Economic picture continues to darken as cabinet approves new ฿700 billion loan to plug the gap
Baht has lost 4.8% since mid-December 2020 as the country has run up current account deficits of $4.67 billion since November 2020. Figures released on Monday show a negligible 0.2% rise in GDP from the end of 2020 for the first quarter of 2021 which still showed a 2.6% contraction from the same period last year. It comes as the focus in the economy has now shifted to quarter to quarter performance with reports and increasing evidence of a tightening budgetary situation and also financial liquidity in the face of assurances from the Bank of Thailand this week that the banking system has more than adequate capital buffers to deal with any potential shock.
The Thai cabinet approved a new ฿700 billion loan on Tuesday of which ฿30 billion will be used for vaccine and medicine purchases while at least ฿200 billion will be used to plug the gap caused by falling tax revenues. There is heightened concern that the financial position is tightening with the approved new government loan facility projected to bring public debt to over 59% of GDP even as GDP output for 2021 is still precariously uncertain with a government economic agency, on Monday, showing a 0.2% expansion in GDP in the first quarter from the last quarter of 2020. This was, in itself, a surprise as a Bank of Thailand senior officer, at the end of March, predicted a contraction. The Thai baht has lost nearly 5% of its value against the US dollar since mid-December. Thailand, since November 2020, has recorded a current account deficit in the absence of foreign tourism earnings during what was the high season of the now-defunct industry.
Officials at the Finance Ministry this week initially refused to comment on reports that the government had approved a ฿700 billion loan facility in addition to the ฿1 trillion loan package formulated last year as the scale of this year’s third wave of infection has dwarfed the previous two waves and the economy labours under uncertainty.
It is understood the discussions of the cabinet on Tuesday were classified as secret but the measure was quickly confirmed by informed sources.
The new loan includes a ฿30 billion provision for the purchase of medical materials including vaccine shots as well as monies to be applied to the public health network and a range of other initiatives.
Borrowing move will bring public debt to ฿9.38 trillion or just over 59% of GDP by September 30th
The moves will bring the government’s total public debt level at the end of September 2021 or the end of the current fiscal year to ฿9.38 trillion or close to 59% of the country’s GDP based on the GDP outcome for 2020.
The government is limited, by statute, to 60% of GDP as part of the country’s commitment to a sustainable economic model.
Thailand’s GDP for 2020 was $509.2 billion or ฿15.785 trillion compared to ฿16.848 trillion in 2019 or $543.5 billion.
Agency reports a slight gain in GDP in the opening three months of 2021 from the last quarter of 2020
A key question is the GDP outcome of the first three months in 2021.
The National Economic and Social Development Council (NESDC), in recent days, reported a modest rise in output from Quarter 4 of 2020 into 2021 despite the impact of the second wave of the virus in the opening months of the year and the complete absence of foreign tourism receipts in what, for 2020, was a record number of visitors at high season.
The respected government economic agency also pointed to positive signs in the opening quarter of 2021 such as an increase in private investment and showed that Thailand’s economic performance compared to other countries worldwide has been quite respectable.
Bank of Thailand official predicted a contraction
At the end of March, a senior director at the Bank of Thailand, Chayawadee Chai-Anant of the economy and policy department at the institution, told analysts that she thought a drop in GDP would be seen in the first quarter of 2021 coming in from Quarter 4.
‘So, we think it should be negative both year-on-year and Q-on-Q,’ the bank economist predicted then.
Monday’s figures show a 0.2% gain on the previous quarter but a 2.6% drop compared to 2020
In its figures released on Monday, the National Economic and Social Development Council (NESDC) suggested that the Thai economy grew by 0.2% from the previous three months in 2021 although this in itself represented a 2.6% fall in GDP from the first three months of 2020.
On Monday also, a senior Bank of Thailand executive moved to assure the public that the financial system was strong enough to withstand what she termed the current ‘uncertainty’ as the country finds itself battling its way through record levels of infection and deaths from the virus.
The bank pointed to rising advances in credit with both personal and corporate loan growth having risen in comparison to this time last year.
Some financial experts, in recent weeks, have expressed concern that a government borrowing money may make the liquidity situation even tighter and contrast the local market now with last year when the government set about borrowing ฿1 trillion with ample liquidity.
At the end of October 2020, Finance Minister Arkhom Termpittayapaisith, speaking in parliament, expressed a view that the government must broaden its borrowing base to include external sources of funding.
Bank highlights stable non-performing loans figure as debt relief is extended until the end of 2021
The bank also highlighted a stable level of non-performing loans with changes made in how these are calculated and classified.
Bank loans expanded by 3.8% in the first quarter of 2021 compared to 2020 while corporate loans were up by 5.1%.
However, one analyst last week, suggested that the trend changed somewhat in the fourth quarter of 2020 as liquidity is tightening, in particular, as large corporations began using deposits to pay for costs and overheads.
The central bank has also, since last week, extended debt relief measures to borrowers until the end of 2021.
Problems in the tourism industry sector but overall the banking system has strong capital buffers
The bank did acknowledge that there were problems in the tourism industry sector.
The press was briefed by senior director Suwannee Jatsadasake.
‘We are not complacent about NPLs that haven’t increased because of financial support,’ she said. ‘The Bank of Thailand is monitoring the situation and is ready to induce measures if needed’.
The bank director assured the public that the banking system had adequate capital buffers and provisions to withstand any potential economic situation which may materialise as the kingdom faces a challenging situation.
Last Monetary Policy Committee meeting highlighted concern about rising personal debt and fragile finances of Thai households where debt has risen
This comes as minutes from the last Monetary Policy Committee meeting of the Bank of Thailand on May 5th saw the committee members highlighting the importance of monitoring capital flows at this time and signalling concerns at the precarious situation with household debt in the kingdom, a situation that has, unlike western countries where savings have risen, been exacerbated by the pandemic in Thailand’s case because of an absence of blanket government supports to the less well off and those on reduced earnings.
‘The third wave of outbreak resulted in slower and more uneven economic recovery across sectors,’ the minutes from the meeting reveal. ‘The financial position of Thai households has become more fragile as reflected in the elevated debt-to-income ratio, which was relatively high compared with other countries.’
Domestic economy will be set back for at least three months says industry leader as growth projection is downgraded for 2021 despite export gains
The pressing situation was identified by Supant Mongkolsuthree of the Joint Standing Committee on Commerce, Industry and Banking who urged the government to prioritise the vaccine rollout and also pointed out that export earnings should be up this year by somewhere between 5 and 7%.
However, he predicted that the domestic economy would be set back for at least three months. ‘The April outbreak is likely to be more severe than earlier expected and affecting domestic activity for more than three months,’ Mr Supant explained.
His organisation suggests that the economy will only grow by 0.5 to 2% this year which is a significant downgrade on the previous outlook.
5 months of current account deficits since November 2020 in the absence of foreign tourism earnings
The uncertainty over the economic outlook and the outlook for 2021 comes with twin concerns raised in recent weeks about the government’s financial situation and falling liquidity.
The baht has lost 4.8% of its value since mid-December as the country’s current account went into the red from November 2020.
Thailand recorded an $800 million deficit in March 2021 with a $1.07 billion shortfall in February 2021. The figures from November 2020 to January 2021 also showed deficits with a total of $2.8 billion.
The primary cause of this is the absence of inward funds and earnings during the high season of the country’s lucrative foreign tourism sector which has all but been wiped out by entry restrictions and the effects of the pandemic worldwide including outward travel bans.
฿200 billion to plug the gap caused by lower tax receipts, take at the end of March 2021 8.7% lower
On Wednesday, the Finance Ministry did issue a statement on the new ฿700 billion loans reportedly agreed by the cabinet on Tuesday. It indicated that ฿200 billion of the funds will be allocated against lower than expected tax receipts in 2021/22.
‘Of the ฿700-billion loan, ฿500 billion will go to tackle Covid-19 while the remaining ฿200 billion will be used to compensate for lower-than-targeted revenue collection during the fiscal year 2021-2022,’ a spokesperson said.
The figures for tax collection in the last year to 30th September 2020 were ฿1.83 trillion which was 13.4% below projection and 8.3% lower than the previous year’s takings.
A similar figure to March 2021 showed revenue of ฿735 billion which was 9.4% lower than projected and 8.7% lower than the previous period.
The figures suggest that the hit to the domestic economy has been higher than thought and also show a continued decline up to the point where the most severe outbreak of the virus only began in early April.