Economy in limbo amid logjam

Economy in limbo amid logjam

The business sector is worried that the lack of progress in establishing the next government could generate greater uncertainty regarding the political and public policy situation, thereby hurting the country’s economic prospects

Demonstrators display posters of Mr Pita in Bangkok on July 23. (Photo: Wichan Charoenkiatpakul)
Demonstrators display posters of Mr Pita in Bangkok on July 23. (Photo: Wichan Charoenkiatpakul)

The private sector is concerned that the extended delay in the formation of the new government could lead to a greater degree of political and public policy uncertainty and adversely impact the economy.

The Office of the Ombudsman recently requested the Constitutional Court to consider whether parliament’s rejection of Move Forward Party (MFP) leader Pita Limjaroenrat’s renomination for prime minister was unconstitutional and asked for the voting to be postponed until the court makes its ruling. Therefore, it remains unclear when the second parliamentary vote for prime minister will be held. 

Parliament president Wan Muhamad Noor Matha said on July 27 that the court was likely to decide on Aug 3 whether to accept a petition in the case of Mr Pita. Parliament will convene on Aug 4 but whether a vote for prime minister will take place will depend on what the court does on Aug 3, he added.

The MFP and seven coalition political parties had been expected to ascend to power in early August following May's general election. However, on July 13 Mr Pita failed to gather sufficient support in parliament in his first nomination to become the country’s 30th prime minister. 


La-iad Bungsrithong, board advisor for the Thai Hotels Association (THA), said a delay in the formation of the new government for another 10 months could affect fiscal budget allocation, which would particularly impact public development projects that directly and indirectly involve the tourism industry, such as public transportation initiatives to connect major and secondary cities.

Policies aimed at reducing cost for tourism operators, such as subsidies on the price of fuel and electricity, might not be implemented, which would affect small businesses that haven’t yet recovered from the pandemic.

Some hotels are awaiting meetings from the public sector segment, but they might not be able to hold such events due to delayed budget allocation, she added.

Given that Chiang Mai’s tourism industry was severely affected by smog at the start of this year, this is still an urgent issue and needs the new government to take a lead systematically, especially in terms of coordination across all related ministries and neighboring countries, Mrs La-iad said.

Mrs La-iad said political uncertainty wouldn’t significantly affect inbound tourist arrivals and business groups, unless a large political demonstration took place.

She said senators and political parties who still represent the caretaker government should listen to the majority of voters who don’t want them to continue in their jobs in the new government. They should let Thailand move ahead to avoid any unrest.

She said she hoped the two major parties that gained the most votes which signed a memorandum of understanding would stick together and find a solution to form a government.


Kampon Adireksombat, first senior vice-president and team head at SCB Chief Investment Office (SCB CIO), believes the key concern among investment communities is now the political and policy uncertainty, which were supposed to subside following the general election.

“But, so far, we still have to deal with the uncertainty. Every policy of political parties has pros and cons. Their policies could have different impacts across business sectors as we could observe from the Stock Exchange of Thailand [SET] and its sectors’ movements over the last two months,” said Mr Kampon.

If the MFP ends up being part of the opposition, concerns and overhang regarding sectors such as utilities and telco, whose earnings could be affected by the party’s policies, could be eased.

“However, we believe the most important catalyst on the equity markets is the progress and success on the government's formation. The longer the delay, the higher cost of political uncertainty everyone, not only investors but also ordinary people, will have to bear,” he said.   

Aira Securities believes that no matter which party will lead the government's formation, the stock market would respond positively. Any further delays, it said, would damage the investment climate and the overall economy.

In the case that the MFP was not a part of the new government, the political atmosphere outside the parliament would be chaotic. More political rallies would be  expected to take place affecting tourism, which has been the main engine of the country's economic recovery this year. It could also cause foreign investors to delay their investments to reassess the situation, said the brokerage.

Krungsri Capital Securities (KCS) forecasts that the SET will react positively if the Pheu Thai Party leads the new government given that the party’s policies are stock market friendly.

Next year, the country's GDP is expected to have an upside of 1.0-1.5% from Pheu Thai’s 10,000-baht digital wallet campaign. With a planned budget of 560 billion baht, it has been estimated that the proposed policy would stimulate GDP by 1% and boost the profits of listed companies by 2.4%, spurred by consumption-based stocks and the increase in domestic investment.

In addition, Pheu Thai would also promote investment in water management infrastructure, foreign direct investment, free trade agreements, and the digital economy. A financial transaction tax is not part of the party’s campaign and the Long-Term Equity Fund (LTF) may be reconsidered.


Some allies of the MFP earlier proposed that the eight coalition allies wait 10 months for the five-year term of the military-appointed Senate to end in May next year, so the MFP alliance could conveniently have its prime ministerial candidate elected by the House of Representatives alone.

This idea was floated because once the term of the senators ends, they would not be able to vote for a new prime minister. Many senators declined to vote for Mr Pita in his first nomination for premier in July.

Mr Pita received 311 votes in favour from members of parliament and 148 against, with 39 abstentions. He received just 13 votes in favour from senators, 34 against and 159 abstentions.

Choosing this delaying tactic or an option that resulted in the Pheu Thai Party joining hands with some other political parties that are not part of the alliance comprising eight political parties could deal a blow to the country's economy, says the Federation of Thai Industries (FTI).

The first option would cause a varying impact on foreign investment while the second would affect tourism, which is currently a major revenue generator for Thailand, said Kriengkrai Thiennukul, chairman of the FTI.

However, if the Pheu Thai Party were to leave the eight-party alliance to join hands with political parties not favoured by the supporters of the MFP, this could lead to street protests.

Though tourism is recovering after the reopening of Thailand and China, political conflicts, especially violent rallies, could discourage foreign tourists from visiting Thailand. If demonstrations erupted towards the end of the year, which is the high season for tourism, the economy would face a greater impact, said Mr Kriengkrai.

A 10-month wait would also be a major concern, he said, adding that the FTI would thoroughly examine its impact on the economy.

“If you ask me whether foreign investors can wait for such a long period, it depends on which countries they come from,” said Mr Kriengkrai.

Investors from the US and Europe who are not familiar with the political situation in Thailand cannot wait for 10 months and may decide to invest in other countries instead, he said.

Asian investors, including Chinese, Japanese and South Korean business people, appear to be less concerned over Thai politics while, domestically, Thai investors may wait for six months or even one year.

“The impact on foreign investment is a big issue that requires a careful study because the Thai economy has already been affected by the global economic slowdown,” said Mr Kriengkrai.

Sluggish exports, drought and the high cost of living which has driven household debt are awaiting remedies from the new government, he said.


Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said that in the event that a new government could not be formed in the near future and the situation drags on for 10 months to one year, leaving the caretaker government to govern the the country, what is evident is that the caretaker government would not be able to implement any policies to stimulate the economy.

Under this scenario, the economy would be left to grow organically in line with the overall global economic situation and it would remain unclear whether or not the country’s tourism and exports could rebound this year.

Overall investment in the country is also expected to decelerate under this scenario as investors await clarity on the new government’s policies. It has been estimated that the country might lose hundreds of billions of baht in new investment over the course of 10 months to one year, potentially resulting in a 1-2% decline in GDP, which is considered a significant economic loss.

“Therefore, the private sector reiterates that Thailand’s economy needs a swift government to step in and manage the economy, which is currently recovering. We hope that all parties can find a way to move the country forward,” Mr Sanan said.

Chaichan Chareonsuk, chairman of the Thai National Shippers’ Council (TNSC), said the current challenge is the formation of a new government that is acceptable without ensuing conflict, taking into account the interests of the country and its people as the priority.

Mr Chaichan said the private sector does not want to see conflicts which escalate to the point of protests and widespread unrest again, noting that the country is currently moving forward and facing a spate of external challenges.

Thailand no longer wants any variables that could negatively impact the economy, he said.


Aat Pisanwanich, director of the Center for International Trade Studies (CITS), warned that domestic political instability may cause Thailand to lose the opportunity to attract foreign investment and may reduce GDP to less than 3% this year.

He said the delay in the formation of the new government would delay the budget for 2024 and halt government investment, reducing the income of the business sector bidding for government projects while affecting domestic consumption to a certain extent.

However, Mr Aat said an even more important factor would be weaker confidence among foreign investors in Thailand, as they would withhold their investment and wait to see which direction the new government would take. They want to see how the new administration would shape its policies regarding the bio-circular-green (BCG) economy, the Eastern Economic Corridor (EEC) and electric vehicles (EVs). Furthermore, under a caretaker government, there would be no budget available to be used to stimulate exports, he said.

“The result of an unstable political situation may cause GDP growth this year to be below 3% and affect not only the budget for 2024, but also for 2025,” Mr Aat said.

He said that Thailand may be the only country within Asean to face the problem of an unclear political direction at this time. Even though Myanmar experiences  political unrest, it is clear that the country is driven by the junta.

He said that many countries in Asia with political stability have been able to attract foreign investment, including Malaysia, Indonesia and Vietnam. For example, Tesla, one of the world’s leading EV manufacturers, chose Malaysia as a production base for spare parts and superchargers for its electric cars.

He said that since a consensus in the form of a majority vote in parliament could not be achieved under the current system, which allows senators to vote for the prime minister, the power should be returned to the people in the form of a new election.

Amonthep Chawla, chief economist of CIMB Thai Bank, said if the formation of a new government were to be delayed by 10 months while waiting for the tenure of the current Senate to expire, it would affect the economy significantly. In light of this scenario, foreign investors would opt to move their investment to other countries in the region instead.

Pornchai Thiraveja, director-general of the Fiscal Policy Office, said if the 2024 budget were to be delayed by up to 10 months, he would need to hold discussions with the Budget Bureau to come up with a backup plan as in previous estimates the 2024 budget was expected to be delayed by a maximum of six months of the fiscal year or not exceeding the first quarter of the next calendar year. The negative impact of the existing scenario would only be 0.05% of GDP.


A budgeting expert who requested anonymity said a delay in the 2024 Budget Expenditure Act would delay the government’s investment project by six to 10 months, including disbursement of the investment budget which would affect the restoration of the economy.

Therefore, if the new government wants to accelerate the injection of government investment into the economy, it could do so by carrying out investment projects which have been thoroughly studied but had to be put on the waiting list of each ministry due to budget limitations.

Every year various government agencies propose projects for government auction with a total value of more than 5 trillion baht. However, the number of projects has to be reduced to 3 trillion baht in value due to budget limitations. This means that there are a lot of projects on the waiting lists. If these projects were to be carried out, it would reduce the waiting time for budget approval as the study and design processes of these projects have already been completed.

The source said that many of the projects on the waiting lists could be completed within one year, which would help increase the money in circulation.

According to the government’s investment budget of over 600 billion baht per year, short-term projects, which can be completed within one year, typically account for approximately 400 billion baht.

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