Rocked by third wave of virus, Thailand hopes fresh stimulus can boost consumption

Bangkok

THE ongoing coronavirus pandemic and the slow vaccination process has already prompted several downgrades in the growth forecasts of Thailand's tourism-dependent economy this year.

Even the government's planning agency - the National Economic and Social Development Council - last month downgraded its gross domestic product (GDP) growth forecast for 2021 to between 1.5 and 2.5 per cent, from 2.5 to 3.5 per cent previously.

Tourism accounted for nearly 20 per cent of Thailand's GDP in the pre-Covid era, but without foreign arrivals and spending, economic growth is on track to be the lowest in South-east Asia, according to Moody's Analytics.

"(Recovery) will be slow because of the high dependence on travel and tourism, and probably its inability to open up until maybe the end of the year," said Steve Cochrane, the chief Asia-Pacific economist at Moody's Analytics.

All eyes are on Thailand's latest round of stimulus, and whether this would be enough to give the economy a much-needed lift.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Earlier this week, the government approved a host of relief measures worth a combined 164 billion baht (S$6.97 billion) to address the growing economic hardships faced by the populace as a third wave of the Covid-19 pandemic spreads.

The relief measures, expected to be implemented from July onwards, will be financed from the one trillion baht that the government borrowed last year under a decree issued to cope with the impact of the pandemic, which first hit Thailand in March 2020.

Last month, Thailand approved the borrowing of an additional 500 billion baht to continue financing more relief measures in fiscal year 2021/22, ending September 30, in an anticipation of more Covid-related hardships to come.

Under the 164 billion baht budget approved on June 1, about 40 billion baht will go towards health projects and cash handouts to the poor, with about 120 billion baht going to financial measures aimed at encouraging consumption. One way is via the government's 50/50 scheme, a co-payment system that can be used by 31 million Thais and to be spent at small enterprises such as street stalls and fresh markets.

Thailand is now suffering from its third and most lethal wave of the Covid outbreak, which started in April and, in the roughly two months since, has claimed more than 1,000 lives and recorded over 130,000 new infections.

On Thursday, Thailand reported 3,886 new cases to take the overall total to date to 169,348. There were also 39 more deaths, which brings the fatality tally to 1,146.

While the government and Thailand's medical community won praise for their swift and effective handling of the first two waves of the virus (March-April 2020 and Dec-Jan 2021), they have been less successful in stemming the third tide, which is now expected to be brought under control by July at the earliest.

"We expect this round of infections may take up to four months to contain and cost around 310 billion baht in economic damage due to private consumption, including losses from declining domestic tourism," said the Siam Commercial Bank's Economic Intelligence Unit (EIU) in its latest report.

The EIU has also lowered its forecast for Thailand's GDP growth to 1.9 per cent in 2021.

In the face of the ongoing heath crisis and a messy mass vaccine rollout that will only start in earnest later this month, there has been little serious opposition to the government's decision to finance its relief measures through borrowing.

This is even though the public debt-to-GDP ratio is likely to hit 58.6 per cent by the end of fiscal year 2020/21 on Sept 30, just a fraction below 60 per cent ceiling set by the government's legal framework.

"I am not worried about the debt level," said Korn Chatikavanij, a former finance minister and current leader of the Kla Party. What worries him and other observers, however, is the manner in which these so-called emergency budgets are being distributed. "If the one trillion baht budget had been spent properly, there would be no need for the additional 500 billion baht in borrowing," said Mr Korn.

Both of these massive loans were made under an executive decree, citing the economic emergency caused by the pandemic.

"But projects under the executive decree do not require parliamentary scrutiny," said Mr Korn, who claimed that many of the government's "relief" efforts were political in nature, especially with a general election expected by the end of the year or in 2022.

Mana Nimitmongkul, secretary-general of the Anti-Corruption Organization of Thailand, has expressed similar concerns about the relief budget disbursements. "The government must ensure every baht is spent in the people's interest," he told The Bangkok Post in a recent interview.

READ MORE: Coronavirus curbs shutter thousands of Bangkok restaurants