Thailand’s first twin deficit in nearly a decade to hit the baht

BANGKOK, Aug.21 (Bloomberg): Thailand is heading for a rare current account deficit this year as the country misses billions of dollars earned from tourism, likely increasing pressure on the country’s already battered currency.

Southeast Asia’s second-largest economy could post a current account deficit of $ 10.3 billion, or 2 percent of gross domestic product, the first deficit since 2013, according to estimates by the National Economic Council and development.

Add to that a budget deficit exceeding 10% of GDP for the 12 months through September, it’s a double blow to the baht, which was on a watch list of U.S. manipulators earlier this year.

The turnaround for Asia’s worst performing currency this year echoes the damage the pandemic has wrought on the Thai economy. As the nation reeling from the deadliest phase of the Covid epidemic so far, authorities have imposed growth restrictions on businesses and travel.

This has hurt any chances of a rapid recovery and plans for a wider reopening of borders to foreign visitors, which contributed more than $ 60 billion to the economy before the pandemic.

“Thailand’s weak growth prospects, especially given its reliance on tourism, have soured sentiment towards the baht,” said Dhiraj Nim, forex strategist at Australia & New Zealand Banking Group Ltd. “Its usual current account surplus has also turned into a deficit in recent months, eroding support for the currency.

The baht has fallen 10.2% this year to trade near a three-year low and is on course for its biggest annual decline since 2000, according to data compiled by Bloomberg. According to the Bank of Thailand’s monetary policy committee, more losses and volatility could be in store for the baht due to domestic factors.

Deteriorating growth prospects and the raging epidemic prompted foreign investors to withdraw $ 3.34 billion net from Thai stocks, weighing even more on the currency. The Bank of Thailand sees downside risks to its 0.7% GDP forecast for this year and Gov. Sethaput Suthiwartnarueput this week called for 1,000 billion baht in additional government spending to cushion the blow from the pandemic to the economy.

The government does not see the need for additional borrowing to tackle the epidemic as a previously approved 500 billion baht debt plan is adequate, the Bangkok Post the newspaper reported on Friday, citing Finance Minister Arkhom Termpittayapaisith.

Dented recovery

While Standard Chartered Bank Plc expects Thailand’s economy to contract for a second year in a row amid the bumpy recovery from the pandemic, Nomura Holdings Inc. sees the country’s current account deficit last at least until at least. in the second quarter of 2022. Both banks expect that The Bank of Thailand will cut interest rates at its next meeting in September.

Nomura expects the baht to weaken to 34 per dollar in the near term, supported by a more growth-friendly central bank expected to lower its policy rate and a larger current account deficit due to the weak outlook tourism, according to economists led by Charnon Boonnuch and Euben. Paracuelles said in a note this week.

While a lower baht is good for Thai exports, the central bank should be more active in tackling excessive volatility as the currency has fallen more than its regional counterparts, according to Kobsidthi Silpachai, head of capital market research. at Kasikornbank Pcl in Bangkok.

“The BOT may be forgetting about its managed float mandate,” Kobsidthi said. “Excessive currency movements are economically counterproductive because companies cannot plan and price their products and services properly. “

The budget deficit will climb to 10.1% in the year ending September, from 6.4% in the previous fiscal year, as tax revenue lags and the government borrows more to finance the revival of the virus , according to Nomura. The public debt-to-GDP ratio could be raised to 70% next month to meet the need to borrow more, he said.

The baht could also face risks from volatile global financial markets, especially as the U.S. Federal Reserve moves closer to a possible decline, ANZ’s Nim said. But “the ebb of pandemic cases may help reverse sentiment towards the baht,” he said. – Bloomberg

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