I am not talking about the pandemic. I optimistically assume the Covid-19 pandemic is over for Thailand as we have had zero domestic infections for almost two months. The lockdown, aimed at barring visitors from entering Thailand, is substantially relaxed and most economic activities are permitted to resume.
So, what I am fussing about? Shouldn't the bottom of the economy already have been reached in the second quarter when the lockdown was enforced? Even Virathai Santipraphob, then governor of the Bank of Thailand, said earlier this month the economy bottomed in the second quarter and would recover in the third and fourth quarters of this year. By the end of next year, the Thai economy would be at the same level as the pre-Covid time of 2019.
I disagree with this prediction for three reasons.
First, the lockdown comes with many assistance packages. The lockdown in the 2nd quarter did bring a great havoc to the economy. But, at the same time, the quarter benefitted from numerous fiscal stimulus packages worth 1.9 trillion baht. Admittedly, not all the money came in that quarter, but a huge amount of 352 billion baht in cash handouts from "Leaving No One Behind" and "Farmer's Relief" schemes was distributed to 15.1 million people and 10 million families in the farm sector during those three months.
That amount is equivalent to 8.3% of quarterly GDP and provides financial relief to more than half of the Thai population. That is not all. The Bank of Thailand allows small, individual debtors to postpone loan payments for six months. So far, 11.5 million debtors with a total loan value of 3.8 trillion baht have opted for such assistance. The programme will end in September and small debtors will have to resume at least 100 billion baht of monthly loan payments.
With no more cash handouts and resumption of loan payments, how will the third and fourth quarters be better for Thai people? For those who love numbers, the extra income from the two main packages is 626.5 billion baht in the second quarter, reduced to 350 billion baht in the third quarter, and becomes zero in the fourth quarter. How will the economy recover with less and less extra income?
Second, outbreaks have worsened in the major economies. No country is infection-free like Thailand. Even Vietnam is now locking down Da Nang and evacuating 80,000 people over fears of a second wave outbreak. Hong Kong does not allow gatherings of more than two people. And Texas hospitals are sending patients to die at home as hospitals are way over-capacity. In light of this, Thailand can pretty much forget about recoveries of export demand for this entire year. Of course, foreign tourist income will be likely to remain nil until the end of year or until an effective vaccine is found.
That is not good news for a country where 60% of GDP depends on export of goods and services while private consumption accounts for only half of GDP. There is no possible way the economy will bounce back without recovery in export and tourism sectors. Maybe it is time to promote a "Get Fat for Thailand" campaign to boost consumption of domestic products. But where would Thai consumers find money to consume in the first place?
Third, massive lay-offs will happen in the third and fourth quarters. This is a delayed effect of economic contraction. Businesses will hold on to their valuable workforce until (a) they are sure their businesses will not recover any time soon, and (b) they run out of cash to operate the businesses. That is happening right now. The World Bank has estimated that 8.3 million Thai workers, or 21.7% of the total workforce, could risk unemployment or reductions in income. At present, layoffs are concentrated in the tourism sector and export-oriented industry. But it will not be long before lay-offs spread to all sectors as the World Bank has predicted.
GDP figures are a bunch of numbers but unemployment is the real tragedy of the economy. The Great Depression of 1930s is remembered for images of jobless workers lining up for food, not for negative GDP growth figures. Even if the economy, for whatever reason, improves in the second half of this year as the governor said, millions of Thais will still be thrown out of jobs from the tourism and export sectors. What should the government do to prepare to lessen the pain of jobless and starving Thais?
The answer could not be anything but more stimulus packages. The European Union has approved a new stimulus package of 750 billion euros and US Republicans are proposing an extra US$1 trillion package to extend unemployment benefits. You will see more and more of these bigger stimulus packages coming out around the world. No economist disagrees with more stimulus packages. The question is: Can the governments afford them?
In most countries, these stimulus packages will be financed by having central banks printing money as domestic and international savings are not enough to finance them. The world's savings are about 25% of GDP and half of that, 12.6% of world GDP, has already been used for the first-round stimulus packages of $11.1 trillion. The second, or maybe the third and fourth, packages will have to be financed by printing money. No other choice, unless the country is prepared to borrow from the International Monetary Fund (IMF).
In the case of Thailand, domestic savings are clearly not enough to finance any more government debt. The option of borrowing from the IMF or abroad is not acceptable politically or economically. Therefore, the remaining option is for the Bank of Thailand to print money. The consequences are inflation and current account deficits. Luckily, Thailand has international reserves equivalent to 12 months of imports of goods and services, and we can sacrifice half of that to finance more fiscal stimulus packages.
Before raising your eyebrows, Singapore is using its international reserves to finance part of the Covid-19 stimulus package. An amount of $11.78 billion in reserve drawdown has been approved in principle.
Based on this idea, the Bank of Thailand can support new stimulus packages up to 4.2 trillion baht or equivalent to 25% of GDP before destabilising the economy. That should give the government room to breathe during this difficult time and save millions of Thais from starvation.
Chartchai Parasuk, PhD, is a freelance economist.