Thailand’s record current account deficit sparks debate

Thailand’s record current account deficit has opened a debate over whether the country is facing a temporary external shock or a deeper structural shift that could reshape investor confidence in the economy.

The Bank of Thailand said the current account deficit in April reached US$7.6 billion, the highest level on record. The figure surpassed the previous peak deficit of US$4.1 billion recorded in April 2013.

Chayawadee Chai-Anant, assistant governor for corporate relations at the Bank of Thailand, said the central bank viewed the latest deficit as temporary and not yet a sign of structural economic weakness.

Her remarks came after Dr Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group, warned that Thailand’s current account balance, long seen as one of the country’s key economic strengths, was showing signs of weakening.

For years, Thailand’s current account surplus helped support the baht and gave the country a degree of resilience during periods of global capital volatility. The surplus reflected the fact that Thailand earned more from exports of goods and services than it paid out to the rest of the world.

Pipat said that buffer had become thinner since the Covid-19 pandemic, raising the possibility that Thailand could be entering an era of current account deficits.

Four warning signs behind the shift

Pipat pointed to four key factors that could change the way investors view Thailand’s external stability.

Thailand’s export competitiveness is weakening: Thailand was once known as the “Detroit of Asia” and relied heavily on exports of cars, petrochemicals and industrial goods.

However, Pipat said recent trade figures showed that even though exports grew by double digits, Thailand still posted a trade deficit of more than US$10 billion, the highest on record.

More worrying, he said, was that even after excluding oil and energy costs, the trade balance remained in deficit, suggesting that Thai-made goods are finding it harder to compete with rivals, particularly China, on technology and price.

The services balance is no longer as strong as before: Tourism has traditionally helped offset Thailand’s trade deficits. However, Pipat noted that even as foreign tourist arrivals have almost recovered to pre-pandemic levels, the services balance has not returned to the same strong surplus seen before Covid-19.

He cited higher transport costs paid to foreign operators as trade volumes increase, as well as a growing “digital deficit”, with Thai consumers and businesses increasingly paying foreign platforms for services such as Netflix, Spotify, iCloud, artificial intelligence tools, Facebook and Google advertising, and overseas digital marketplaces.

New investment brings heavy imports: Thailand has seen rising investment interest, including major global technology companies investing in data centres and cloud services.

While these projects are positive for long-term development, Pipat said they also carry a high import content of about 80-90% in the early construction phase.

Thailand must import servers, computer chips and cooling systems, adding pressure to the trade balance. He noted, however, that these imports are largely financed by foreign direct investment, meaning the pressure may ease if such investment slows.

High global energy prices add short-term pressure: Thailand remains heavily dependent on imported energy, while gas output in the Gulf of Thailand has been declining.

Higher global oil and natural gas prices therefore inflate Thailand’s import bill and put further pressure on both the trade balance and current account.

Risk of a ‘dual deficit’

Pipat warned that if the current account deficit proves to be more than a temporary phenomenon, it could become a major turning point for Thailand’s economic image.

The concern is that Thailand could be seen as facing a “dual deficit”, where a current account deficit occurs alongside a fiscal deficit. In investor terms, that could signal that the country is both spending more than the government collects and relying more heavily on external funding.

He said such a shift could affect Thailand in two main ways:

• Higher risk of capital outflows: Foreign funds in Thailand’s stock and bond markets could become more likely to leave if investors see the country as carrying higher risk.
• A structurally weaker baht: The baht, once supported by consistent current account surpluses, could become more vulnerable to depreciation and volatility.

Pipat said a weaker baht may help price competitiveness in some areas, but warned that it would not be enough if Thailand’s economic engines remain unchanged.

He said the country needs to improve competitiveness and move towards technology that creates higher value.

BOT says deficit is temporary

The Bank of Thailand offered a calmer assessment, saying the record deficit did not yet point to a crisis or structural weakness.

Chayawadee said the latest deficit was mainly driven by two temporary factors:

• Higher import prices, especially oil, together with increased import volumes as Thailand built up oil reserves.
• Lower tourism revenue, caused by the impact of the Middle East war on travel demand.

The central bank expects the deficit to gradually ease and return to normal if the war situation improves around the middle of the year and tourism receipts recover towards the end of the year.

On concerns about a dual deficit, Chayawadee said Thailand’s fiscal deficit in recent years reflected government measures to stimulate and support the economy during periods of crisis.

She added that the current account deficit would become more worrying only if it turned into a structural problem, such as a permanent loss of tourism competitiveness.

The Bank of Thailand also viewed recent baht volatility as a reflection of external uncertainty rather than a structural weakness in the Thai economy.