Thailand faces current account blowout on oil, tourism risks


THAILAND is heading for a rare back-to-back current-account deficit as the outlook for tourist arrivals becomes less rosy with a flare-up in Covid cases globally and energy import bills ballooning amid soaring oil prices.

The net oil importer may post a shortfall of US$4.6 billion this year, according to Bank of Ayudhya, which previously estimated a surplus of US$5.8 billion in the current account - the broadest measure of trade and investment.

Nomura Holdings, DBS Bank and Maybank Investment Banking Group too expect South-east Asia's second-largest economy to post a second straight year of deficit, the first time since 1997.

"The odds are now shifting towards a current-account deficit for Thailand this year," said Krystal Tan, an economist at ANZ. "The Russia-Ukraine conflict has significant negative implications for Thailand's current account, given its high reliance on imported energy. There are also potential second-round effects to watch, such as a fall in Russian tourist arrivals and a potential increase in global freight costs." ANZ will revise its Thai current account surplus of US$2.4 billion later this week, Tan said, adding the deficit will be smaller than the shortfall in 2021.

The country posted a deficit of US$10.9 billion last year, the first gap since 2013, as foreign tourism receipts nearly vanished amid the pandemic, official data show. The pandemic has robbed Thailand of tens of billions of dollars it used to generate annually from the millions of foreign tourists. A gradual rebound in tourism with the lifting of most border controls is now at risk from flight disruptions and payment difficulties for Russians, once again leaving the nation's currency vulnerable to a sell-off.

The baht has lost about 4 per cent since Russia invaded Ukraine, and the currency's outlook remains weak with the widening current-account gap and interest rate differential between the US and Thailand, according to Pipat Luengnaruemitchai, chief economist at Bangkok-based Kiatnakin Phatra Securities. The baht fell as much as 0.4 per cent to 33.643 to a US dollar on Wednesday (Mar 23).

Thailand's status as a net oil importer is fuelling a trade deficit and inflation, muddling the outlook for an economic recovery, said Somprawin Manprasert, chief economist at Bank of Ayudhya. The lender, a unit of Mitsubishi Financial Group, has cut Thai growth forecast this year to 2.8 per cent as it sees a hit from low tourist arrivals and supply disruptions from the war, he said.

"It will be a double whammy for Thailand as it faces rising inflation and a slowdown in the economy," Somprawin said. "Tourism will be affected as it's not only Russians who will not travel, as the sour sentiment and falling income will discourage others too. Thai economic outlook is worrisome."

Thailand's tourism will not return to the pre-pandemic levels - 40 million visitors and more than US$60 billion in revenue - without the Chinese, who made up almost 30 per cent of the travellers. While the country has lifted most of the curbs on visitors, Covid tests on arrival and the paperwork to secure a pre-arrival visa are seen discouraging holidaymakers even as more tourism-reliant countries open up.

The exit of foreign investors from Thailand's bonds is also set to weigh on the current account even as trade deficit balloons on the back of roaring energy prices and normalisation of exports. Foreign funds have withdrawn a net US$1.97 billion from the nation's bonds after pumping in US$4.6 billion in the first 2 months, according to data compiled by Bloomberg.

"We see more downside bias for baht volatility," Pipat of Kiatnakin Phatra said. "The currency's outlook is rooted in tourist arrivals. And whenever signs of a firm tourism recovery emerges, the sentiment towards baht too will turn right away." BLOOMBERG

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