The latest test for the government comes as the country’s last engine of economic growth finds itself under attack from the Delta variant of the virus causing a nightmare for exporters who are struggling to meet orders. As the government announced plans for a ‘Factory Sandbox’ programme targeting 60 large facilities, the Chairman of the Thai National Shippers’ Council Chaichan Chareonsuk has warned that at least 1,500 factories are currently experiencing difficulties.
Thailand has just announced its first current account deficit since 2013 amounting to $10.3 billion or ฿344 billion. This comes days after Dhanin Chearavanont, its richest man, warned that the kingdom cannot afford to let so many firms die at the rate now being suffered while calling for the government to speed up its response to what he described as a crisis akin to World War Three which may see the country left behind by its neighbours in Southeast Asia. He said this would happen if economic recovery is delayed when the virus is eventually defeated. It comes as the government launched a ‘Factory Sandbox’ in an attempt to protect the country’s manufacturing and export sector now also hit by five hundred clusters of infection, hampering output.
The current account figure comes with the government facing a tightening budgetary situation, the Thai baht falling by 11.4% since the last hours of 2020 and an economy that is shedding employment at a disturbing rate.
This week, Thailand’s richest man has criticised the government’s cumbersome approach to dealing with the COVID-19 outbreak, likening it to trying to use an elephant to catch a locust.
Mr Dhanin Chearavanont, in an interview with the press in recent days, at the same time, disassociated his firm, the Charoen Pokphand Group, one of the world’s largest conglomerates, from the government’s orders of the Sinovac vaccine from China which have become controversial.
Government to purchase 12 million more doses of Sinovac but Mr Dhanin denies his firm has any links to national vaccine procurement from China
This week, Thai authorities announced plans to purchase another 12 million doses of the vaccine which is the country’s most widely used inoculation product, being used alternatively with the AstraZeneca jab as the country’s main vaccine dose despite concern about its reduced efficacy against the Delta variant of Covid.
Mr Dhanin explained, although his huge extended network of firms has links with the manufacturer of the vaccine, it is not involved, in any way, with its procurement by the Ministry of Public Health and the government’s efforts to import the jab into Thailand.
CP Group purchased Sinopharm for its personnel
Indeed, he points out that his firm has recently ordered the Sinopharm vaccine for its own personnel through the Chulabhorn Royal Academy as it was legally prohibited from purchasing vaccines directly.
The elder statesman of the Thai business world likened the current pandemic emergency to World War Three and predicted that countries that can adapt to the challenge most successfully, will emerge strengthened by the virus while those who flounder will be weakened with their economic prospects set back.
Unfortunately, Thailand appears to be on course to be among the latter group given the current circumstances and outlook.
Mr Dhanin indicated he fears that after this emergency is over and when the clouds have lifted, Thailand could end up behind its neighbours in Southeast Asia based on the current direction of events and economic data that is emerging.
Thai Government has 4 key issues to deal with during the crisis according to the powerful business tycoon
He pointed out that the government has four key issues to deal with.
These include taking care of the most vulnerable in society who have been devastated by the pandemic since early last year.
He outlined schemes that the Charoen Pokphand Group was involved with in association with 100 partners to provide food to millions of destitute people in Thailand who have been left in need at this time.
The second challenge for the government was to speed up vaccine importation.
On this score, Mr Dhanin believes that the government should be ordering as wide an array of vaccine products as possible.
He made it clear that he thought all brands of vaccines should be deployed and ordered by officials to ensure maximum security of supply.
Defends the performance of all vaccines saying they succeed at reducing virus hospitalisations and deaths
He defended the performance of all vaccines even though new virus variants are reducing their efficacy across all brands.
He declared their use presents a strategy to reduce serious illness, hospitalisations and deaths from the virus threat.
He described the third goal of the government as providing drugs and adequate treatment to all those who are infected with the disease and pointed out that his firm was also assisting in this endeavour.
Warning about the dangers of a prolonged economic crisis that threatens the country’s future tax base
Lastly, he warned that the prolonged nature of the pandemic, since Quarter 2 this year, has seen a sharp increase in the number of firms closing down especially in the small business and service sectors.
He said the government cannot afford to let firms across all areas of the economy fail.
The impact of the economic crisis was so severe that even large firms are feeling the pain and if these enterprises are lost, it will mean any recovery will be slower and stymied while the government will also find its tax base eroded.
Minutes of the Bank of Thailand Monetary Policy Committee meeting last week which produced a split
The sobering pronouncements from the business leader, known for his acumen and good sense, chime with statements expressed earlier in the week also by Bank of Thailand Governor, Sethaput Suthiwartnarueput.
On Wednesday, the Bank of Thailand released the minutes of last week’s Monetary Policy Committee (MPC) meeting which saw the first split decision on interest rates since May 2020 on whether the bank should reduce the base rate to 0.25%, a historical low.
The Monetary Policy Committee is composed of seven members, three of whom are officials with the central bank and four who are outside experts.
The vote was four to two against lowering the rate with one abstention.
Bank governor on Monday expressed concern over falling employment rates especially since April
On Monday, Mr Sethaput expressed his unease at the situation where the number of people in overall employment in the country was falling off rapidly.
At last week’s meeting, members of the influential committee reviewed the bank’s datasets on employment, liquidity and a full range of metrics which presented a very disturbing picture.
There was concern at the impact of the prolonged virus emergency on the private business sector where it was clear that jobs and livelihoods were being shed and those who were employed were losing working hours and income.
The scale of business closures and layoffs was disturbing leaving the labour market in a critically weak state.
The official figures show that by the end of Quarter Two or the end of June, over 3 million people were adversely impacted with 1.6 million people who had given up and returned to their homes to work on the land where prospects were limited.
Catastrophic year for the foreign tourism industry despite moderate success for the Phuket Sandbox
On top of this, the members of the committee observed the effects of the devastating virus wave, driven by the Delta variant, still making its way through the country’s provinces as well as a collapse in foreign tourism, a key engine of growth that has been left moribund since April 2020 despite various high profile initiatives.
This week, Kasikorn Bank predicted that Thailand will only see 150,000 arrivals this year, which is only 0.37% of that seen in 2019.
It is more than a 99% loss on last year’s disaster after the kingdom sealed its borders on April 5th 2020.
In recent weeks, the Finance Ministry projected 300,000 arrivals but this has fallen even as the Phuket Sandbox pilot programme has found its place in the market and is predicted to see 14,000 to 15,000 visitors in August while being expanded to other destinations in southern Thailand acting as a feeder point.
Delta variant threatening all economic activity at this time in Thailand and Southeast Asia, hitting factories
However, even this sliver of success is vulnerable to the vagaries of the COVID-19 virus driven by an aggressive Delta strain which is causing problems not just in Thailand but in countries across the world and particularly in Southeast Asia, even those with high vaccination rates.
In the meantime, the government is struggling to find enough vaccine supplies as the latest figures to Wednesday, the 18th August, show 27.5% of the population have received a first dose with 7.9% fully vaccinated.
This is happening as the country’s export sector now finds itself under attack from the Delta variant while causing manufacturers to struggle fulfilling order requirements.
Thailand, across 29 key provinces, is in the grips of a continued lockdown to reportedly reduce the infection curve and deaths.
This is hindering private consumption and consumer confidence with both recording sharp drops for June.
Interest rate cut of little benefit says Monetary Policy Committee member in an interview with Reuters
Speaking by telephone to Reuters this week, one of the Monetary Policy Committee (MPC)’s external members, Mr Somchai Jitsuchon, said he was sceptical that a rate cut would be of any benefit to struggling small and private firms right now.
He indicated that the only effect may be to cause difficulties for banks at this time if the rate were to be cut down towards a 0% margin.
He highlighted the ample liquidity in the financial system but explained that there were barriers to money finding its way to those in the country who, right now, most need it.
‘Cutting the lending rate to zero from 0.50% or from 0.25% to zero, the benefits are not much as we know, it’s already low and liquidity is not a problem,’ he said. ‘Should there be a symbolic action, it’s better to accelerate the policies that have been implemented to make them more fruitful and in step with the fiscal policy.’
Mr Somchai fully supported the call, on Monday, by Governor Sethaput to the government to move swiftly to borrow a further ฿1 trillion and not be afraid of a public debt rate at 70% of GDP by 2024.
He made it clear that the recent ฿500 billion loan was not adequate to the government’s need given its critical role in providing support to the economy to prop it up during the crisis.
Growing prospect of a second year of GDP contraction
He accepted that there was now the prospect of a second year of economic contraction for Thailand if things continue to go awry.
He said this is likely if lockdown efforts and constraints extend well beyond September 30th or into the final quarter of the year.
The government has just announced another initiative to help protect the country’s manufacturing sector with rising fears that the COVID-19 virus is disrupting factory output and hampering efforts to meet orders.
‘Factory Sandbox’ effort launched to help protect the kingdom’s manufacturing base and retreating prospect of export gains which advanced until May
Public Health Ministry officials accept that there are at least 500 clusters in play within the country’s manufacturing base.
They are targeting this with a new scheme called the ‘Factory Sandbox’ at large firms with over 500 employees that have a field hospital attached and shuttle transport facilities for staff.
It is thought that this will apply to only 60 factories, far off the 1,500 threatened and experiencing difficulties according to a key export leader in recent weeks and only 1% of the figure of 60,000 concerns identified in July by the Federation of Thai Industries when it asked for faster and more widespread testing of factory workers whose inoculation rate currently stands at only 10%.
Plans to protect factory workers as an economic priority gave way to efforts to protect the vulnerable
At the outset of the country’s vaccination programme, the government indicated that workers supporting the economy would be a priority for vaccination but it is understood the harm caused by the Delta virus particularly to the aged and more vulnerable prompted a change of course especially given the diminished level of vaccine doses that were available.
The initiative now being taken applies to 60 factories with a combined workforce of 138,000 involved in car, electronic, food and medical equipment production.
All will be fully tested with a full inoculation programme.
This will be a pilot run and is confined to Pathum Thani, Nonthaburi, Samut Sakhon and Chonburi provinces, adjacent to Bangkok.
Federation of Thai Industries presented a plan in July to test all workers in factories and impose bubble and seal measures on infected plants to preserve output
The proposal from the Federation of Thai Industries, in July, called for all factories to be tested and where an infection rate was more than 20% of the workforce, bubble and seal measures to be introduced while quarantining and isolating each concern and keeping production going.
This proposal would have required significantly greater resources than the pilot scheme now being tested.
However, the disconcerting news is that the country’s relatively successful export performance in 2021 is now, clearly, under threat.
It also comes as public sector investment, the last area with a potential for economic growth may also be constrained by the extended lockdown and a quickly tightening government budgetary situation unless new borrowing measures are ushered in.
Public investment expenditure grew significantly in the first quarter of 2021 by 19.6% even though the overall economy contracted by 2.6% in the same period and overall government expenditure decreased from ฿402.729 billion to ฿401.695 billion.
Chairman of Shippers’ Council warns that 1,500 factories are experiencing problems delivering orders as virus insinuates itself into the workforce
Last week, Mr Chaichan Chareonsuk, the Chairman of the Thai National Shippers’ Council, indicated that at least 1,500 factories in the country’s manufacturing hub in provinces near or adjacent to Bangkok were having difficulties fulfilling orders because of the virus wave.
Exporters are ‘stressed’ by the current situation causing them losses estimated to run into hundreds of billions of baht with customer’s orders not met
‘Last month, exporters were concerned about Covid. But right now, they are stressed,’ he warned and indicated that up to ฿600 billion could be lost to the economy.
The potential gain in 2021 through export performance may be limited to 7% following a 15.5% expansion in the first five months of 2021 and a particularly buoyant second quarter when exports shot up by over 27%.
All that has now changed and it is not clear whether the government’s response, announced this week, will be enough.
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Further reading:
Rising prospect of GDP contraction for 2021 may see government breach the legal public debt limit
Economic fears rising as Thailand faces a bigger crisis than 1997 with rising job losses and debt
Baht falling with confidence in Thailand waning as foreign tourism closure and virus drive funds out
Central bank to lower GDP growth forecast as its attention turns to private sector debt management
Loan bill passes but Thai economic prospects are not bright with a 1.8% 2021 GDP gain predicted
IMF urges government to loosen nation’s purse strings as finances tighten with the tax take down
Failure to pass the ฿500 billion borrowing decree could lead to the dissolution of parliament
Industry leaders and central bank all warn that foreign tourism must return to avoid a collapse
Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019
Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis
Challenge of the virus and closure to tourism leads to major long term changes in the Thai economy
Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries
Strengthening baht predicted as investors bet on a reopening of Thailand to mass tourism in 2021
Thailand facing a credit crunch as 3rd virus wave craters the kingdom’s economic recovery plans
3rd virus wave now spells not just economic loss but financial danger as kingdom’s debt level rises
Still time to avoid lockdown says Health Minister as 3rd virus wave dwarfs all infections to date
Thai economy is still in reverse despite rising confidence and a virus threatening a 3rd wave
Reopening of Phuket still not officially approved although it is the ideal test for a broader move
Minister urged not to be afraid to borrow in 2021 as fears grow for a quick foreign tourism revival
Economy to rebound as the year progresses driven by exports and a return of mass foreign tourism
Door closing on quick foreign tourism return as economic recovery is delayed to the end of 2022
Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019
Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis
Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries
