Finance Minister Pichai Chunhavajira met with the Bank of Thailand’s chief amid weak economic growth and concerns from a Fitch research house about falling foreign investment and tourism revenue. Despite a two-hour meeting, fundamental disagreements on interest rates and credit access remain.
A clearing of the air occurred on Thursday between the Ministry of Finance and the Bank of Thailand with a high-level meeting at the central bank. It comes amid anaemic growth in the economy as economists await confirmed quarter-one GDP data. The figures will not be pretty, with growth projected at between 0.7% and 1.2%. After a two-hour meeting, Minister of Finance Pichai Chunhavajira declared that access to finance was more important than borrowing rates. His about-face comes as the Fitch research house BMI raised serious concerns a week ago about falling foreign direct investment in Thailand. At the same time, it also questioned the future prospects of Thailand’s foreign tourism sector, which has seen far lower revenue generated per tourist. Significantly, it also noted a lower current account surplus since the onset of the pandemic.
On Thursday, Minister of Finance Pichai Chunhavajira and Deputy Minister of Finance Paophum Rojanasakul were escorted into the Bank of Thailand secretly to avoid the glare of the media.
The ministerial delegation came to address the differences between Thailand’s central bank and the government that, for weeks, has rattled financial markets.
The summit took place at the Bank of Thailand’s headquarters in the Phra Nakhon District of the capital.
Falling foreign direct investment in Thailand appears linked to the quality and spending power of the tourists being attracted to the kingdom since 2019
Indeed, the meeting came a week after Fitch Solutions, part of the Fitch Ratings agency, significantly raised questions about Thailand’s levels of foreign direct investment.
In addition, it noted a growing weakness within Thailand’s highly valued foreign tourism industry. Undoubtedly, in recent months, this sector has been seen as powering the economy forward.
The meeting between Mr Pichai and Bank of Thailand boss Sethaput Suthiwartnarueput lasted two hours.
At length, there was certainly a level of butting heads as both men brooked the fundamental disagreements that had arisen. In short, it has been the ministry’s opinion that interest rates should be lower, at least by 50 basis points.
Finance Minister Pichai emerged appearing to concede the heated argument over interest rate policy. Certainly, the ministry would not interfere any further
Nonetheless, at the end of the tête-à-tête, apparently, the 74-year-old Mr Pichai gave way to the 59-year-old central bank chief.
Afterwards, Mr Pichai underlined that the government would not intervene in such matters going forward. At the same time, he suggested that in 6 to 9 months the two men may review the country’s inflation rate.
At this time, the target set by the Bank of Thailand is in a range of 1 to 3%. In April, inflation came in at 0.19% after several previous months of deflation.
Presently, it comes amid anaemic economic growth. Data for the first quarter is now overdue.
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Simultaneously, analysts predict growth of between 0.7% and 1.2%. Furthermore, there is open speculation of a weaker performance in the second quarter.
Pichai raised the question of ‘flexibility’ relating to SME-type borrowers or small business concerns getting access to credit from commercial banks
Mr Pichai, however, said his primary concern was no longer the bank lending rate.
It was access to credit, particularly for small private-sector enterprises. The Finance Minister said such firms act like a dynamo and create a domino effect if they have access to capital.
‘The groups that still do not have access to credit are SMEs, households, people with debt repayment problems, people who have never applied for credit and need new credit, and those affected by the pandemic,’ said Mr Pichai.
Recent figures released for bank lending for the first quarter of 2024 showed commercial loans down by 5.7%, with bank overdraft facilities down 5%.
It comes in the midst of the Bank of Thailand driving a financial credit crunch as the central bank attempts to rein in the country’s household debt level.
In the last quarter of 2023, this was measured at 91.3% of GDP, a level which poses a risk to the country’s financial system.
Central Bank engaged in a ‘credit crunch’ to rein in borrowing and private sector debt across the board to temper Thailand’s serious household debt threat
Therefore, it is the key concern and preoccupation of the Bank of Thailand.
In the meantime, the bank has called on the government to address Thailand’s other structural problems. Significantly, the Thai central bank is supported in its view by international institutions such as the World Bank.
In December 2023, the latter warned that Thailand faces 20 years of slow and retarded growth because of the structural defects in the economy.
Chief among these is its ageing population, but the country is also afflicted by concerns about political instability, corruption, a subpar education system and proficiency in English.
On Thursday, Mr Pichai called for more credit to be made available to key sectors of the economy. He also said that Thailand’s economy has not yet recovered from the pandemic disaster between 2020 and 2022.
‘Even though the government has already implemented assistance measures, they still cannot return these groups to full strength. We need to see how we can improve on this issue for vulnerable groups,’ Mr Pichai told reporters.
In the meantime, he admitted that the interest rate level was a matter of minor importance to those seeking a financial lifeline.
‘Right now, we should focus on access to credit because I firmly believe between a 50-basis-point interest rate cut and the ability to access credit, what people prioritise above all is access to credit.’
Briefing reporters afterwards the Minister and Deputy Minister appeared somewhat satisfied although agreed there is still a difference of ‘perspective’
Afterwards, speaking with reporters, Deputy Prime Minister Pichai appeared satisfied.
‘Today we talked for almost 2 hours. I said that I want to do it for the business sector, especially SME entrepreneurs, small and household sectors, existing borrowers who still have problems or groups that have not yet recovered from COVID-19. It should be easier to access credit,’ Mr Pichai said. ‘The negotiations went well. Some points were discussed with the governor, and he has accepted them,’ he declared.
However, Deputy Minister of Finance Paophum Rojanasakul was more ambiguous.
Certainly, he agreed the discussions would see a clearer direction emerge for Thailand’s economic policy. The two main institutions understood each other better.
At the same time, he indicated that differences and tensions remain.
‘It may not be a complete understanding yet, but it should be clearer. I believe it will lead to a better direction,’ he explained.
Reorganisation of the Fiscal Policy Office
Deputy Minister Paophum is tipped to play a key role in the ministry. This minister has recently set out goals for the country’s Fiscal Policy Office to drive economic development.
On Thursday, he suggested different perspectives on how the ministry and the central bank view the economy. Therefore, there was an obvious need for dialogue.
‘When economic perspectives differ, the rates of acceleration and braking also vary. The best course of action is to engage in dialogue to ensure alignment in economic perspectives,’ said Mr Paophum. ‘If we align economic views, it will lead to similar policy accelerations for monetary and fiscal policies.’
BMI Research, a Fitch research house, has hard questions about the economy. Disturbing trend in foreign direct investment and faltering tourism income
Meanwhile, BMI Research, which is part of the powerful Fitch Ratings business organisation, has raised disturbing questions about the kingdom’s economy. It came in a report dated Wednesday, May 8th.
At length, it revealed that Foreign Direct Investment in Thailand has shrunk from 6.9% of GDP in 2013 to 2.8% last year.
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It squarely blames this on the country’s 2014 coup d’état and its chronic demographic problem, in short, its ageing population.
In particular, it questions the country’s foreign tourism industry development. In short, Thailand has seen significantly lower spending per tourist.
Bank of Thailand data suggests it is somewhere in the region of ฿30,000 compared to nearly ฿50,000 in 2019.
Unquestionably, this has been caused by the shift towards more short-haul foreign tourists from Asia.
Meanwhile, it should be noted that the Tourism Authority of Thailand (TAT) constantly quotes higher spending for incoming foreign tourists.
Fitch house scathing about Thailand’s tourism prospects
Nevertheless, the country is not projected to reach the 2019 arrival level this year. That year, 39.8 million foreign tourists visited Thailand. In 2024, it looks like it will be approximately 37 million. There has been a significantly lower number of foreign tourist arrivals during the low season period.
‘We believe tourism revenue may fall short of expectations, despite a potential increase in foreign arrival numbers,’ BMI, the Fitch research house revealed. ‘We do not think tourism revenue growth will return to trend anytime soon.’
At the same time, the financial research firm suggested a pickup in exports. It noted that 40% of Thailand’s exports were to Southeast Asia and the United States, economies which are growing.
Thailand’s current account surplus figures are well below the levels recorded from 2015 to 2019 which averaged out at 8% of GDP. The environment has changed
In conclusion, BMI suggested Thailand would end 2024 with a 2.9% of GDP current account surplus. Indeed, this was revised upwards from 2.6%.
However, from 2015 to 2019, the firm noted Thailand recorded an average 8% of GDP current account surplus.
These inflows were from tourists and investors in the kingdom. In brief, that well is drying up for Thailand as its attractiveness begins to dim.
Finally, the research house noted that Prime Minister Srettha Thavisin was focused on increasing foreign direct investment into the kingdom.
‘Prime Minister Srettha Thavisin has emphasised attracting foreign investors to the country. If he were to succeed, FDI inflows could pick up in coming years, lending some support to the currency. A recovery in tourism receipts would also widen the current account surplus,’ it reported.
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