No choice but to open the economy
There are not many countries on this planet that depend on outside markets like Thailand. Exports of goods account for 54% of GDP while foreign tourism income accounts for another 12% -- totaling 66% of GDP. The rest is made up by domestic private consumption.
Therefore, no consumption stimulus policy can ever adequately replace receding external income. Simply put, without income from abroad, the economy will just collapse.
To fully access international markets, Thailand needs to have freely open borders. Unfortunately, Covid-19 forced the country to tightly seal the borders. Consequently, the economy suffered deeply.
Opening the borders is not a choice for Thailand but a necessity for economic survival.
Because of this, the government has taken the first opportunity, regardless of comments about whether it is acting prematurely, to re-open its borders. The Prime Minister announced that, starting on Nov 1, Thailand will accept foreigners from low-risk countries without the usual quarantine procedures. Of course, foreign visitors are required to be fully vaccinated and have PCR tests before departing from their home countries and after arriving in Thailand. Furthermore, they need to stay in hotels (be quarantined?) for one night while waiting for PCR test results.
Thailand is not the only country wanting to re-open its borders to tourists and business visitors. Singapore announced a quarantine-free vaccinated travel lane (VTL) to visitors from eight Western nations, set to begin on Oct 19. Malaysia has a plan to re-open the country on Dec 1. However, both countries have full-dose vaccination rates of 81% and 65.8% respectively. As of Oct 12, a little less than 34% of the Thai population had completed their two doses. The risk of a re-emergence of Covid-19 is significantly higher for Thailand.
Actually, the risk of another surge of outbreak after opening the country does not come from foreign visitors but rather from increased mobility of local people to serve visitors. The country can set any condition to guarantee that foreign visitors are Covid-free, but it is not possible to prevent non-vaccinated locals from conducting business. The Phuket Sandbox is a case in point.
Despite this known risk, does the country have any choice? This time economic survival outweighs the outbreak risk.
First, the country has no choice because the government has no funds to support the economy. It is still one month to the full fiscal year 2021 (data available up to August), but the government has already borrowed 1.3 trillion baht to finance its deficits and pay for stimulus programmes. In the fiscal year 2020, even with the 1 trillion baht stimulus packages, the government borrowed only 1.03 trillion baht for the entire fiscal year. Readers might notice that despite the severity of this year's flood, the government has not unveiled a single flood relief package.
Let me give you some economic figures on the flood issue. The great flood of 2011 caused GDP to shrink by 6.4% and was estimated by the World Bank to incur 1.44 trillion baht in damages. If this year's flood has only 20% of the impact compared to the great flood a decade ago, the government will need 288 billion baht to compensate farmers and fix damaged infrastructure. It would be a difficult task for such a debt-ridden government to come up with the money.
Second, the country has no choice because its people are running out of money to make an living. Here are some figures from actual GDP data compiled by the National Economic and Social Development Board, not estimations. In the second quarter of 2020 when the economy was locked down due to the first wave of the Covid outbreak, Thais withdrew savings equivalent to 10% of GDP to compensate for income loss in order to maintain essential consumption.
In subsequent quarters, national savings slowly returned to a normal level owing to government stimulus packages, an easing of lockdown measures, and most importantly, cutting down on non-essential consumption. However, in the second quarter of this year, national savings were withdrawn again by 4.9% of GDP. This time the cause was not income loss from the economic lockdown; that did not happen until the third quarter. It was because, after a full year of a continued weak economy, people were desperate and needed to resort to their precious savings once again.
Third, the country has no choice because foreign money is leaving Thailand. This is no-brainer. At the beginning of the year, the USD-Thai baht exchange rate was 30 baht per dollar. Today, the exchange rate is close to 34 baht per dollar. Why? Because foreign money has been constantly leaving Thailand. About US$19 billion has disappeared from the country's foreign currency reserves since Jan 1, causing the domestic liquidity market to have 630 billion baht less in cash. Foreign tourism income is desperately needed.
Even with this bold decision to open up the country, the economy is unlikely to revive because foreign tourists will not come as expected.
First, Chinese tourists will not come due to the Five-One restriction imposed by the Chinese government on international travel. The restriction limits airlines to just one international flight a week while capping capacity at 75% on those flights. The tourism industry will not see the 5 million-plus Chinese tourists, which visited Thailand in 2019, until the second half of next year.
Second, the world economy is suffering from the high energy prices which will drive up air ticket prices. Moreover, high inflation will make consumers more cautious about spending. Third, PCR test requirements -- before departure and upon arrival -- and testing costs, including a one-day implied quarantine in a hotel room, will deter most tourists from coming to Thailand.
I have one piece of interesting information about the air travel industry. The Airport Authority of Thailand announced a couple of weeks ago that, for the period October 2021 to March 2022, 79% of foreign carriers cancelled their flight slots and 42% of domestic carriers cancelled flight slots.
So much for the hope of normalcy in international travel.
If Plan A -- opening up the country -- cannot revive the economy, does the government has Plan B in mind?
Chartchai Parasuk, PhD, is a freelance economist.