Crying out for a crisis

Crying out for a crisis

In order to legally borrow 500 billion baht for the digital wallet handout, the government has to show the economy is in a state of emergency

Is Thailand's economy in a crisis? The question has been echoed on every economic forum, TV debate and economic discussion on social media the past few weeks as politicians and analysts bicker over the necessity of the Pheu Thai Party's proposed 10,000-baht digital wallet scheme.

The government says the economy is in crisis to justify its 500-billion-baht handout, funded via a loan act.

However, the large loan bill is likely to face legal challenges as the government is required to prove this project is in response to an emergency, according to Section 53 of the State Fiscal and Financial Responsibility Act, which sets out limits for emergency funding.

The economy posted GDP growth of only 1.5% in the third quarter, while the National Economic and Social Development Council (NESDC) downgraded its forecast for 2023 growth to 2.5% from 3.2% predicted in the first quarter.

Prime Minister Srettha Thavisin announces details of the digital wallet scheme at Government House on Nov 10. (Photo: Chanat Katanyu)

The administration is citing these GDP figures as evidence of a crisis, while Move Forward Party deputy leader Sirikanya Tansakun said there is more nuance to the economy, with exports sagging this year, possibly contracting by 2%, yet private consumption could grow by 7%.

The rationale for the digital wallet project is to stimulate domestic consumption, but critics point out this might not be the right tool to remedy current economic conditions and could limit options if the country has to face a real crisis.

The burden of 500 billion baht in debt would create financial risk and may require the government to raise funds for essential purposes, as occurred during the pandemic.


Aat Pisanwanich, international economics analyst and senior consultant at International Research Consultant, said 1.5% growth in the third quarter does not signify a crisis, though manufacturing did slump based on weak exports.

Thailand's economy grew at its slowest pace in almost a year, while Vietnam grew at 5.3% for the period, the Philippines at 4% and Malaysia 3%.

People may consider the situation a crisis based on a sales contraction in some industries year-on-year, such as steel and sectors related to trade with China, he said.

"Yet in summary, third-quarter growth of 1.5% is not a crisis because the currency is not slumping, nor is the stock market or other asset prices devalued, as occurred during the Tom Yum Kung crisis in 1998, which resulted in a contraction of 8%," said Mr Aat.

He said the current economic problems are not caused by a drop in demand, which has increased in line with an improving economic outlook.

Therefore, stimulating consumption through a digital wallet handout by borrowing 500 billion baht may not be an appropriate choice, said Mr Aat.

Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said four consecutive quarters of negative GDP, leading to significant increases in unemployment, is considered a crisis.

For example, in 2020 Thai GDP fell by 6.1% and unemployment surged to 2% compared with 1% a year earlier, which constituted a crisis, he said.

"There are multiple negative factors that have weakened economic growth, from the pandemic impact to climate change and a couple wars. However, this does not mean the Thai economy is in a state of a crisis," said Mr Thanavath.

"Metaphorically, it's like the Thai economy is in the intensive care unit, but it's not deceased yet."

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said based on the NESDC's GDP forecast, the chamber believes Thailand is on the path to economic recovery.

"Though GDP for the third quarter was lower than expected, it remains in positive territory. It is not appropriate to say the Thai economy is in a crisis," Mr Sanan said.

"We will have to wait for the Council of State to interpret the Thai economic condition, as this will have a direct impact on the government's decision-making."

The chamber sees the digital wallet scheme as one tool to stimulate the economy, but feels it should be targeted at vulnerable groups, he said.


Nattaporn Triratanasirikul, deputy managing director of Kasikorn Research Center (K-Research), said the third-quarter GDP figure was much lower than the centre's estimate of 2.4%.

To achieve the NESDC's growth target of 2.5% this year, fourth-quarter GDP needs to expand by nearly 4%, while tourism has to grow by double digits year-on-year, she told the Bangkok Post.

K-Research lowered its outlook for Thai economic expansion this year to 2.5-2.6%, down from 3%, said Ms Nattaporn.

The think tank maintained its forecast for export growth year-on-year in the fourth quarter, while tourism remains the key driver for the economy.

While tourist arrivals remain robust, spending per person is not as high as expected, while the Chinese market has been weaker than projected, she said.

Thailand has welcomed 23 million foreigners for the year-to-date, with 27.6 million projected for 2023, according to K-Research.

Wikij Tirawannarat, senior vice-president of Bualuang Securities, said the third-quarter GDP reflected slow growth in other Asian economies, which makes the Thai export outlook bleak.

"The major problem with the Thai economy is a lack of government spending. Government budget disbursement has been pretty weak to date," said Mr Wikij.

"We are waiting to see the government's actions in stimulating budget disbursement."


Whether the Thai economy is in crisis depends on the angle it is viewed from, according to the Federation of Thai SMEs, which believes the economy cannot be broadly defined at this moment.

Sangchai Theerakulwanich, president of the federation, said economic crisis is relative based on the comparison.

"If we ask low-income earners, they may say the Thai economy is at a critical level. But when we ask the middle class, they may say the economic status is okay," he said.

The GDP growth projection of 2.5% for this year is reasonable for the country, but compared with higher growth rates in neighbouring countries, it is a concern, said Mr Sangchai.

Viewing Thai economic conditions from the point of view of small and medium-sized enterprises (SMEs), he said the country faces a serious economic problem.

The nation has around 3.2 million non-performing loans, including those held by SMEs that were once categorised as good debtors, while household debt is 90.6% of GDP.

The Federation of Thai Industries reported earlier more than 12,000 SMEs are at risk of succumbing to overwhelming levels of debt worth 61 billion baht.


"This is a financial crisis that urgently needs a cure from the government," according to the federation.

"SMEs are the backbone of the Thai economy," said Mr Sangchai, as they represent around 99% of total Thai entrepreneurs and generate 71% of employment in Thailand.

If SMEs cannot survive, their businesses will shutter, causing a ripple effect in the economy, he said.

Very small SMEs, which make up 85% of total SMEs, are a real concern because they often earn only 15,000 baht a month, which is very low if they operate in cities, said Mr Sangchai.

A closer look at SMEs' burdens and revenue reveals a clearer picture of big economic troubles, he said.

"We have to look into the real-life situations of these entrepreneurs, not make decisions based on forecasts or a list of economic indicators," said Mr Sangchai.


Mr Aat, the economics consultant, said if the government wants to stimulate consumption, it would be better to target low-income earners, which number around 6 million households, estimated to cost the government 200 billion baht.

He said the government should focus more on the supply side, meaning production, to stimulate the economy.

Production costs in both the agricultural and industrial sectors are high because of soaring energy prices, particularly oil and electricity.

The government is providing assistance by giving each rice farmer 1,000 baht per rai and reducing fertiliser costs, helping to reduce production expenses.

Adoption of high-yielding modern rice varieties would improve productivity and farmer income, said Mr Aat.

The Thai agricultural sector needs to adjust to global market preferences to enhance competitiveness, he said.

Upgrading the country's manufacturing sector can be done through the fiscal budget, allocating specific outlays to improve industrial competitiveness among the ministries, said Mr Aat.


Another stimulus option that does not require fiscal budget is attracting foreign direct investment (FDI) by providing tax and investment incentives, he said.

However, Mr Aat said the government needs to clearly define the country's strategic direction to attract FDI, such as becoming a regional hub for natural rubber production with low emissions, or the goal of establishing the "Kitchen of the World" initiative.

Mr Sanan said the Thai chamber believes SMEs are struggling now and the government should urgently provide them with stimulus funds, while also issuing measures to help resolve SMEs' and citizens' debt problems.

This will create opportunities for SMEs to access capital in a systematic manner, helping them to recover, especially in the service sector, he said.

Regarding the daily minimum wage hike, Mr Sanan said with the slowing economy and businesses in a state of recovery, the minimum wage should be adjusted in line with the economic conditions in each area. This should be achieved primarily through the mechanism of the tripartite wage committee in each province, he said.

In addition, employment should be promoted according to skills to increase income for workers, while also improving labour productivity, said Mr Sanan.

Dhanawat Suthumpun, managing director of Microsoft Thailand, said the economy is not in crisis as the tourism sector continues to rebound, while government policy to drive segments with high growth potential, such as electric vehicles, are off and running.

However, more work needs to be done to accelerate economic growth, such as making travel more convenient, he said.

In the technology sector, artificial intelligence is projected to increase employee productivity without hiring more workers, said Mr Dhanawat.

This should provide a positive impact for businesses even if the economic outlook is unfavourable, he said.

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