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A proposal to distribute handouts totalling $14bn has ignited a months-long dispute between Thailand’s new leader and the country’s central bank governor over a crucial question: whether south-east Asia’s second-largest economy is in crisis.
Prime Minister Srettha Thavisin has said that “people are suffering” and high interest rates are damaging the economy. He is urging parliament to approve a plan to give one-off payments of 10,000 baht ($280) to about 50mn low-income citizens via a digital wallet.
The handouts — a cornerstone campaign pledge for Srettha’s party — are needed to spur spending, support business and jump-start an economic recovery, according to the prime minister.
But Bank of Thailand governor Sethaput Suthiwartnarueput has demurred, arguing that there is “no crisis” and criticising the digital wallet and other “short-term” stimulus policies in place of long-term structural changes such as improving productivity to support the country’s ageing population.
“This has to be one of the few world leaders trying to convince the population that the economy is worse than it is,” said Peter Mumford, south-east Asia head for Eurasia Group.
“The prime minister and central bank being at loggerheads over the future of the digital wallet policy makes it incredibly difficult for anyone trying to forecast what is happening to the economy,” he added.
The dispute underscores Thailand’s precarious position as it seeks to navigate an exit from pandemic doldrums. The government, which is targeting annual growth of 5 per cent over the next four years, said last month that the economy expanded just 1.8 per cent in 2023, lower than the previous 2.5 to 3 per cent estimate by the central bank.
Growth has trailed regional peers and consumer prices have contracted for four straight months, falling 1.1 per cent in January, according to figures released on Monday. But the central bank, which holds its first rate-setting meeting of the year on Wednesday, has kept its policy rate at a decade-high of 2.5 per cent, anticipating a pick-up of tourism and spending this year.
For Srettha, a former real estate magnate who also serves as finance minister, the digital wallet is a centrepiece of his Pheu Thai party’s pitch to improve Thailand’s fortunes after the party came second in elections last year.
Pheu Thai abandoned an anticipated coalition with Move Forward, the runaway winners, over the latter’s vow to reform Thailand’s military and monarchy. It struck a deal instead with its military-backed foes who had ruled the country since a coup in 2014.
“Srettha came to power promising faster economic growth, so to some extent the legitimacy of his government depends on delivering it — or being lucky,” said Mumford. “The digital wallet is his flagship policy to achieve that.”
Most citizens appear to agree that the economy is struggling. Almost 64 per cent of respondents to a recent survey by the National Institute of Development Administration said there was an economic crisis requiring immediate attention.
But the e-wallet has been plagued by questions over how to pay for it and its rollout, once scheduled for February, has been pushed back to May or beyond.
Critics argue that a huge fiscal injection would be irresponsible. DBS, the Singaporean bank, estimated that funding the digital handout by borrowing could push the government deficit to more than 5 per cent in the 2024 fiscal year.
The central bank — which is also grappling with challenges such as household debt that rose as high as 90 per cent of gross domestic product last year — had been “pre-emptive” in seeking to stamp out inflation, said Siddharth Mathur, BNP Paribas’s head of macro strategy and emerging markets research for Asia-Pacific.
The bank “decided to get interest rates back to neutral from extremely accommodating and . . . they were confident the economy would get there”, he said. “But the economy has taken maybe a little longer . . . than the Bank of Thailand would have expected. Hence the slight disconnect.”
Analysts point to signs of recovery. Tourism, which makes up about 12 per cent of GDP, was hard hit by Covid-19 travel restrictions but — helped by new visa waivers — the number of Chinese visitors returned to 50 per cent of 2019 levels in December, the highest since the pandemic.
Exports also rose for a fifth straight month in December, though at a slower pace than expected.
Fitch Ratings has forecast 2024 growth of 3.8 per cent, which could rise to 4.5 per cent with the e-wallet, said analyst George Xu.
Thailand’s economy has not “fully recovered from pandemic shock” but “is regarded as bottoming out now”, said Xu. He added that the digital wallet could “give a shortlived boost, but it does not address structural headwinds including an ageing population”.
In response to questions from the Financial Times, Thailand’s foreign affairs ministry said it could not comment on the digital wallet because of delays to the plan’s implementation as well as possible adjustments.
Thai stocks have sunk to a three-year low, and the baht has dropped 4.6 per cent against the greenback this year.
Markets broadly “want to see government spending”, said Kae Pornpunnarath, head of equity research for Thailand at JPMorgan.
“Both monetary policy and government spending are important drivers of the economy,” added Pornpunnarath. The prime minister and central bank governor “will eventually find common ground”.
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