2023 has not been a stellar year for the Thai economy. The Bank of Thailand was projecting GDP to grow by 3.6 percent for the year, but that figure was later revised down to 2.8 percent. This is mostly because Thailand’s economy is built around exports of goods and services, especially tourism. Since 2021, policymakers have been hoping that a robust revival in the tourism sector would power a post-pandemic economic recovery. But the surge of inbound tourists has not materialized at the scale imagined, with global demand remaining weak.
In 2019, Thailand recorded $59.8 billion in tourism exports. Through the first six months of 2023, that figure was $14.9 billion, which means the tourism industry is on pace to generate about half the amount of foreign exchange it did in the pre-pandemic days. For most countries in Southeast Asia, a $30 billion tourism industry would be considered quite good. But in Thailand, given the heavy lifting this sector is expected to do for the entire economy, it is not enough.
To jump-start the economy, Prime Minister Srettha Thavisin has announced he and the new governing coalition will move forward with a controversial plan to stimulate consumption by giving tens of millions of people a one-time digital cash voucher worth 10,000 baht (about $286). The total stimulus will be 500 billion baht, or $14 billion. The government, after some hand-waving, finally admitted it will need to borrow to fund this voucher program.
As I wrote a few months ago, this could signal a big shift in Thailand’s economic thinking and policymaking. It indicates the government wants to start breaking away from its heavy dependence on exports and rebalance economic activity more toward consumption. But not everyone agrees that a one-time cash giveaway is the best way to do that.
Economists have warned that the program could be inflationary, while also being inefficient and fiscally imprudent. The government was on track to bring the deficit under 3 percent of GDP in 2023 and 2024, after having to run big deficits during the pandemic. Borrowing an additional 500 billion baht to fund the stimulus would push the deficit above 3 percent and probably closer to where it was during the pandemic.
The ultimate goal here is to increase the purchasing power of Thai consumers by putting cash directly into their hands. And running deficits to stimulate economic activity can be good policy, especially if the economy is lagging. But there might be better ways for Thailand to rebalance growth.
The most obvious is to increase income levels for the long-term. A one-time payment is temporary, but permanent wage increases will boost purchasing power in 2024 and beyond. Moreover, it shifts the burden of raising purchasing power from the government and onto the businesses that employ Thai workers.
Another way would be to tackle Thailand’s high levels of consumer debt. When consumers see a reduction in their debt it gives them more disposable income to spend on goods and services, which is exactly what the government wants. As with higher wages, this would increase the purchasing power of consumers while forcing creditors like banks to absorb most of the cost, as opposed to the government.
There are plans being mooted to address some of these issues, but they don’t seem very extensive. There is, for instance, a plan in the works to pause payments for indebted farmers. But that appears to be a moratorium, rather than long-term relief. Pausing debt payments for a few months will not solve the overall consumer debt problem, just as a one-time cash stimulus will not solve the long-term issue of low wages and constrained purchasing power.
When we talk about rebalancing economic growth away from exports and toward consumption in a sustainable, long-term way these two things (higher wages, less debt) will be much more important than a one-time cash stimulus payment. Most of the conversation has been centered on the digital wallet plan, but the real measure of Thailand’s economic rebalancing act will hinge on how serious and effective the government is when it comes to tackling these deeper structural issues.