growth last year was only 1.8%, a reversal from 2022. 2024 growth downgraded

Shocking figures this week revealed the Thai economy only grew by 1.8% in 2023, down from 2.6% in 2022.

The data was released by the Fiscal Policy Office in the form of unofficial estimates from the Ministry of Finance. 

The National Economic and Social Development Council is responsible for official gross domestic product figures. These are scheduled for release on February 19.

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Bank of Thailand to tackle household debt in new plan from 2024 which will see higher standards

At the same time, the Ministry of Finance projected only a growth rate of 2.8% for 2024. However, even this figure is already being challenged.

Even the downgraded 2024 projection appears optimistic

The ministry is assuming a 4.2% rise in exports. This comes in the face of a continued downturn in China and heightened geopolitical risks. For instance, elevated freight costs caused by hostilities in the Red Sea. 

There are also fears of danger before and after the November 2024 US presidential election in relation to Taiwan.

Kasikorn Research Centre, the research arm of Kasikorn Bank, at this point, projects only 2% export growth in 2024.

Similarly, the ministry projects 33.5 million visitors for 2024, up from the 28 million seen in 2023.

At the same time, the Bank of Thailand is tightening credit conditions, in a credit squeeze to lower household debt, something that must impact the domestic economy.

The economic slowdown in 2023, according to government spokesman Chai Wacharonke, was primarily caused by a contraction in manufacturing. In turn, this led to a 1.5% estimated contraction in exports. 

The BoT expects negative inflation in January, February, and possibly March, reflecting softer-than-expected economic growth.

Bank of Thailand reins in household debt, something that should inevitably impede domestic spending and consumption in the short term. Progress reported

In the meantime, the central bank suggested that it has seen positive results from its efforts to rein in household debt. It revealed that household debt had fallen from nearly 95% in 2023 (94.7%).

Presently, with the latest figures to September 30th 2023, the borrowing level is at 90.9% of GDP.

Most economists expect this will impair domestic consumption, at least in the short term. However, the bank itself suggests that its efforts may already be having a positive impact since 2021.

Details were given by Ms Suwannee Jesadasak, Assistant Governor for Financial Institution Supervision this week.

In effect, the bank is clamping down on lax lending practices. It is even resorting to spot checks on bank branches and institutions.

Banks can be ordered to correct infringements or even face fines and penalties.

From April, there will be more debt restructuring

In April, it will begin debt restructuring and mediation efforts in relation to approved long-term borrowers and those burdened with chronic debt problems.

In addition, it has a range of tools including a ceiling on interest rates for less well-off borrowers. There are also debt resolution options with which the bank hopes to make progress.

In contrast, however, it is allowing the banks to charge higher interest rates to customers who, going forward, pose a higher risk.

Significantly, this comes with an otherwise laissez-faire attitude towards financial institutions once they maintain healthy reserve ratios. Undoubtedly, the central bank’s policy is also to ensure the banking system remains profitable and sound.

‘As for discussions with financial institutions regarding the interest rate difference, it is confirmed that in the past the BoT has always discussed with financial institutions. During which period do we have to be strict with financial institutions? The BoT will have strict criteria. But if there is a time when you should relax, you must relax,’ Ms. Suwannee explained.

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Further reading:

Central bank: the corporate bond market is sound but the economy needs long-term structural reform

Government closely monitoring Thailand’s corporate sector bond market. Fears of a pending crisis

PM again attacks central bank on interest rates as deputy Finance Minister raises bond concerns

PM takes aim at the Bank of Thailand over interest rates despite Thailand’s lower borrowing costs

Thai economy is stable but is being strangled by personal debt. Fixing it could see pain before any gain

Steady as she goes growth and economic stability driven by a growth in US exports is all good news

Economy at crossroads: World Bank calls for structural reform to avert two decades of low growth

Former Deputy PM warns Srettha that if he does not listen, he may spark a real economic crisis in Thailand

Fragile, weak economy sees central bank holding interest rates and reducing 2023 growth to 2.4%

Srettha’s crisis is not just an economic one, it is a ‘3D debt crisis’ that is strangling GDP growth

Zombie Thai firms holding back economic growth as they struggle just to pay interest on bank debt

Incoherent government economic policy clashes with Bank of Thailand’s efforts to rein in debt

Srettha outlines Digital Wallet as his government begins to flounder with a faltering economy and confusion