Thai economy dies on borrowed time

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(MENAFN – Asia Times) BANGKOK – When the Covid-19 pandemic first hit Thailand in the first half of 2020, forcing the government to impose travel closures and bans that effectively killed the crucial tourism industry, many economists have forecast a contraction of 10% or more for the year.

But Thailand’s gross domestic product (GDP) fell only 6.1 percent in 2020, painful but not as bad as expected with the kingdom’s $ 60 billion loss of tourism industry, which normally accounts for about 18% of GDP.

With exports also down 6.6% year-on-year with lower global demand, the better-than-expected GDP performance is due to the government’s large social assistance program, among most magnanimous and successful in the world, according to the World Bank. .

“The response has been remarkable,” said Francesca Lamanna, Senior Economist at the World Bank and co-author of Thailand Economic Monitor July 2021: The Road to Recovery – released last week.

“Thailand has gone from being a small transfer country for poverty reduction programs to one of the largest welfare responses in the world. This has been very successful in alleviating the increase in poverty, ”she said in a recent webinar.

In 2019, Thailand’s welfare programs for the poor amounted to just 0.8% of GDP, up from 3.2% last year. Without the substantial relief measures, Thailand’s poverty rate would have fallen from 6.2 percent of the population in 2019 to 7.4 percent in 2020, according to World Bank estimates.

These measures have also boosted consumption, providing many of Thailand’s most vulnerable people with cash gifts to spend on food and other essentials.

Customers wait for a street vendor to prepare their take-out orders in Bangkok on July 19, 2021. Photo: AFP / Candida Ng

“Last year our social assistance measures reached 40 million people and that translated into a 6.1% contraction of GDP, which is far below multiple projections including ours,” said Kulaya Tantitemit, Director General of Fiscal Policy, Thai Ministry of Finance. Office.

The Covid relief measures were funded primarily by 1,000 billion baht ($ 30.5 billion) in borrowing which increased Thailand’s public debt-to-GDP ratio from 41% in 2019 to 55% in May 2021. This figure is expected to climb to 62.% next year.

This year, Thailand has taken out 500 billion baht ($ 15.25 billion) in additional borrowing to fund ongoing relief programs made necessary by the worst wave of Covid that started in April and accelerated infections and deaths at record levels since.

As the kingdom gradually locks in to contain the peak, some are skeptical that the government will be able to defy downward projections two years in a row.

“While budget support is essential and useful, the timing and pace of Thailand’s economic recovery will depend on progress in immunizing the population,” said Ndiame Diop, World Bank Country Director for Brunei, Malaysia, the Philippines and Thailand.

World Bank directors tend to avoid commenting on sensitive political topics, but Diop had put his finger on the crux of Thailand’s current challenge in tackling the third phase of Covid.

While Thailand’s well-established medical infrastructure has been widely credited with successfully containing the first two milder waves of Covid which began in March and December last year respectively, the government of Prime Minister Prayut Chan- ocha is increasingly criticized for having botched the deployment of its vaccine. .

People wait to receive doses of the AstraZeneca vaccine at the Narathiwat hospital compound in the southern province of Narathiwat on June 7, 2021, as the mass vaccination rollout begins in Thailand. Photo credit: AFP / Madaree Tohlala

To date, some 14.2 million doses have been distributed, with just 3.44 million people receiving two doses, or 4.9% of the population, well below the global average of 13%.

The government has said it plans to vaccinate 70% of the population by the end of 2021, but incidents and delays mean it’s unlikely.

In light of the virulence of the third wave of Covid, spread mainly by the more contagious Delta strain, the World Bank last week lowered its forecast for Thai GDP growth from 3.4% (made in March) to 2, 2% (made last week).

The Bank of Thailand (BOT) last month revised its estimate of GDP growth in 2021 from 3% previously to 1.8% now. Thai exports have started to rebound, thanks to increased demand in advanced economies such as the United States and the European Union, but international tourism – and to a large extent domestic consumption – is still at the mercy of of Covid-19.

Prayut has vowed to reopen the economy by October, but with the third wave of Covid cases and deaths, that too seems increasingly unlikely.

Thailand recently launched the “Phuket sandbox”, a pilot project to reopen the tourism sector to vaccinated tourists. If all goes according to plan, the program would still only attract around 100,000 foreign tourists during the July-September period, and possibly up to 3 million in the fourth quarter.

But that’s still a bit compared to the 40 million-plus tourists who visited Thailand in 2019.

And as the global spread of the Delta variant indicates that the pandemic is far from over, it is not clear that global mass tourism is returning anytime soon, especially in a developing country that appears to be growing. having lost its grip on Covid-19.

The first international tourists to enter Thailand arrive at Phuket International Airport on July 1, 2021, as part of the “Phuket Sandbox” program. Photo: AFP via NurPhoto / Thomas De Cian

It is also unclear whether Thailand will be able to increase its GDP through new stimulus packages. Officials and economists widely recognize that Thailand cannot continue to take on debt to emerge from the crisis, as public debt exceeds the government’s ceiling of 60% of GDP.

Some of the new 500 billion baht borrowings, initially intended for stimulus programs to support economic recovery, have been diverted to more aid in the form of cash distributions in Covid hot spots, notably in Bangkok and in particularly affected sectors such as restaurants.

With fewer resources to draw on, the government will need to focus more on who will receive its largesse in the future, officials say.

“It’s still a work in progress,” admitted Kulaya of the finance ministry. “It is difficult for us to reach our targeting objective since a large part of the Thai population is not officially registered, not part of the database.

“Going forward with the relief measures, the challenge is how to optimize spending? How do you target those who need help the most? “

The World Bank is urging authorities to speed up consolidation of its social registry to better understand who needs help, something which should have been done a long time ago, critics say.

In the first rounds of Covid-19 social assistance provided last year, labeled as ‘No One Left Behind’, many were indeed left out.

“In the ‘No One Is Left Behind’ program, in fact, around 4 million people have fallen through the cracks,” said Nipon Poapongsakorn, distinguished member of the Research Institute’s think tank. Development of Thailand (TDRI) in Bangkok. “And as of that. 4 million, a large number were in the informal sector.

An estimated three million migrant workers (mostly from Myanmar) have also fallen through the cracks of social assistance programs, despite their strong contributions to the Thai economy. These marginal populations have also been excluded from vaccine deployment plans, as they stand.

“If you only vaccinate Thais, that’s a potential time bomb,” Nipon warned. “Thai billionaires and millionaires must start helping these communities in large part, starting with job creation and engaging in negotiations to buy vaccines.”

Thai billionaires, little known for their charitable leanings, were one of the few segments of Thai society to have prospered during and possibly after the pandemic.

CP Group chairman Dhanin Chearavanont is one of Thailand’s richest businessmen. Photo: Post today via AFP / Weerawong Wongpreedee

Thailand’s 50 richest businessmen added $ 28 billion to their cumulative wealth in the 15 months ending March 2021, according to the latest annual update from Forbes magazine, which puts their total wealth at 160. billions of dollars.

Many of these billionaires run multinationals based in Thailand that have invested heavily overseas in recent years, especially in faster growing economies like Vietnam and Indonesia.

“There is a significant outflow of FDI from Thai multinationals investing abroad,” said Kiatipong Ariyapruehya, the World Bank’s senior economist based in Thailand.

The World Bank estimates that private investment in Thailand will increase by 1.1% in 2021 and 1.6% in 2022.

Private investment in the kingdom has been flabby for years and, in the post-Covid era, will face deep structural challenges such as a rapidly aging society, an education system that has perpetually failed to produce labor. skilled work needed to upgrade to a higher value. other industries and a government reluctant to adopt painful reforms.

This includes tax reform, which the finance ministry says is preparing for the post-Covid era. Thailand’s income-to-GDP ratio was 15% in 2020, a low level by global standards. Revenue collection will be reduced during 2021-2022 by the need to give rebates and defer tax payments to boost local liquidity.

But in the future, when Covid-19 relief measures run out and future governments face the challenge of reducing public debt and the budget deficit, higher taxes will be inevitable on the fiscal front.

“We have not yet officially unveiled the plan for a complete overhaul of the tax system because it is quite sensitive,” said Kulaya of the finance ministry. “At the moment, we face risks all around us, resulting in increased spending for the government while tax collection has not reached our goal.

Bank of Thailand (BoT) officials arrange Thai baht notes on ceremonial money trees in a file photo. Photo: AFP / Pornchai Wittikongsakul

One option they might consider is to raise taxes on the super-rich.

“I think one of the conclusions of the report is that it is possible to levy additional taxes on high net worth individuals through various channels,” said Kim Edwards, another World Bank economist and co-author of his latest report on Thailand.

“This would not only increase income, but also improve the progressivity of the tax system and therefore reduce inequalities,” he said.

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