21 July 2024

Thailand’s prolonged political crisis and poor management of the economy over the past few decades have taken a huge toll on the country’s growth.

The Thai economy grew just 1.5 per cent in the first quarter of this year after having expanded 1.7 per cent in the fourth quarter of last year and 1.9 per cent for the full year in 2023, according to state-owned think-tank National Economic and Social Development Council.

The country has been bogged down by sluggish growth for decades since the 1997 financial crisis. 

Budget woes

One of the major causes of the stagnation this year has been the time lag in disbursement of the fiscal 2024 budget due to the delay in its passing by Parliament, which led to a decline in public spending.

A political deadlock after the general election in May 2023, which did not give any party a clear majority, led to a delay in the formation of a coalition government.

The Move Forward Party, which won the most seats in the lower House and tried to put together a coalition, was blocked by the establishment elite who became the core political force after the military coups of 2006 and 2014.

Critics have blamed a deep state as being really in charge of the country, which has had a domino effect on economic management, especially on how budget is allocated.

The public and opposition parties could cry hoarse over budget allocations to the Defense Ministry and related organizations but could change almost nothing.

Moreover, politicians and academics cannot vigorously check how the budget is allocated to support the Monarchy institution due to the controversial lese-majeste law: Article 112 of the criminal code and the judicial system have been blamed for reining in freedom of expression despite this basic right being enshrined in the Constitution.

Apart from a lack of transparency in budget allocation, there is also a structural issue, ballooning of the current spending (such as on salary, healthcare insurance and pension fund for state officials) at the expense of capital spending.

Year after year capital spending has been getting squeezed, accounting for just about 20 per cent of the total outlay.

Many economists have blamed low investments both by the public and private sectors in the post-1997 Asian financial crisis as being responsible for the long period of sluggish economic growth.

One palpable weakness of the private sector is that though the number of small and medium-sized enterprises are 97 per cent, their combined revenue represents just a little over 10 per cent and their revenue is on a declining trend, said Somprawin Manprasert, chief economist at the SCB Economic Intelligence Center. 

In contrast, the 3 per cent of large firms have a combined revenue of over 80 per cent.

He also raised questions of red tape making the starting of a business costly, as entrepreneurs have to seek licenses from multiple ministries and government departments.

Foreign investors in Thailand also face fast-changing developments in the global supply chain and technology.

Some multinational firms have gone out of business because their products became outdated in the market, which also impacted Thailand’s exports, said Somprawin.

Left behind in auto race

One example is the uncertainty facing the auto industry. Thailand used to be called the “Detroit of Asia”, but its auto market has recently been overtaken by Malaysia.

Auto sales in Malaysia have overtaken Thailand for three consecutive quarters up to the first quarter of this year, according to Nikkei Asia. Thailand’s ranking has dropped to third place as Indonesia has become the largest market in Asean.

The decline in Thailand’s auto market is primarily due to slower economic growth coupled with high household debt, as more and more families could not make ends meet.

Thailand’s household debt has risen to a perilous 91 per cent of GDP.

While Thailand has suffered from slower economic growth, other Asean countries continue to outperform. 

Indonesia, the largest economy in Asean, grew 5.1 per cent in the first quarter of this year after expanding 5 per cent in 2023.

Malaysia’s economy  grew 4.2  per cent in the first quarter and 3.6 per cent in 2023. The Philippines economy expanded 5.7 in the first quarter this year and 5.5 per cent last year and Vietnam rose 5.7 per cent and 5 per cent respectively.

Vietnam and Malaysia have been successful in attracting high technology investment such as semiconductors.

While Indonesia has rich reserves of nickel that are essential for battery and electric vehicles.

Thailand could draw foreign direct investment from Chinese EV-makers, but many critics worry that Thailand may not benefit much from Chinese investment as they bring in their own supply chains.

Some critics, however, are speculating that the decision by the United States to impose 100 per cent tariffs on electric cars made in China could make Thailand more attractive to serve as an EV manufacturing base.

Krisda Utamote, president of the Electric Vehicle Association of Thailand, believes that local firms engaging in the manufacturing of car parts could benefit from Chinese investment, but he was not sure Thailand would benefit from the trade row between the US and China that has resulted in high tariff rates on Chinese cars entering the US market.

To lift the reeling economy, past and current governments have tried to promote new S-curve industries in order to catch up with other Asean countries, but the outcome remains to be seen.

By Thai PBS World’s Business Desk