Thailand: Shouldering the burden

• Aug 31, 2020

With no end in sight to the economic downturn caused by the Covid-19 pandemic, the government aims to put much of its aid effort towards fiscal stimulus to prop up the economy, though there are unfavourable consequences to this move.

The newly formed Center for Economic Situation Administration wants to create 1 million jobs for new graduates and laid-off workers.

The government plans to allocate some funds from the 400-billion-baht budget for economic and social rehabilitation to support job creation projects supervised by the National Economic and Social Development Council. The target is employing 400,000 new graduates and 420,000 laid-off workers this year.

The government also expects to allocate funding from the 3.3-trillion-baht budget for fiscal 2021 to create jobs in the fourth quarter this year and next year.

One government goal is for companies to retain employees as long as possible. Another is creating jobs for laid-off workers to ensure that they have enough income for daily spending.

While the move to sustain employment and create new jobs has good intentions, it could come at a cost as public debt balloons from relentless stimulus via fiscal policy.

EDGING NEAR 60%

Fiscal Policy Office (FPO) director-general Lavaron Sangsnit said the FPO is estimating the budget used for the co-payment project, whereby the government will help private companies co-pay employee salaries.

The objective is to retain employees, limiting the economic damage from previous lockdown measures, Mr Lavaron said.

The Labour Ministry will determine the criteria for co-payment regulations.

The Public Debt Management Office (PDMO) expects Thailand’s ratio of public debt to GDP to rise to nearly 58% as a result of government spending to mitigate Covid-19 impact and lower revenue collection.

Whether the ratio, currently at 45.8%, exceeds the 60% ceiling depends on whether the government engages in additional borrowing, such as issuing loan decrees, said PDMO director-general Patricia Mongkhonvanit.

The cabinet’s recent endorsement of additional borrowing of 214 billion baht to compensate for the budget deficit is intended as a credit line in case public expenses exceed revenue.

If the government borrows the full loan amount, this will increase the ratio of public debt to GDP to 52.4% in 2020, according to the PDMO.

The fiscal budget, which represents about 4.5% of GDP, will help support Thailand’s recovery after the pandemic derailed economic momentum, said Nattaporn Triratanasirikul, assistant managing director of Kasikorn Research Centre.

With this scenario, public debt is expected to increase to 52-54% of GDP this year, up from 42% last year, then expanding further to 57-60% next year, Ms Nattaporn said.

GRADUATES NOT A PRIORITY

The idea of job creation to curb the unemployment rate sounds promising, but there might be too few positions available to help the vast majority in a tough economy, said Chairat Trirattanajarasporn, president of the Tourism Council of Thailand.

Even though some companies are willing to hire new staff, most industries have been wrecked by the outbreak, forcing them to freeze new hiring to streamline costs.

Mr Chairat said unemployed workers need to be the priority for any job creation scheme, rather than new graduates, as the former already have work experience and a responsibility to repay debt for their families.

Mr Chairat warned that the job creation scheme could end up like the 5,000-baht cash handout, which was intended to help 3 million people but saw more than 10 million apply.

“The most important question is whether the government will have enough budget to proceed with the plan,” he said.

Mr Chairat said the government should focus on helping operators who kept workers on the payroll by providing accessible financial aid such as soft loans to cover wages. This type of support can maximise the benefits from a limited budget and avoid future job cuts, he said.

Mr Chairat said he talked with Prime Minister Prayut Chan-o-cha during a mobile cabinet meeting in Rayong province, addressing the needs of the tourism sector such as relaxation of soft loans conditions and creating a tourism fund.

Nuntaporn Komonsittivate, head of commercial operations at Thai Lion Air, said the government wage subsidy scheme to support new graduate hiring cannot fix the woes of the aviation industry, as it relies on skilled, experienced workers.

Moreover, some airlines already laid off a portion of their staff and have to maintain positions for existing employees, making it inappropriate to recruit fresh workers now, Ms Nuntaporn said.

She said the best scheme to preserve employment for airlines is to allocate soft loans as fast as possible. This would ensure the airlines have sufficient cash flow to manage the workforce more efficiently and avoid lay-offs.

URGENT NEED

The Federation of Thai Industries (FTI) supports the co-payment policy because the country needs more short-term solutions to curb increasing unemployment, though the group is concerned that financial limitations may prevent companies from taking part.

Many firms are interested in providing help, but employers are bearing the brunt of the Covid-19 impact, said FTI vice-chairman Kriangkrai Tiannukul.

“We cannot shoulder the labour expense alone in this scheme, because that will only increase costs while revenues decline,” he said.

An initial proposal recommended that the government and participating companies each pay half of monthly wages for new university graduates for 1-2 years.

The Education Ministry reported that new graduates will number about 500,000 this year. According to the Employers’ Confederation of Thai Trade and Industry, only 57% of them went to universities.

The government’s lockdown measures also led some businesses to lay off workers, Mr Kriangkrai said.

The Labour Ministry estimates that between 740,000 and 750,000 workers will be unemployed as a result of the pandemic.

If the ailing economy remains tepid without a significant recovery, the number of unemployed workers could increase to 2 million, according to the Thai Chamber of Commerce.

“This [co-payment] policy is needed to stimulate the economy in the short term, enabling money to circulate in the system,” Mr Kriangkrai said.

MIXED RESPONSE

Lazada Thailand has welcomed the government’s co-payment initiative, saying it’s ready to recruit new employees under the scheme.

According to the e-marketplace giant, its number of employees has increased the past couple of years, with Thais making up 95% of staff.

Lazada uses its Management Associate Programme, which selects new graduates and trains them for two years through an intensive development programme to broaden their understanding about e-commerce business.

“If the government subsidises the salary of new employees, Lazada is willing to hire new workforce in line with the government’s policy,” Jack Zhang, chief executive of Lazada Thailand, told the Bangkok Post.

Sutas Kongdumrongkiat, chief executive in Thailand for NTT Ltd, a global technology solutions provider, said the company continues to recruit new graduates who fit its requirements, especially application developers and those with cloud and engineering skills.

“We would have to see the details on which skill areas the government would provide salary subsidies,” he said.

In Singapore, the government provides financial support for corporations to hire new graduates and refrain from laying off staff, Mr Sutas said.

Grab Thailand, which provides ride-hailing and food delivery services, is taking a different path by freezing headcount.

“We will grow our business through partners,” said Chantsuda Thananitayaudom, marketing head of Grab Thailand.

With the rise of modern lifestyles, millennial workers prefer working under flexible conditions, not permanent jobs, she said.