Economic chiefs weigh steps to lift growth, credit access
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Economic chiefs weigh steps to lift growth, credit access

Srettha Thavisin, Thailand's prime minister, speaks during the Nikkei Future of Asia forum in Tokyo, Japan, on Friday, May 24, 2024. (Bloomberg photoA)
Srettha Thavisin, Thailand's prime minister, speaks during the Nikkei Future of Asia forum in Tokyo, Japan, on Friday, May 24, 2024. (Bloomberg photoA)

Thailand’s economic chiefs underscored the need for urgent stimulus measures and improved access to credit for small business to accelerate growth rate in the short-term amid the highest interest rate in a decade and near-zero inflation.

The government will focus on boosting manufacturing and extending loan guarantees for small- and medium enterprises to help lift potential growth rate to over 3.5% annually, according to Finance Minister Pichai Chunhavajira. 

The Ministry of Finance and the Bank of Thailand will also review the inflation target range of 1%-3%, which may be too low, Mr Pichai said. As the inflation band is used to guide monetary policy settings, rate should be lower to help raise product prices, he said.

A meeting of the so-called Economic Cabinet chaired by Prime Minister Srettha Thavisin on Monday and attended by Bank of Thailand Governor Sethaput Suthiwartnarueput among others discussed the problems plaguing the economy. The review came a week after official data showed the country’s economy expanded 1.5% in the first quarter from a year earlier, the slowest pace of expansion among its regional peers, an outcome Mr Srettha said was below expectations.

“Our growth rate is lower than neighbours and this shows that our economy has problems,” Mr Pichai said. “Manufacturing needs to increase and purchasing power must return. Low inflation means products are too cheap for manufacturers.”

Mr Srettha said that he ordered economic agencies to work on specific short-term measures to prop up growth in two weeks and report back to him. 

Weak global demand, decline in manufacturing and delayed public spending have weighed on Thailand’s economy, which last year expanded by 1.9% — extending a decade of average sub-2% growth that’s the slowest in Southeast Asia. The baht has gone from the best-performing Asian currency in the fourth quarter last year to the biggest loser this year. The local currency weakened almost 7% year to date. 

Mr Srettha is betting on a cash handout in the fourth quarter to shore up consumption and revive manufacturing. A meeting of the fiscal and monetary policy committee earlier in the day approved raising the budget spending this fiscal year by 122 billion baht to partly finance the so-called digital-wallet programme that will see about 50 million Thais receiving 10,000 baht each. 

The new spending proposal will be on top of the 3.48 trillion baht budget for the fiscal year that began on Oct 1 and will widen the 693 billion baht budget deficit, or 3.6% of gross domestic product. The cabinet had previously approved a plan to fund the 500 billion baht handout through budgetary allocations and a loan from the state-owned Bank for Agriculture and Agricultural Cooperatives. It has also green-lighted a wider fiscal deficit for next fiscal year to part-finance the payout. 

With the central bank ignoring Mr Srettha’s repeated calls for a rate cut, his key aides have turned their attention to changing inflation target, improving liquidity and credit guarantee. Mr Pichai has said availability of credit for retail borrowers and SMEs is more important than the level of interest rate.

The BoT has kept borrowing costs at a decade-high 2.5% since September even as inflation slipped into the negative territory. It said last month that holding the rate steady had given it “policy optionality” to deal with currency volatility, geopolitical risks and uncertainties stemming from the timing of the Federal Reserve’s pivot to easing.

Thailand’s near-record household debt level and the high interest rate have contributed to an uptick in non-performing loans, prompting lenders to be more cautious in granting fresh loans. Tighter lending rules for automobile and other consumer durable purchases has led to a cooling in private consumption, central bank data show. 

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