Finance Ministry urges support for homebuyers amid Bank of Thailand’s credit crunch. Deputy Minister Krisada calls for coordinated fiscal-monetary policy to tackle challenges. It comes as the clash between the government and the Bank of Thailand over monetary policy intensifies. At the same time, Thailand’s economic challenges are mounting while this story does little to inspire confidence.
Deputy Minister of Finance Krisada Chinavicharana on Thursday called for support for home buyers amid a tightening of credit by the Bank of Thailand. The central bank is in the midst of a credit crunch as it attempts to wean the kingdom off a decades-long debt binge. His comments come with slowing activity in the property sector. At the same time, he did not refer directly to the tussle over interest rates between the government and the Bank of Thailand. However, he did call for a coordinated economic approach linking fiscal and monetary policy in the face of challenges.
In a bid to revitalise an increasingly sluggish property market and bolster economic growth, the Finance Ministry is advocating for targeted intervention.
Deputy Minister of Finance Krisada Chinavicharana who is politically non-aligned, addressed the issue on Thursday afternoon. It comes with a glut of properties currently on the market.
At length, this is being aggravated by a tightening of lending criteria. This is happening as the Bank of Thailand’s programme to rein in Household debt and private-sector borrowing is beginning to bite.
Government tries to do something to alleviate the hardship faced by property buyers seeking affordable housing under ฿1.5 million in a depressed market
However, the government is pushing back now on a number of fronts.
‘We aim to alleviate financial constraints for potential homeowners, particularly low-income earners, thereby boosting effective housing demand and enhancing economic stability,’ declared Mr Krisada.
The Board of Investment, for instance, has backed incentives for residential units priced at or below ฿1.5 million. In short, this is aimed at spurring demand for affordable housing. Additionally, the ministry is pushing for the renewal of softened loan-to-value (LTV) limits for mortgage lending. It is presently in negotiations with the Bank of Thailand (BoT).
‘Unlocking LTV criteria could provide a significant stimulus to the property sector,’ emphasised Mr Krisada.
Basically, because of the expiry of eased LTV limits, obtaining mortgage approval has become challenging. This is prompting calls for regulatory action.
While the BoT’s response remains pending, it should be noted that its current focus is in the opposite direction.
Government insists on more borrowing in an expansionary economic agenda that flies in the face of the country’s structural problems that must be addressed
Despite this, the Finance ministry continues to pursue fiscal measures.
In brief, they include continuous budget deficits, investment and tourism promotion packages. At the same time, recent GDP data has shown a slowdown in public investment.
This is expected to pick up in 2024. However, it is coming with increasingly negative headwinds impacting the overall economic outlook.
The government led predominantly by Pheu Thai Party advisors on economic policy, insists on an expansionary economic vision. This is where more money in circulation results in higher GDP growth. In short, it is a vision that is out of step with the times.
Prime Minister Srettha still doggedly pushing his less-than-popular and legally perilous Digital Wallet plan
The problem is that Thailand faces deep structural issues that can no longer be pushed aside for another day.
The country’s industrial base is not competitive and Thailand itself is overborrowed. At the same time, its political history and issues like rampant corruption mean there will be no rescue from international investors.
Seriously worsening geopolitical tensions beginning to dominate economics as well as politics. Money is still flowing out of Thailand as confidence slumps
Indeed, the challenges being faced in Thailand are coming at a time of deep political discord. International tensions in Asia are rising. Such conditions scare off international investors.
Certainly, there is already increasing concern about debt levels and capital exiting the kingdom. Similarly, it is also exiting China. China saw $68.7 billion leave its shores in 2023, the first net outflow in funds for 5 years.
Significantly China’s dollar-denominated GDP fell in 2023 for the first time in 29 years. It was also the second year in a row that its share of global GDP dipped.
That country is in the midst of a catastrophic property and local banking crisis. Ongoing economic stagnation has destroyed China’s reputation with international investors.
Unfortunately, this sentiment is overflowing into Thailand which already has its own problems in particular.
In the midst of this, the increasing division between the government and its central bank is amplifying a sense of crisis. In truth, some economic pundits are now predicting just this.
Digital Wallet plan is becoming a destabilising political issue for the government. Its blind pursuit is certain to inflict political and economic damage
On the one hand, the government is tangling with the National Anti-Corruption Commission (NACC) over its unpopular Digital Wallet proposal, and on the other with the Bank of Thailand over monetary policy. At the same time, there is no coherent economic plan except for short-term initiatives.
Failure to heed the concerns raised by state watchdogs will create a dangerous spiral of political instability.
Despite this, the government and PM Srettha Thavisin doggedly persist in pushing a policy that is neither viable nor popular.
The recent decision by the BoT to maintain the policy rate at 2.5% came as no surprise.
Despite unprecedented government pressure, the committee voted in a 5 to 2 majority to hold the line.
The committee on Wednesday concluded that it aligns with prevailing economic conditions.
Deputy Minister of Finance calls for synchronisation of monetary and economic policy. He is, of course, right but it is the government which must listen
Mr Krisada, on the other hand, on Thursday, insisted on the importance of synchronising fiscal and monetary policies for an optimal economic outcome. Thailand in January had negative inflation of over 1%, strong foreign tourism arrivals and a financially stable environment.
Many developing middle-tier countries such as Pakistan, Sri Lanka, Turkey or Argentina do not enjoy such a benign environment. Certainly, when it comes to people on the street.
Even the European Union, in December, had an inflation rate of 2.8% while Brazil’s was 4.65%.
In short, the current situation sees the government and the country’s central bank pursuing completely separate agendas.
The Bank of Thailand insists that financial stability must be the priority. In the meantime, the government clings to the prospect of higher GDP growth and artificially boosted consumer spending power.
However, on Friday, Mr Krisada refrained from directly commenting on potential rate cuts. Indeed, he noted the need for careful consideration given prevailing economic uncertainties.
No surprise in the prudent course taken by the Monetary Policy Committee of the Bank of Thailand on Wednesday when it put financial stability to the fore
The decision by the Bank of Thailand on Wednesday came amidst concerns over slowing economic expansion.
In turn, this is attributed to weak exports and sluggish state investment budgets so far.
The Thai economy is projected to grow by between 2.5-3% in 2024, with private consumption and tourism remaining key drivers.
‘The majority of directors agreed that maintaining the policy rate is essential for economic and financial stability,’ affirmed Mr Piti Disayathat, Secretary of the Monetary Policy Committee (MPC).
At the same time, two committee members advocated for a 0.25% rate reduction to align with lower growth prospects.
Nevertheless, the prevailing consensus favoured the status quo. The highlighted sustained consumption growth with a stable interest rates regime is crucial for economic resilience.
The current economy, driven by inward foreign tourism, is still seeing rising consumer confidence and economic spending. The loss of economic momentum is being caused by the erosion of manufacturing.
Policy dreams and lofty ambitions of successive Thai governments are not being realised while its manufacturing economy is now being decimated
The scale and depth of the problem here flies in the face of the narrative of successive Thai governments.
In effect, the dreams and policy initiatives are not being pulled off while the industrial base which emerged in the sixties, seventies and eighties is disappearing.
Two key examples are the production of hard discs now losing way to solid-state technology. Similarly, with the manufacturing of automobiles.
Thailand is losing out to other competitors in Southeast Asia and India while facing cutthroat competition from China.
The Thai economy faces severe headwinds from global trade conditions and structural challenges.
This has led to subdued export and production growth. Despite this, domestic demand remains robust, supporting overall economic momentum.
Bank of Thailand left room for debt initiatives, something already built into the central bank’s plans for 2024
‘Inflation remains low, reflecting supply-side factors and government measures to aid living expenses,’ explained Mr Piti.
Looking ahead, uncertainty persists. The committee reserved its position looking ahead into 2024.
The unfolding economy may necessitate prudent monetary policy adjustments to align with evolving economic and inflation trends.
The committee emphasised the importance of maintaining financial stability. It also backed supporting vulnerable sectors through responsible lending practices and sustainable debt solutions.
Indeed, there is room for this in the Bank of Thailand’s policy to rein in private-sector debt. Later this year, the central bank will launch debt restructuring initiatives in April.
At the same time, there are also calls to put an end to the misery of many Thai firms which are mired in debt.
Economists have identified a surge in zombie Thai firms with no growth prospects, existing so that they can constantly revolve heavy debt loads. Consequently, they should be either restructured for growth or excised so that resources can be redeployed.
This is called pruning, it is good housekeeping for gardeners and economies also, leading eventually to growth renewal.