Thailand is at risk of a credit downgrade due to populist economic policies and a rising tide of debt. Economic stability may be threatened as private debt becomes increasingly hard to manage while at the same time, chronic structural woes are retarding growth in an uncertain geopolitical world.

Consumer confidence in Thailand continues to rise even as the economy’s overall growth is impaired by both geopolitical uncertainty and structural impacts. The country’s chronic household debt mountain is now not only retarding GDP growth, it has also begun to threaten the country’s economic stability. This week, news emerged that Fitch Ratings may be considering Thailand’s sovereign credit rating for a downgrade later in 2024. Certainly, there is rising anxiety about the expansionary outlook being pushed by the Pheu Thai-led government. It appears to ignore the need for overdue structural reforms and adjustments in pursuit of populist economics.

As economic growth projections for 2024 are cut, there are positive signs with rising consumer confidence and exports in January. Despite this, Prime Minister Srettha Thavisin (centre) is still doggedly pursuing his expansionary economic agenda. However, the growing threat from rising levels of debt within the financial system is on the radar of economic analysts. This may lead to a credit downgrade for Thailand in 2024.

Thailand and Indonesia, two of Southeast Asia’s largest economies, are reported to be faced with the potential threat of credit rating downgrades.

The news comes as the governments in both countries face challenges implementing populist policies aimed at appeasing middle and low-income nationals.

The latest reports come as Thailand continues to grow although at a snail’s pace. At the same time, the country has just announced a 47-month record for consumer confidence based on data from January. It rose to 62.9 in January 2024 from 62 in December 2023.

Exports of goods were up 10% but, although tourists were up on 2023, foreign tourist income remains constrained and behind that seen five years ago in 2019

Even more positive, merchandise exports have begun to expand again.

Exports in January were an impressive 10% up on the same period in 2023.

Foreign tourists were up 41.05% in January. In short, they were 3.04 million. However, foreign tourist spending is still well off 2019 levels due to a change in the market.

Thailand needs more long-haul travellers from Western countries who spend up to 50% more than Asian short-haul visitors.

However, there is increasingly reliable evidence pointing to the country’s massive private sector debt pile weighing on its economic performance.

Private sector investment in January was down sharply. So too was public sector investment controlled by the government.

To illustrate this, the number of commercial vehicles on Thailand’s roads in January was 26.6% below that seen in 2023.

Government readies to sell debt in foreign markets after decades of relying nearly solely on local bond investors in baht. Downgrade threat will not help

It comes as the government readies itself to sell bonds on international markets. For the last few decades, 98.5% of public debt in Thailand has been sold in baht to local buyers

Government raises the possibility of selling bonds abroad, a reversal of a multi-decade-old policy which has seen Thai public debt held at home
Fitch retains Thailand’s BBB+ rating as the country’s external finances remain impressively robust and strong

Significantly also, the government’s 2024 budget disbursements may be late. There are fears that public expenditure may be delayed. This year’s budget is only expected to be approved in April 2024.

This means investment plans may not take place at all before September 30th, the end-of-year deadline.

In addition, Thailand’s Revenue Department has warned that receipts this year may not exceed the target. This is in contrast to previous years.

The escalating threat to the kingdom’s BBB+ credit rating is a source of concern.

So too are fears about the country’s corporate bond market with two high-profile defaults already this year.

Digital Wallet scheme viewed negatively even if the scheme is seen as dead in the water. There is also rising concern over a spat with the central bank

Economists have taken a jaundiced view of the government’s proposed Digital Wallet plan.

Even as the scheme will in all probability never be launched. This comes in view of the legal peril faced by ministers. In short, the plan is all but dead in the water.

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

At the same time, significant damage has been caused by a public spat between the government and the central bank.

Prime Minister Srettha Thavisin’s public squabble over interest rates with Bank of Thailand Governor Sethaput Suthiwartnarueput has undoubtedly undermined confidence.

In the meantime, the Digital Wallet plan is opposed by the Bank of Thailand. It is seen as posing a significant fiscal risk to the country’s public finances.

Certainly, the measure would deliver a short spurt of growth. However, it would lead to an increase in debt burdens in the long run.

Similarly, there is also heightened concern at the Prime Minister’s public campaign on monetary policy. This was seen as putting pressure on the central bank over its cautious and prudent approach.

There is also growing and wider concern over this government’s expansionary economic agenda. 

Rising questions about the ฿1 trillion Land Bridge 

The government’s emphasis on capital investment projects such as the increasingly controversial ฿1 trillion Southern Land Bridge project while ignoring ongoing structural problems is being noted.

Questions about the viability of Srettha’s land bridge arise despite Monday’s euphoric briefings in Ranong

The potential threat posed by this agenda to Thailand’s economic stability is drawing attention. Especially from international analysts at institutions like the World Bank.

The World Bank’s view on Thailand’s economy under the leadership of Prime Minister Settha Thavisin is one of scrutiny.

The pursuit of populist policies is exemplified by the Digital Wallet plan. The giveaway aims to disburse ฿10,000 to stimulate consumer spending to every adult in the kingdom.

No one denies the potential short-term boost to the economy of the plan.

Nevertheless, there seems an absence of robust responses to long-term problems. This includes rising concern about Thailand’s education system and the skills base in the country.

Questions about the viability of Srettha’s land bridge arise despite Monday’s euphoric briefings in Ranong

Similarly, with the Land Bridge plan which is now openly questioned by the opposition Move Forward Party. This week, it called for an independent analysis of the plan’s commercial viability.

The opposition party has raised concerns about the Land Bridge project. In brief, it claims there is a lack of independent analysis of its inherent or potential viability.

Move Forward MPs withdrew from a parliamentary committee overseeing the projects because of this.

Growth emphasis from Srettha’s government in the face of overwhelming structural deficiencies does not generate confidence but raises searching questions

Tamara Mast Henderson from Bloomberg Economics has expressed particular concern about Thailand’s new economic approach.

‘Thailand’s ฿10,000 digital money distribution project is the most worrying. Because the government has confirmed that it will use an Act to borrow ฿500 billion to finance the project. This will only enhance growth in the short term. But there is no benefit in terms of productivity or structurally affecting the economy in the long run.’

Fitch Ratings, this week, has issued warnings about the fiscal risks faced by Indonesia due to the implementation of populist policies.

This sentiment is echoed for Thailand, where concerns about continuously increasing debt burdens and a slowdown in economic growth persist.

The allure of populist policies stems from a need to address the plight of low-income and middle-income households.

Thailand still reels from the impact of the country’s draconian COVID-19 pandemic economic shutdown. That saw economic growth contract by 6.1% overall in 2020.

Indeed, in many areas of the economy, if not overall, the situation has never recovered.

Foreign tourism still not on target to fully recover from the closure of Thailand’s airspace to tourists in April 2020. Pandemic damage still not healed

This is certainly the case with the foreign tourism industry.

Thailand’s foreign tourist income is not expected to reach 2019 levels over the next two years. That will bring the extended downturn to six years after the country’s sudden closure of its airspace to tourism. This happened overnight in April 2020.

The economic outlook for Thailand this year, once optimistic, is already tempered. There are mounting uncertainties only two months into 2024.

Bank of America Securities, a unit of Bank of America, has revised its Thai GDP forecast for the year.

It cites lower tourism revenue and increasing uncertainty surrounding the digital wallet policy.

The anticipated distribution of ฿10,000 via digital wallets, an expected boost to consumer spending, is now highly uncertain.

The Digital Wallet Policy Committee reconvened without a clear path forward, amidst mounting pushback and objections. This has raised insurmountable doubts about the government’s ability to fully implement the measure.

Foreign analysts now note the Digital Wallet is out

Analysts at Bank of America Securities now project Thailand’s GDP growth to be 2.6% in 2024.

Last year it was 1.8%. The latest figure is down from the previous forecast of 3.7%.

The uncertainty surrounding the implementation of the digital wallet policy has contributed to this downward revision.

Mr Pipat Luengnaruemitcha is an analyst at Bank of America Securities.

‘While Prime Minister Srettha Thavisin insisted the government would continue to try and implement the stimulus policy, it remains unclear whether the government has full support from its coalition and government officials.’

This lack of clarity has led to speculation about the viability of the policy and its potential impact on economic growth.

New stability concerns now emerging over the health of the banking sector with pressure on margins due to higher levels of distressed or out-of-order debt

Weak bank financial results have further contributed to the economic questions being raised about Thailand’s feeble economic recovery.

The banking sector, a key factor in economic performance, is suddenly showing signs of weakness. Undoubtedly, this has added to concerns about economic stability.

Cutting bank interest rates will exacerbate these concerns.

Despite the central bank’s robust response to government pressure, it is expected to implement at least one interest rate cut in 2024. That will probably take place in June. Analysts suggest there will be two cuts this year of 25 basis points each.

This will see pressure on bank margins already being impacted by the rising tide of faltering debt. 

Currently distressed debt under review not being reported by the banks. Top economics agency last week suggested that 19.7% of loans are of some concern 

Economic analysts such as Danucha Pichayanan the Secretary-General of the National Economic and Social Development Council (NESDC) have pointed to this.

In an appraisal last week, it was noted that 19.7% of debt owed to Thailand’s financial institutions is either under review or in debt restructuring.

GDP has contracted as household debt and chronic problems strangle the country’s future growth and economic opportunity. Fault of successive governments

Similarly, the National Credit Bureau (NCB) has raised data showing trillions linked with debt recovery legal proceedings. There are now estimates that informal debt alone in Thailand amounts to ฿3.95 trillion.

Fitch Ratings has warned about rising debt levels in Thailand and a continued weakness in Thai GDP growth. This is a clear shot across the bows for Thai officials that a credit downgrade is possible.

Southeast Asia’s laggard economy for over a decade despite being the second largest. The environment is turning bearish with lower tax receipts projected

Last week’s National Economic and Social Development Council’s downward revision of Thailand’s GDP growth outlook was significant.

It underlines the challenge facing Southeast Asia’s second-largest economy, one that in the last decade has become a laggard.

Deputy Finance Minister Krisada Chinavicharana’s warning about the potential shortfall in government revenue highlights the bearish economic environment. It suggests a need for more prudent fiscal management in the face of economic uncertainties.

Thailand is certainly at a tipping point as economic planners navigate the government’s stated mission of stimulating economic growth.

The Pheu Thai economic leadership team at the vanguard of the government’s planning are being forced to accept that things have changed.

Rising spectre of an imploding Chinese economy

Things that might have worked a decade or even two decades ago are no longer possible. China’s economy is now a fading star.

China censors top journalist who raised disturbing questions about the country’s failing economy
Thailand preparing for a soft landing as ‘cracks’ open up in the Chinese economy says bank chief

The bankruptcy move against huge Chinese construction behemoth Country Garden in the last 24 hours is evidence of this. The firm defaulted on ฿7.3 billion in payments.

This comes despite efforts by the Chinese government to prop up large construction firms. The Communist country is facing a local banking and property crisis. The latter accounted for 30% of that country’s GDP.

In the meantime, the World Bank, Fitch Ratings and other international analysts alike have raised concerns about the direction of the government’s policies. This is coming amid mounting concern for economic stability in Thailand due to its debt crisis.

The government of Srettha Thavisin is being urged to refocus on long-term economic sustainability and stability.

This will be essential to weather the storm created by geo-political instability and a Chinese economy slowly imploding. China is now undergoing weakening domestic confidence and an acute unemployment crisis.

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Further reading:

It’s not an economic crisis, it’s a quagmire of structural problems that cannot be fixed overnight

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