Thailand’s economy is likely to see a gradual U-shaped recovery driven by government spending, with the ratio of public debt to GDP possibly edging towards the 60% ceiling rate, says Kasikorn Research Center (K-Research).
The fiscal budget, which represents about 4.5% of GDP, will help support Thailand’s recovery after the pandemic derailed economic momentum, said Nattaporn Triratanasirikul, assistant managing director of K-Research.
With this scenario, public debt is expected to increase to 52-54% of GDP this year, up from 42% last year, and could further increase to 57-60% next year, Ms Nattaporn said.
The cabinet's recent endorsement to approve an additional loan of 214 billion baht to compensate for the budget deficit is intended as a credit line in case public expenses exceed revenue, according to the Public Debt Management Office (PDMO).
If the government borrows the full loan amount, this will increase the ratio of public debt to GDP to 52.4% in 2020 from the existing 45.8%, according to the PDMO.
To repair the economy, the government should balance between stimulus measures and economic cost especially the higher public debt ratio, Ms Nattaporn said.
“The U-shaped economic recovery is expected to begin in the first quarter next year, and will take around two years for the economy to return to the pre-pandemic state,” she said.
K-Research has moved down its forecast for Thailand’s GDP growth for the third time this year, expecting the economy to shrink by 10%, down from a 6% contraction and a 0.5% growth rate anticipated earlier.
The deeper contraction is mainly derived from the outbreak and falling external demand, particularly for exports and tourism.
The think tank predicts exports will experience a 12% contraction this year, while tourist arrival numbers will be around 6-7 million this year compared with 39 million in 2019.
Since most economic indicators are expected to contract, only government spending and public investment are expected to show positive growth at 2.3% and 6% respectively, according to K-Research.
A positive factor that would support economic recovery is vaccine development, which remains in progress, Ms Nattaporn said.
In Thailand, the vaccine for the coronavirus is expected to be implemented widely around late 2021 to early 2022, in line with the economic recovery momentum for the next two years, according to K-Research.
Thanyalak Vacharachaisurapol, deputy managing director at K-Research, said the local banking sector can still handle economic uncertainties for the next two years given the industry’s strong cushion in terms of capital base and liquidity.
The tier-one capital base of the local banking system is at 15.8%, higher than 14.9% in Singapore and 13.9% in Malaysia, while the liquidity coverage ratio of the Thai banking sector is at 182.2%, compared with 138% in Malaysia and 133% in Singapore.
Non-performing loans, classified as Stage 3 loans under Thai Financial Reporting Standards 9, are poised to continue edging up to 3.5% by this year-end on the back of the economic downturn from 3.23% last year.
Ms Thanyalak said commercial loan growth under banks is expected to increase to 9.5-12% this year from a 1.8% contraction last year.
Loan expansion is supported by loan demand among business operators in preparation for economic uncertainties, she said, adding that the debt holiday measure under the central bank’s debt relief scheme will also maintain the existing total loan portfolio.
Retail loan growth of the overall banking industry, however, will decline to 3.8-4.5% this year from 7.5% in 2019 in line with the economic downturn.