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Inflation, rising debt and weak baht set to shape Thai election
AS Thai politicians jockey for positions ahead of elections that must be called by March, focus is turning to how the next leadership will manage risks including sky-high prices, a bloated budget deficit and the highest level of household debt in the region.
The tepid pace of recovery in South-east Asia’s second-largest economy will be front and centre for voters as authorities grapple with the fastest inflation in 14 years, the baht’s plunge to a 2006-low and household debt at 88 per cent of gross domestic product.
“While the recovery in tourism will help support growth over the next two to three years, an ageing population and high household debt places Thailand as the laggard in the region,” said Ju Ye Lee, an economist at Maybank Investment Banking Group. “These are challenges that will not be easily resolved even with a new prime minister.” Tourism makes up 12 per cent of GDP.
Prime Minister Prayuth Chan-Ocha, who last week won a favourable court ruling on a tenure dispute, has seen his popularity slide, reflecting the growing public disappointment with his government’s efforts to rebuild the economy that’s still reeling from the pandemic and lagging peers in the region.
Paetongtarn Shinawatra, daughter of former Thai premier Thaksin Shinawatra, and Pita Limjaroenrat from the opposition Move Forward Party, are top choices for premier in recent opinion polls.
Here are some of the economic challenges the next administration will likely inherit:
Rising costs
Thailand’s recovery has been uneven, with those in exporting industries bouncing back faster while low-earners and tourism workers struggling amid inflation above 7 per cent, triggering the first price hike in a decade among noodle makers and the first increase in minimum wage since 2020. Lately, the nation has to worry about the impact of floods too.
The Bank of Thailand (BOT) is expected to keep tightening rates although at a gradual pace compared to peers in the region. Lenders have subsequently raised rates also. BOT has said price gains should cool to within its target by mid-2023.
Net-oil importer Thailand continues to subsidise diesel, electricity and cooking gas. The cabinet extended some of the support until Nov 20, mindful of the pain on consumers that’s also exacerbating household debt.
Elevated debt
Household debt has jumped by 1.1 trillion baht (S$42 billion) to almost 90 per cent of GDP from 80 per cent pre-pandemic. Although the ratio eased slightly in the second quarter, it remains the highest in South-east Asia, making it tougher for the government to stimulate the economy. In the past, frustration with debt has sparked protests among farmers.
“Slower growth and higher inflation are exacerbating household debt and inequality,” said Pipat Luengnaruemitchai, chief economist at Bangkok-based Kiatnakin Phatra Securities. These problems, if unresolved, could unleash more political and economic woes, he said.
Record deficit
The government has spent about US$5.5 billion to subsidise energy prices, and the latest extension will increase the bill by another 20 billion baht. The budget gap ballooned to a record 700 billion baht in the fiscal year that ended September compared with 450 billion baht in 2019.
“We have exhausted all the fiscal ammunition during Covid with relief schemes and cash handouts,” said Kiatanantha Lounkaew, a lecturer of economics at Thammasat University. On the brighter side, borrowing for the fiscal year that started Oct 1 was set at 1.05 trillion baht, substantially lower than the record 1.8 trillion baht in the fiscal year 2021.
Baht volatility
The baht has lost 20 per cent since the end of 2020. While this may be good for exports and tourism, the volatility hits investors and consumers.
There had been calls on the BOT to reconsider a hands-off stance as the baht depreciates. The Federation of Thai Industries, the nation’s top business group said companies want a stable baht to prevent inflation from squeezing their profit margins. BLOOMBERG