Thailand’s economic crisis feared amidst digital wallet dispute

The Bank of Thailand and the government have been at odds for months, with tensions escalating last week when the Monetary Policy Committee (MPC) kept interest rates at 2.5% despite political pressure for a reduction. This disagreement came to the fore during discussions about the digital wallet scheme, a 560 billion baht (US$15.58 billion) project which the central bank has urged caution over.

A poll conducted by the National Institute of Development Administration (NIDA) revealed that 68.8% of respondents wouldn’t be upset if the project was abandoned, while Deputy Prime Minister Phumtham Wechayachai remains committed to the scheme. He argued it is essential for reviving the economy and warned that a crisis akin to the 1997 Tom Yam Kung crisis could occur without some form of stimulus.

This has led to speculation within the private sector about an impending economic crisis, with some suggesting that the government should explore alternative measures rather than sticking to the digital wallet scheme.

President of the Federation of Thai SMEs, Sangchai Theerakulwanich, added to these concerns by stating that an economic crisis in Thailand is likely due to a combination of internal and external factors within the financial sector. He singled out the issue of non-performing loans (NPLs), particularly within the automotive industry, as a potential trigger for an economic crisis.

The trend of rising NPLs, some of which are pandemic-related, is causing anxiety among banks and businesses. In 2023, NPLs in the banking sector amounted to 500 billion baht, as per Bangkok Commercial Asset Management. Sangchai indicated that many small and medium-sized enterprises (SMEs) are experiencing a liquidity crunch and are unable to secure loans.

The fear of increasing NPLs forced banks to introduce stricter auto lending criteria, resulting in a year-on-year drop of 31.8% in domestic sales of pure pickup trucks in 2023. The Federation of Thai Industries expects this trend to persist in 2024, reported Bangkok Post.

Economic anxiety

Sangchai also highlighted other negative factors, including higher production costs in the manufacturing sector and Thailand’s import value from China significantly exceeding its export value.

He suggested that businesses, particularly SMEs, could manage their finances better if the central bank reduced the policy rate and improved the regulation of loan rates set by commercial banks.

On the other hand, Aat Pisanwanich, senior consultant at International Research Consultant Co Ltd, argued that the economy is not in a crisis similar to 1997, which led to the closure of 56 financial institutions and negative growth.

Amonthep Chawla, chief economist of CIMB Thai Bank (CIMBT), believes that Thailand’s economic growth was lower than expected at 1.5% year-on-year in the fourth quarter of 2023, and the rate is expected to decrease on a quarter-on-quarter basis.

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, and Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce (UTCC), both believe that the likelihood of Thailand facing a crisis similar to the 1997 disaster is minimal.

Finally, Maybank Investment Banking Group maintained its GDP growth forecast at 3.2% for 2024, despite the central bank’s decision to hike rates in September 2023. They believe that the new measures put in place to encourage responsible lending would help to contain these risks.