Capital misallocation keeps Thailand below growth potential

Bank of Thailand (BOT) Governor Vitai Ratanakorn has identified the misallocation of capital and other resources as a major structural weakness preventing the Thai economy from reaching its full growth potential.

Speaking at The INTANIA Forum: Surviving under the New World Order at Chulalongkorn University’s Faculty of Engineering in Bangkok on Friday (July 31), Vitai called for reforms that would direct more funding towards efficient businesses, particularly small and medium-sized enterprises.

He told the forum that the former economic order, driven by globalisation, free trade and the pursuit of maximum efficiency, had undergone a fundamental change.

The world had entered what he described as a “multi-world” era in which no single power could determine the global direction. Geopolitical competition had expanded into geoeconomics, with tariffs and other trade measures increasingly deployed as instruments in struggles for influence.

Global shocks were also becoming more frequent, with examples including the Covid-19 pandemic, the war in Ukraine, trade disputes and conflicts in the Middle East.

Thailand therefore needed an economy capable not only of remaining resilient but also of absorbing shocks, adapting to new circumstances and continuing to move forward, Vitai explained.

Structural economic reform would be essential, particularly in addressing resource misallocation, which he identified as a drag on productivity and the country’s potential GDP.

Capital remains concentrated in large companies

Vitai pointed out that Thailand does not face a shortage of capital. The central bank currently absorbs about 5–6 trillion baht in liquidity each day through various channels.

However, much of that money is not reaching the country’s most efficient businesses, leaving economic growth below its potential.

More than 75% of available capital is allocated to large companies, while SME lending has recorded negative growth for 15 consecutive quarters. Even among SMEs ranked in the top 30% for efficiency, only 21% have access to credit, compared with 63% of large businesses.

The gap in financing costs further restricts competition, he added. Efficient SMEs pay an average interest rate of 7.8%, while large businesses face rates of about 3.9%. As a result, smaller businesses with the capacity to expand are constrained by both high borrowing costs and limited access to funding.

Vitai proposed developing a large-scale database that would allow lenders to assess borrowers more accurately, reduce credit risk costs and lower both lending and operating expenses.

The system would not function as a conventional credit bureau. It would bring together credit records, bank statements, water and electricity consumption data, and other alternative information to provide a broader assessment of each borrower’s potential.

He noted that the initiative is aligned with government policy, with Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas leading the effort through the Connect mechanism established by the prime minister.

Successful implementation would allow financially disciplined individuals and SMEs without sufficient collateral to obtain more credit at appropriate costs.

“If we allocate resources to more efficient business units, the Thai economy will improve, productivity will rise and potential GDP will increase,” Vitai stated.

Grey money drains resources from the formal economy

Vitai also identified grey capital and the informal economy as major problems because they divert resources away from productive economic activity.

He described Thailand’s informal economy as the 14th largest in the world, with grey economic activity estimated to account for about 9–13% of the economy. These activities prevent the government from collecting tax revenue and stop money from flowing back into the public budget system.

The BOT has begun closing several loopholes. Explanations are now required for cash withdrawals exceeding 5 million baht a month after the authorities found that old-series 1,000-baht banknotes worth about 140 billion baht had disappeared from the banking system.

The central bank is also monitoring gold transactions conducted through mobile applications because of their effect on the baht.

Measures covering gold transactions have begun to produce results, Vitai explained. Traders handling transactions worth more than 50 million baht on each platform must submit reports, while withdrawals of more than two kilogrammes of gold bars must also be disclosed.

Following the introduction of the requirements, suspicious gold withdrawals fell from almost 20 billion baht a month to between 2.5 billion and 3 billion baht.

The BOT also found that 40% of the USDT transactions it examined appeared suspicious. These involved funds being transferred outside the formal financial system or sent abroad, with their total value exceeding 250 billion baht over five months.

More than 2,500 mule accounts and accounts linked to online gambling have also been closed.

Vitai concluded that reforming resource allocation by directing more capital towards efficient SMEs, lowering borrowing costs and removing grey capital from the system would improve productivity and raise Thailand’s potential GDP.

Such reforms would also leave the Thai economy better equipped to absorb shocks arising from the changing global order.

Source: Bangkokbiznews