Thailand
Thailand: Household aid to continue through 2021
Thailand’s policymakers will continue to enact policies to boost domestic activity amid persistent challenges from the pandemic.
On Jan 19, the cabinet approved 210 billion baht (an estimated 1.3% of GDP) in cash handouts to support lower-income households, self-employed workers and farmers (comprising around 30 million people) amid a resurgence in domestic Covid-19 cases.
The measures were in line with our view at Fitch Solutions for further support in 2021, particularly for households, with the view of bolstering domestic demand as well as quelling discontent with the government, fuelled partly by the economic downturn.
We see the measures as relatively low-risk for the fiscal position, given that funding has already been allocated for such policies and private-sector savings rates are high.
Since Dec 18, the country has been facing a new wave of Covid-19 cases, with an initial outbreak among migrant workers in Samut Sakhon spreading to 60 other provinces, with new daily cases in the low triple digits. In response, authorities have ramped up testing but have also tightened restrictions on domestic activity to curtail the spread.
The announced measures underscore our view that household consumption will rebound by 1.2% in 2021, having contracted by an estimated 1.3% in 2020. Alongside the cash handouts, the government on Jan 12 announced the following measures:
Reductions in electricity and water bills in February and March. Households which consume less than 150 units of electricity per month, will not have pay for the first 90 units. Households and small businesses will receive a 10% deduction on water costs.
A plan to discount internet usage fees and boost connection speeds.
An extension of people eligible for cash handouts under the co-payment scheme from Jan 25, which could boost usage by 1 million people.
A 90% reduction in land and building taxes and the reduced charge on property transactions will be extended.
State banks — the Bank for Agriculture and Agricultural Cooperatives, the Government Savings Bank and the Exim Bank — will also boost liquidity to farmers, small businesses and companies with international trade, respectively.
Fiscal transfers to the private sector amid the pandemic will reduce some of the pandemic’s longer-term impact on the economy by supporting household balance sheets and keeping businesses afloat.
The funding for the extra measures will come from the budget and the government’s contingency fund, meaning the impact on the government’s finances will be contained.
Moreover, we believe there are low risks to the government using fiscal policy to aid the private sector amid the pandemic. The government went into the pandemic with a relatively low public debt-to-GDP ratio of 35% as of (year end) 2019, and while we expect this to rise to 47.1% in 2020 and 47.5% in 2021, high private-sector savings rates and scope for further asset purchases by the Bank of Thailand mean the government should be able to borrow at relatively low rates.
In fact, the government bond yield curve has fallen to the 15-year maturity level over the past year, indicating lower borrowing and debt servicing costs despite the high public debt levels. Moreover, the country’s credit default swap spread has fallen to its 2018 average, having spiked during the initial market sell-off in reaction to the pandemic in March 2020.
We see scope for further investment-related expenditure and measures to boost the attractiveness of Thailand as a place to set up manufacturing, amid the shift in supply chains across Asia. Thailand’s need for investment, particularly to raise productivity, remains elevated, given higher labour costs compared to regional peers such as Vietnam or Indonesia.
In December, the Board of Investment (BoI) announced a series of measures to boost cooperate relocation to Thailand, the digital and genome sectors and cross-border supply chains.
The most notable measure was an additional 50% cut in corporate income tax on profits earned on BoI-promoted projects for a period of five years, calculated on top of the five- to eight-year tax exemptions already in place. This exemption has been extended a further three years for companies adopting and developing digital technologies such as artificial intelligence, machine learning and robotics.
This will further raise the attractiveness of Thailand as a manufacturing base and potentially curtail lower-cost manufacturing from leaving the country for cheaper location alternatives. As well, the government will continue to support special economic zones, extending the deadline for applications to the end of 2022.
This commentary by Fitch Solutions is not a comment on Fitch Ratings’ credit ratings. Fitch Ratings analysts do not share data or information with Fitch Solutions Macro Research.
Source: https://www.bangkokpost.com/business/2057871/household-aid-to-continue-through-2021