Thailand's Economic Revival: Finance Ministry and Central Bank Unite to Tackle Growth Crisis

 

 

Deputy PM likens struggling economy to 'old car stuck in pit' as officials unveil ambitious structural reform programme.

 

 

Thailand's economic leadership has unveiled a comprehensive strategy to revive the nation's flagging growth, with Deputy Prime Minister Ekniti Nitithanprapas painting a stark picture of an economy trapped by structural weaknesses and regulatory gridlock.

 

Speaking at the CEO Day event organised by Krungthep Turakij on Thursday, Dr Ekniti employed a vivid metaphor to describe Thailand's economic predicament, comparing it to an "old car with an old engine" stuck in a pit for 10 consecutive quarters.

 

"The Thai economy is like an old car with an old engine because we haven't invested," Dr Ekniti told business leaders. "The driver is old because Thai people are entering an aging society; this year, 20% of the population is over 60. Their income disappears after retirement, and consumption drops."

 

The economy is projected to grow by a mere 1.5% this year, down from 2.2% the previous year and significantly below the country's estimated potential of 2.7%. 

 

 

 

This anaemic performance comes despite Thailand once boasting growth rates of 4-5% when investment represented 40% of GDP, compared to approximately 23% today.

 

 

 

Export Engine Stalls as Multiple Headwinds Converge

Bank of Thailand Governor Vitai Ratanakorn outlined the scale of the challenge facing policymakers.

 

Export growth, previously a robust 12.8%, is expected to plummet to just 0.6% this year. 

 

Meanwhile, government spending has been hampered by caretaker status and budget delays, reducing GDP by approximately 0.2 percentage points.

 

While tourism shows improvement with an estimated 35 million arrivals expected, it remains insufficient to offset losses in other sectors.

 

 

 

Perhaps most puzzling to observers has been the persistent strength of the baht despite weak economic fundamentals. 

 

Vitai explained that the currency is influenced by three forces: fundamental factors including unexpected current account surpluses, market activity particularly in gold trading, and central bank intervention.

 

 

 

Gold Trading Emerges as Unexpected Currency Driver

A significant revelation from the briefing concerned the outsized impact of gold trading on the baht's value.

 

On certain platforms, gold transactions account for between 45% and 62% of dollar sales, substantially driving up the currency's value and undermining export competitiveness.

 

"On days the Baht is very strong, we found it comes from the sale of dollars for gold," Vitai noted. "People with gold apps sell gold, get dollars, and buy Baht. In August, this accounted for 62% of dollar sales."

 

In response, the Ministry of Finance has issued a new announcement allowing the Bank of Thailand to require gold shops to report their transactions, enabling better monitoring of currency flows.

 

 

The officials also addressed concerns about "grey money" – illegal capital that impacts the currency, often funnelled through digital assets such as Bitcoin to avoid detection. 

 

Vitai revealed that 60% of baht transactions occur offshore, complicating monitoring efforts, though the central bank is expanding its investigative capabilities.

 

"Criminals, hackers, and scammers, when they hack, they take money through digital assets like Bitcoin because it can't be tracked," Dr Ekniti explained. "We are seeing digital assets traded outside the country linking back inside."
 

 

 

 

 

 

Ambitious Debt Relief and Investment Programmes

Central to the revival strategy is the "Debt-Free, Moving Forward" project, a collaborative initiative between the government and the Bank of Thailand.

 

The programme will transfer approximately 1.1 million non-performing loan accounts under 100,000 baht to Sukhumvit Asset Management (SAM), enabling citizens to restructure their obligations and regain access to credit.

 

"These are social problems for low-income and poor people," Vitai emphasised. "We are giving them a chance to return to the economic system."

 

The officials also highlighted the BOI Fast project, designed to unlock 480 billion baht in pending investments by streamlining approvals for 78 key projects.

 

Dr Ekniti suggested this initiative alone could significantly boost next year's growth beyond the current 1.5% projection.

 

 

 

 

Structural Reforms Target Long-Term Competitiveness

Addressing Thailand's demographic challenges, Dr Ekniti announced plans to utilise Section 17 of the Labour Act to grant special privileges to highly skilled foreign workers, helping offset the country's shrinking workforce.

 

"The Thai population will get smaller and smaller. We must bring in talented people," he stated. "Why can we facilitate labour from Myanmar or Laos, but not someone earning 1 million?"

 

Additional initiatives include pushing for Direct Power Purchase Agreements to provide clean energy – now a requirement for global companies considering investment in Thailand – and implementing a "Skill Bridge" reskilling programme to align workers with modern industrial needs.

 

The Deputy PM acknowledged that Thailand's reliance on outdated industrial models and fossil-fuel technology, combined with tens of thousands of redundant regulations creating "frequent traffic jams", had contributed to the economy's malaise.

 

 

 

 

Central Bank Expands Mandate Beyond Traditional Stability Role

Perhaps most significantly, Vitai announced that the Bank of Thailand is expanding its role beyond maintaining macroeconomic stability to actively leading structural reform efforts.

 

"Structural problems cannot be solved with the policy interest rate," he explained. "It can stimulate consumption or investment slightly, but structural problems require measures. We are expanding our role to be a leader in solving structural problems."

 

The governor defined the bank's new approach using four values: "Standing straight, looking far, reaching out, and working together."

 

He also addressed criticism of the central bank's monetary policy stance, noting that Thai interest rates are the third lowest globally, behind only Switzerland and Japan. 

 

"Lowering rates gradually allows people to pay off the principal more effectively," he argued.

 

 

 

The panel concluded with officials emphasising their "Connect the Dots" strategy, which includes establishing a data bureau to link information between the Bank of Thailand, the Securities and Exchange Commission, and the Ministry of Finance to better track illegal capital flows.

 

Whether these ambitious reforms can successfully "lift the car out of the pit", as Dr Ekniti hopes, remains to be seen. What is clear is that Thailand's economic leadership has moved beyond mere analysis to active, coordinated intervention in pursuit of revival.