Bigger crisis than 1997 as taxis give up and central bank urges up to ฿1 trillion more in public debt
The economy continues to be impacted by extended lockdown measures and trillions of baht lost through the effective closure of the foreign tourism industry. Amid a growing political crisis, it is estimated that 40% of workers’ livelihoods are now negatively impacted by the emergency which has seen thousands of taxis being parked up in Bangkok as drivers flee the industry.
The Bank of Thailand has urged the government to borrow more and raise the country’s public debt ceiling as quickly as possible as some economists project that Thailand is facing another year of economic contraction or at the very least, stalled growth in what is a bigger crisis than 1997. The bank’s governor, Sethaput Suthiwartnarueput, on Monday, expressed fears that, without government support, the kingdom’s economy will be damaged in the long term as firms close and economic infrastructure is eroded. On Monday, this was seen first hand by Bhumjaithai Party minister, Mananya Thaiset, as she presented food parcels to 59 taxi cooperatives in Bangkok who have begun parking thousands of taxis in government offices as more and more taxi drivers throw in the towel.
The Governor of the Bank of Thailand, on Monday, came out to urge the government to amend the 2018 State Fiscal and Financial Disciplines Act and to raise the public debt ceiling limit to 70% of GDP as he advocated that a further ฿ 1 trillion be borrowed by national finance agencies and quickly.
So far, the government has borrowed a reported ฿1.5 trillion with a ฿1 trillion loan tranche in 2020 followed by a ฿500 billion facility put through the cabinet in May and ratified a month later by parliament.
Bank of Thailand governor again described the crisis as worse than 1997 as he calls for more borrowing
However, with dwindling tax receipts and higher outgoings, it has always been predicted that more funding will be required even as the government approaches its fiscal end of year on the 30th of September next.
Sethaput Suthiwartnarueput, on Monday, again reiterated his view that Thailand is facing a far more serious challenge than the 1997 Asian Financial crisis and he linked this to the extended nature of this emergency which is crippling many segments of the Thai economy, in particular the foreign tourism industry, but also on a broader basis, with repeated disruptions and closures within the domestic economy.
This has impacted and destroyed economic relationships leaving many firms reeling with financial losses and in many cases, for smaller enterprises, shuttered from want of capital.
Prolonged inactivity damaging economic base
The top bank official warned that the greatest threat to the economy now was that prolonged inactivity would undermine and damage the country’s long term economic prospects, destroying its commercial infrastructure to a critical level.
This could lead to an extended downturn.
‘Additional state borrowing will help support GDP growth potential to revive at a faster rate, and will lower the debt-to-GDP ratio in the long run,’ said Mr Sethaput. ‘If the government doesn’t quickly provide additional economic support during a time of high uncertainty and to shield against a prolonged crisis.’
Calls for stronger supports to keep the economy afloat and points to a healthy financial system
He called for strong government support for small businesses and households and suggested that given the strength of the banking sector with excess financial liquidity and the government’s hitherto prudent financial policies, that a proposal to raise public debt levels should not pose a problem given the exceptional circumstances.
That projected level of public debt compares favourably with the United Kingdom at 97.4%, France at 115.7% and the United States at 118.90%, a record achieved in 2020.
The projected level of public debt would be similar to Germany which is reported at 68.93% for 2020.
‘With such severe symptoms, the medicine must be strong and right to the point,’ the governor, a former aide to the PM, said.
The bank chief suggested a public debt level at 70% of GDP in 2024 would not be inadvisable for the kingdom.
Same medicine as that advised by the World Bank and the IMF which have consistently urged Thai authorities to tackle inequality in the kingdom
This is the same medicine advocated by both the World Bank and International Monetary Fund (IMF) in recent reports on Thailand’s economic prospects which have exhorted the government to use the economic emergency to introduce welfare supports to help the kingdom’s long term fight against inequality which is one of the reasons for the vulnerability of the Thai economy which has suffered disproportionately from this pandemic partly explained by its reliance on exports and tourism as well as its lack of social welfare supports and chronic inequality.
Foreigners in Thailand have nearly ฿600 billion in the bank as inequality and poverty rise alarmingly
Mr Sethaput suggested that Thai households, between 2020 and 2022, will lose at least ฿2.6 trillion in income which can be linked to the estimated ฿3.5 trillion that is projected to be lost to the economy in 2020 and 2021 as a result of the collapse of the foreign tourism industry alone which generated ฿2.1 trillion in 2019 according to figures quoted by the Tourism Authority of Thailand (TAT).
Thai baht plummets as conditions worsen but exporters struggle to fulfil bulging order books
The Thai baht has declined by 11.5% from a high set hours before the new year in 2021 when the dollar then slipped below ฿30 to reach ฿33.45 on Monday, a 3 year low for the currency.
Although this has helped fuel an export surge with bulging order books in the first half of the year, export industry leaders in recent weeks have scaled back the projected growth for 2021 from 11% to 7% with the government still projecting a 16% gain.
The reason is that many firms cannot fulfil orders because the virus has disrupted production and breaks in the supply chain caused by lockdown measures.
Business is out there but the manufacturing industry is being crippled by the aggressive Delta virus
This is the consequence of the third wave of the COVID-19 virus which hit the country in early April followed by the emergence of the Delta variant as the driving force of infection in the kingdom from mid-June.
Up to 40% of those working are currently impacted by measures designed to combat the virus
This has led to infection rates at over 20,000 cases a day with a rising mortality rate resulting in more stringent lockdown measures across 29 provinces at the heart of the economy.
This has seen at least 40% of those who are working either lose their livelihoods in the short term or face negative impacts.
According to figures from the Bank of Thailand itself, there will be 3.4 million registered workers out of work by the end of 2021 up from an average of 1 million before the pandemic.
However, this does not account for the millions of self-employed entrepreneurs whose livelihoods have gone by the wayside or casual labour which has returned to the farms and land where between 35% and 40% of people in Thailand still work.
Political crisis with protests and opposition motion to censure the government as confidence is shaken
Thailand is also careering into a political crisis with now daily protests on the streets.
On Monday, the opposition, led by Pheu Thai leader Sompong Amornvivat, presented a censure motion in parliament to the House Speaker, Mr Chuan Leekpai, which is to be debated at the end of the month against the Prime Minister Prayut Chan ocha and five of his ministers including Deputy Prime Minister Anutin Charnvirakul, Minister of Labour Suchart Chomklin, Digital Economy and Society Minister Chaiwut Thanakhamanusorn, Minister of Agriculture Chalermchai Sri-on and Minister of Transport Saksayam Chidchob.
Some weeks ago, the Pheu Thai Party deputy leader, Pichai Naripthaphan challenged Prime Minister Prayut Chan ocha to explain how the country was going to emerge from the current morass with a prolonged virus outbreak, shutdowns, a delayed vaccination campaign and deteriorating economic picture.
He warned the government leader that people in Thailand were beginning to fear the prospect of a broader and deeper economic collapse if the current situation was not rescued.
PM Prayut Chan ocha announced some lockdown relief measures as he works from home in Bangkok
On Monday, working from home, Prime Minister Prayut announced a relaxation of some lockdown measures in respect of banking services, computer and electrical appliance sales and services which had been causing extreme hardship.
Representations were made to the government by trade groups on the issue leading to the relief.
The scale of the economic devastation caused to the kingdom is exceptional when compared to both western countries and within the Asian and the ASEAN region.
However, even before this pandemic, the Thai economy was diverging as an outlier with several key impediments to its growth prospects including its unstable political environment, ageing population and low standard of education.
Quarter 2 shows negligible growth at 0.4% but the consensus among economists was for a 1.4% loss
While Malaysia, a country with its own problems, has had a devastating COVID-19 outbreak, even more tragic than what we have seen in Thailand with 1.424 million infections and 12,784 deaths compared to Thailand’s 928,314 cases and 7,734 deaths, the kingdom’s southern neighbour saw 16.2% growth in the second quarter of 2021.
Thailand’s figures, just published by the National Economic and Social Development Council (NESDC) came in at just 0.4%.
A Reuters poll of economists and financial analysts had predicted a 1.4% contraction following the opening quarter which saw a 2.6% contraction and the disruption already being felt by the third wave of the virus in April with foreign tourist numbers off by over 99%.
Influential industry committee predicts a 1.5% GDP contraction for the Thai economy this year
The country’s top economic analysis body, the National Economic and Social Development Council (NESDC) projects the economy to grow in 2021 by a disappointing 0.7% to 1.2% but this has already been questioned by a projection from a joint committee of the Bankers’ Association, the Federation of Thai Industries and the Chamber of Commerce.
They have forecasted the Thai economy will suffer another contraction this year of 1.5% following last year’s 6.1% reversal of GDP.
At the same time, Fitch, the rating agency, downgraded Malaysia’s projected growth in 2021 from an industry guideline of 4% to 0% given the emerging circumstances in that country which on Monday saw the government resign.
Bank interest rate cuts from the current historic low being considered as the situation has deteriorated
The economic situation and outlook have deteriorated to such an extent that analysts now believe that an interest rate cut even below the historic low of 0.5% set last year may be on the cards.
This would be a desperate measure.
It has emerged that there were two dissenters at the last Monetary Policy Committee meeting of the Bank of Thailand who argued for a 25 point cut to 0.25%.
Tim Leelahaphan of Standard Chartered Bank believes that this may well now be a possibility in what is a very uncertain climate.
‘We do not rule out a further rate cut, as the economic and pandemic situation remains unclear,’ he said on Monday.
Stories from real life tell us just how devastating this economic crisis is in Thailand on the streets
The fact that much of Thailand’s real economy is off the books can at times and depending on how it is presented, make the economic devastation wrought by the crisis appear less serious.
The real impact can be gleaned from human stories from the economy on the streets.
A case and point is the Thai taxi industry and transport sector.
This year, we have already seen a spate of suicides by taxi drivers who simply cannot make ends meet because of this downturn.
A dead mother beside her children and a taxi driver who slept, show us a nation riven by an extended crisis
The scale of this economic crisis can only be fully appreciated from such harrowing stories on the ground as millions of people in Thailand without a social security safety net and often with chronic debt problems have been left in appalling, inhumane and impossible situations.
Cabinet minister presents aid to taxi cooperatives in Bangkok as thousands of taxis are taken off the roads
Addressing this, on Monday, Mananya Thaiset, the Bhumjaithai Party Deputy Minister of Agriculture and Cooperatives was on hand to launch a scheme to support nearly 51 thousand taxi drivers who are members of 59 taxi co-operatives.
The current situation has left taxi drivers in the kingdom facing a 50% shortfall in their incomes and has already seen thousands of taxis seeking car parking spaces in Bangkok and adjacent provinces as drivers simply throw in the towel.
On Monday, Minister Mananya revealed efforts to support the drivers working in cooperatives across the Greater Bangkok area including the distribution of food parcel baskets with food and fruit as well as help with negotiating bank repayments on 19,555 taxis operated by the groups.
A total of 5,000 have already been parked in state and semi-state facilities throughout the metropolis in government and public utility offices and car parks as part of the minister’s assistance to the cooperative members.
Taxi drivers can just about pay for fuel and food, those who must pay rent and have debt cannot survive
The minister was told that drivers can only earn up to ฿300 a day if they are lucky and this only pays for fuel and some food leaving no money to make payments on cars, pay for rent, other essentials and to take care of their family, at this time.
Taxi drivers with debt commitments or short term accommodation cannot survive in this climate.
This was the story of 53-year-old taxi driver Chamnian Chaisawan who took his life in his taxi on Sunday, July 25th as he simply could not afford to go on and was being bullied by debt collectors.
The minister, on Monday, alluded to efforts to bring the workers into the social security system but for now, they are only eligible for once-off government support payments where applicable.
Bus hire boss fears only 10% of firms may survive this current economic crisis which began last year
In Pathum Thani, for Wasuchet Sophonsathien, the boss of My Way Travel Co. Ltd, a once-thriving bus hire company and Thai success story, perhaps the short term personal circumstances are better than a taxi driver living day to day but the economic devastation seen since early last year has been vast.
Mr Wasuchet is the President of the Association of Transport Operators across Thailand.
Before this crisis, he ran a large fleet of new, luxury and top of the range tour hire buses and smaller vehicles from a state of the art facility in the province that just recently opened.
He says that the impact on both his business and that of his members has been felt far more severely from April this year during which they have suffered financial losses of no less than ฿50 billion.
He fears that only 10% of bus firms will survive this crisis.
Only 10% closed in 2020 with the hope that tourism would return in 2021, the real hardship set in after April this year and things have gotten only worse
He says that only 10% of firms closed last year.
There was hope that business would come back with the foreign tourism industry.
In the meantime, they were relying on annual contracts and long-term contracts linked with industrial concerns which is all that kept his firm going up to that point.
However, since April all of these have been hit as more workers have been told to work from home.
‘The impact started since April 2021, when the bus business ceased to operate. Chartered tour buses do not run at all, 100%. For firms still running, it was a service only for pick-up and delivery of industrial workers at factories, only because it is an annual contract. As for the part that runs for state enterprises or companies, when they were ordered to work from home, they had to cancel the contract or suspend it,’ he explains.
Tour bus firms play a key role in the wider Thai economy, firms cannot afford to have vehicles idle
Tour buses and minivan services in Thailand are linked to many business activities including tourism but also inter-provincial travel and even cross border trading.
He worries that many firms may not be able to resume business again even when things begin to normalise.
He points out that large and expensive tour buses need maintenance even if they are not used.
‘You must understand that a tour bus is not a bicycle. To park for 3 months or 6 months and then come back to run. For tour buses when parked, there is wear and tear. From the battery, tires, power system, all systems break down if the tour bus is not active. They need maintenance, at not less than 3 to 4 hundred thousand baht. I think that many operators may not have the financial resources to do this to come back.’
Question is can firms restart even if normality returns, the industry leader is not optimistic
He says the prospects for many firms to restart or re-launch themselves after this catastrophe, which began last year, are fading. Things do not look good.
‘Those who survived ready to restart, the answer is No. Although work may resume early next year, the problem is that. Can you come back?’
The bus hire businessman also sees a huge problem with firms finding experienced and skilled drivers if the business does resume with only 10% of drivers in Thailand now working.
‘This business has about a hundred thousand people. Now, there are at least 80,000 people who are facing problems because only 10% of the tour buses can run. There are only about ten thousand people who still have careers in the tour bus business,’ he explains.
He says that buses often need two or three drivers on an assignment and the vehicles require expert training. People without experience cannot easily drive them.
This will be part of the challenge in reopening if that opportunity eventually presents itself.
Lockdown measures extended to the end of August
The government, on Monday, confirmed that the lockdown now impacting 29 provinces designated as dark red or heavily impacted areas which happen to also account for the largest segment of the economy, will be extended until the end of August.
This came after a meeting of the Centre for Covid-19 Situation Administration (CCSA) chaired by the prime minister.
Afterwards, the press was briefed by Dr Taweesilp Visanuyothin who urged consumers to adjust their buying habits at this time even as the government ordered Monday’s relief for the banking sector, IT concerns as well as electrical goods and service providers.
‘The Public Health Ministry is of the view that consumers have alternative ways to buy products, such as online orders,’ the official told the press.
However, the meeting decided that another and extended range of outlets will be reviewed for a potential relaxation of the lockdown regime in the weeks to come.
Centre for Covid-19 Situation Administration (CCSA) on Monday reviewed vaccine procurement for August and September with supplies still constrained
The meeting on Monday also looked at the government’s ongoing procurement of vaccines especially the supply of vaccines for August and September.
The government is still working towards its target of administering 100 million doses by the end of 2021 to 50 million people but on Monday there were still indications of constraints on the supply of vaccine doses to meet the government’s plans.
Figures updated to August 13th showed Thailand has so far administered doses to 25.35% of the population with 7.21% fully vaccinated and 18.14% partially vaccinated.
The Centre for Covid-19 Situation Administration (CCSA), meeting on Monday, tasked key officials to follow up on efforts to source 12 million doses of Novavax through the Government Pharmaceutical Organization (GPO) and to have 10 million doses delivered from the US Pfizer Corporation.