BANGKOK – The World Bank forecasts it will take Thailand at least two years to resume its pre-Covid real growth level – already one of the lowest in the region at 2.8% in 2019 – while the pandemic promises to swell the growing ranks of the country’s poor, hitting the urban-based middle class the hardest.
In its latest economic monitor released on Tuesday (June 30), the World Bank predicted the Thai economy would contract by at least 5% this year, a modest projection compared with those of other multilateral institutions.
The Asian Development Bank (ADB) and International Monetary Fund (IMF) recently forecast a 6.5% contraction this year, ranking Thailand the worst hit by Covid-19 among Southeast Asia’s economies.
Even the Bank of Thailand (BOT) is more pessimistic than the World Bank about the kingdom’s economic prospects. On June 24, the BOT revised its gross domestic product (GDP) estimate downwards to a 8.1% contraction, worse than the 7.6% contraction of 1997, the year of the Asian financial crisis which started in Thailand and went on to cripple the region.
However deep the contraction, analysts concur that Thailand’s recovery is going to take time.
“What is important is we agree on the come-back time to the pre-Covid level,” said Birgit Hansl, World Bank country manager for Thailand. “And we all think the pre-Covid GDP level will only be reached in the next two-three years.”
The World Bank foresees Thailand’s GDP growth bouncing back to 4.1% in 2021 and 3.6% in 2022. More worrisome, however, is the bank’s outlook on the pandemic’s impact on poverty, which appears to be eating into Thailand’s once secure middle class.
The number of those living on less than US$5.5 per day (the World Bank’s definition of “economically insecure”) in the kingdom has more than doubled from 4.7 million in the first quarter of 2020 to 9.7 million in the second quarter.
According to World Bank data, Thailand’s performance in tackling poverty has been spotty over the past five years, when the poverty rate grew from 7.2% of the population to 9.9%.
Most of the poverty in the pre-pandemic period was concentrated in the agricultural sector, which employs nearly 30% of the population. With Covid-19 and the government’s lockdown that has contributed to widespread business closures nationwide, poverty has become less discriminating.
“Households being affected by Covid are no longer just these low-productivity agricultural households,” said Judy Wong, the World Bank’s poverty specialist. “It is now reaching to the traditional economically secure or middle-class households in services and manufacturing.”
Thai Prime Minister Prayut Chan-ocha’s government has not been negligent on Covid-19’s impact on the poor. The government was quick to come up with a 2.2 trillion baht ($71.2 billion) Covid response package representing almost 13% of GDP that has focused primarily on providing relief to the most vulnerable households and affected firms, primarily small to medium-sized enterprises (SMEs).
The package includes a 500 billion baht ($16.2 billion) budget to provide 5,000 baht ($162) checks for three months to an estimated 15 million people who have lost their jobs, or accepted pay cuts due to the Covid lockdowns and economic slowdown.
Other relief package funds have gone to farmers, SMEs and to stabilizing the local bond market. That 5,000 baht handout program will wind up next month, when the economy os officially fully reopened, including bars and soapy massage parlors, after three months of total and semi-lockdowns.
But Covid-created poverty and unemployment will not disappear overnight, analysts warn.
“While the response has been very quick to alleviate the impact on these households, we do note that there are many lessons Thailand could take away in terms of how it could improve its response going forward in the intermediate and medium-term,” said Kiatipong Ariyapruchya, the World Bank’s senior country economist.
For starters, the government should assure a minimum package of benefits for the most vulnerable, with improved processes for identifying who these vulnerable people are.
“Thailand has many public assistance programs but the data is not consolidated,” said Kiatipong while suggesting the creation of an integrated social registry to improve timely targeting. “Putting them together would be a great benefit in the future for targeting,” he said.
Prayut’s former coup-installed administration (2014-2019) made ‘Thailand 4.0’ (or moving the economy into the digital age), one of its main platforms. Yet after five years in power, his government is still having problems collating data on its own citizenry.
“We need to review the Thailand 4.0 policy, since the government was late in handing out money to so many people, which means they failed with the big data,” said Chaturon Chaisaeng, an opposition politician, referring to some of the initial snafus in the 5,000 baht handout program.
While opposition parties can criticize the government’s implementation of the Covid-19 response packages, few oppose the massive public expenditure of these packages, in part because Thailand is in good financial health and well-positioned to borrow more money to finance future relief and stimulus programs if necessary.
“We definitely have the resources to borrow more,” said Charl Kengchon, executive chairman of the Kasikorn Research Center, a local think tank. “We still have excess liquidity in the financial system.”
Thailand has about $200 billion in foreign exchange reserves and continued to enjoy a current account surplus in the first four months of 2020 despite the Covid-19 crisis and its negative impact on exports and imports, the latter of which have tanked even more.
Thailand’s public debt is currently about 42% of GDP, a low figure compared with many developed economies. That is likely to rise to 57% next year, but will still be well below the 60% level prescribed by the World Bank and IMF.
The vast majority of public and private debt is denominated in the local baht currency, unlike the situation in 1997 when Thai banks and corporations were borrowing heavily from foreign banks in US dollars.
A steep devaluation of the baht’s value in 1997-98 helped the economy recover fairly quickly, boosting Thailand’s exports because of competitive pricing, but that is not likely to happen with this crisis.
“In fact the baht has been strengthening,” Charl noted. “I think we are getting like Japan, when Japan started having such problems – deflation, low growth, aging population, strong yen against the dollar with the yen regarded as a safe haven and keeps strengthening against the dollar creating a lot of problems for the Japanese government. We are in the same situation here.”
But unlike Japan, Thailand has not yet graduated into the higher income bracket and if anything appears to be descending the wealth ladder with the increasing spread of poverty and inequality. “I guess we are the Japan of the middle-income countries,” Charl said.