Thai economy falters as high interest rates impact major sectors

The Thai economy has taken a hit, with government revenue collections falling short of the target. Lavaron Sangsnit, the permanent finance secretary, attributed the shortfall to high interest rates, which have significantly reduced the purchasing power of consumers, impacting major sectors such as automobiles and real estate.

Consumers, particularly those interested in purchasing cars or homes, have found their ability to meet monthly loan repayments affected by to high-interest rates, according to Lavaron. This has led to loan rejections by financial institutions. Consequently, there has been a decline in car and property transfers, leading to a reduction in government tax revenue.

Lavaron proposed that reducing interest rates could help revive the economy and demonstrate clear government support. He warned that if the economy continues to falter, additional financial resources will be needed to stimulate growth.

Addressing concerns about capital outflows due to lower interest rates, Sangsnit said this should not be a major concern. He noted that if capital was to flow out, it would likely have done so already, considering the longstanding disparities in policy rates between Thailand and the US.

On the topic of potential inflation due to interest rate cuts, Lavaron said there are no signs of inflation in Thailand. He pointed out that an interest rate reduction today might not have an immediate economic impact, as it could take more than six months to manifest.

In a recent report by the Fiscal Policy Office (FPO), state revenue collection for the first four months of fiscal 2024 was found to be below target, mainly due to a significant decrease in oil taxes. The government collected a net revenue of 824 billion baht (US$23 billion) in this period (October 2023 to January 2024), which is 8.84 billion baht (US$245 million) or 1.1% lower than projected.

This shortfall is attributed to a decrease in the diesel and gasoline tax rates during this period. On an annual basis, the state’s net revenue in the first four months of the fiscal year fell by 14.9 billion baht (US$414 million), or 1.8%, year-on-year, reported Bangkok Post.

The FPO noted that an additional 36.6 billion baht (US$1 billion) in special government income recorded during the previous fiscal year resulted in an elevated baseline. If this special income is excluded, revenue collection in the first four months of this fiscal year would show a growth of 2.7% year-on-year.