Remembering a year to forget
government formation, had prompted the Monetary Policy Committee (MPC) to ease monetary policy as weak economic growth loomed.
One rate cut was not enough. The MPC again trimmed the rate to match the record low of 1.25%, on a 5-2 vote.
The market thought the move was akin to killing two birds — boosting economic growth impetus and curbing baht gains — with one stone, as the decision was made at the same time as measures to rein in the currency’s rise.
Although the policy rate is at a record low and Mr Veerathai said policy rate transmission is less efficient than in the past, the central bank signalled that it was gearing up to act if the economy slows further.
The market is now divided on whether the central bank will further ease monetary policy next year. Some bet that the rate will be kept unchanged in 2020, given that the aggressive rate cuts could fuel private-sector and individual credit bubbles; others predict only one more cut down the road.
BRAWNY BAHT
As Thailand’s economic growth falters and offshore capital flows out of bond and equity markets, the baht is the top-performing currency in Asia. Global investors perceive the baht as a safe haven given the country’s current account surplus and hefty foreign reserves, while capital inflows from exports and inbound tourism revenue also deliver a boost.
The baht is up about 7% against the US dollar this year, reaching a six-year high, compared with a 2-3% gain in the Philippine peso and the Indonesian rupiah. The local currency largely moved one-sided upward versus the greenback over the past few years.
The rapid rise in the baht exacerbates outbound merchandise shipments, which contracted 2.4% year-on-year in the first 10 months of 2019. The USChina trade spat and the global economic slowdown dented demand for export products, and consequently the export-reliant economy bears the brunt of tepid growth.
The Bank of Thailand unveiled a raft of measures and cut the policy rate to blunt the baht’s appreciation, but its impact appears to be short-lived.
Mr Veerathai said the baht was surging beyond the economy’s fundamentals and the central bank was concerned about its strength.
Given that capital inflows should be balanced against outflows to ease pressure on the baht, the central bank aims to radically overhaul the Exchange Control Act, which has been in place for more than 70 years, and is poised to change its outdated foreign reserve management whereby asset allocation is restricted to traditional asset classes.
Deputy governor Mathee Supapongse sounded a bearish note on the baht, saying the currency could still reverse its trend, and two-way movements vis-a-vis the dollar/baht are expected to increase next year as investors start to see an upside gain limit for the baht.
Jittipol Puksamatanan, chief strategist at Krungthai Bank, forecasts the baht to reach 28.70 against the dollar next year, while Kobsidthi Silpachai, head of capital market research at
Kasikornbank, sees the baht rising to 29.25 against the dollar by the end of 2020.
HOUSEHOLD DEBT
Thailand is among the Asian nations with high household indebtedness, and the elevated debt load is weakening domestic consumption.
Household debt in the second quarter amounted to 13.1 trillion baht, up 5.8% from a year earlier. The debt accounted for 78.7% of GDP.
According to the minutes of the MPC’s policy meeting in August, the rate-setters said the share of households sensitive to negative income shocks had increased, which could weigh on the ability of households to service their debts.
The central bank fears that further easing could encourage a rise in household borrowing and pose further risks to overall financial stability.
A study conducted by the central bank’s Puey Ungphakorn Institute for Economic Research, based on National Credit Bureau data, showed that debt per person of those 30 and older had increased and the level of debt was maintained even as they approached retirement.
The median average debt obligation for each person doubled from 70,000 baht in 2010 to 150,000 in 2016, and 16%, or 3 million people, failed to service debt with 90-days overdue.
The central bank has imposed a series of macro-prudential measures with the aim of keeping a lid on household debt, targeting vulnerable groups such as first-jobbers, retirees who continue to run up debt and those with low
repayment ability.
LTV CURBS
Deteriorating credit standards with a higher ratio of new mortgages with loan-to-value (LTV) rates exceeding 90% and a loan-to-income (LTI) ratio above five times making up nearly onethird, plus rising bad mortgage rates, all added up to fragility and vulnerability in the residential property market.
In response, the Bank of Thailand tightened the requirements for home loans in order to prevent the situation from snowballing into a property and credit bubble.
Under the current LTV rules, homebuyers starting from April 1 were required to make a minimum down payment for third and subsequent mortgages of 30% of the home price, with second mortgages set at 10-20%, depending on how long a borrower has made payments on the first one.
The LTV ratio of 90-100% remains unchanged for those who apply for a first mortgage to buy a home priced below 10 million baht, but the ratio is lowered to 80% when the borrower buys a residence valued at 10 million baht or higher.
The central bank has said that the new LTV rule managed to quell speculative behaviour in the property market.
On average, the LTV ratio for first mortgages was 88.7% in the third quarter this year, steady from 88.5% in the first quarter.
The LTV ratio for second mortgages fell to 81.7% in the third quarter from 88.9% in the previous quarter.
For the first nine months, first housing loan contracts for low-rise residential projects grew by 13.5% year-on-year, while high-rise projects were reduced by 1%, 26.2%, and 40.5% for the first, second and subsequent contracts, respectively.
But the tougher measures coupled with the stuttering economy have sent property sales into a tailspin.
To aid property developers, the government in October approved a property stimulus package consisting of a property transfer fee cut from 2% to 0.01% and mortgage fee reduction from 1% to 0.01%. The fee reductions apply to homes priced at no more than 3 million baht. They are effective from Nov 2, 2019 to Dec 24, 2020.
Moreover, officials later rolled out Baan Dee Mee Down, a 50,000-baht cash rebate programme to encourage people to buy homes.
Under the Baan Dee Mee Down scheme, homebuyers who receive a cash rebate of 50,000 baht must have a monthly income of no more than 100,000 baht or 1.2 million baht a year and must be taxpayers in the Revenue Department’s tax database.
The scheme is limited to the first 100,000 participants who meet the Finance Ministry’s criteria, apply for a mortgage loan between Nov 27, 2019 and March 31, 2020 and register between Dec 11, 2019 and March 31, 2020.
VISA EASE
Hassle-free travel is the key to tourism development and a main contributor to the overall appeal of a destination, which can lead to increased demand and sustained tourism performance.
Most countries in Latin America and the Caribbean have enjoyed remarkable growth in tourism, largely due to eased policies, notably visa policies and fees, travel regulations and taxes, and the relevant immigration processes and services, says the UN World Tourism Organization.
In Asia, many countries have drawn on the visa regime to push the tourism sector as a key revenue generator amid the economic slump. Different visa types have been introduced, including e-visas and visa on arrival (VOA), to help increase international arrivals and revive the industry.
To salvage the tourism sector, the government in late 2018 waived the 2,000-baht VOA fee after the China market fell off following the boat accident off Phuket in July 2018 that killed
The Palang Pracharath Party’s Thank You caravan hit the road after the March election.
46 Chinese tourists.
The decision underlined the importance of tourism, especially from China, which contributes about one-fourth of tourism revenue.
More than 10 million Chinese travelled to Thailand in 2018, generating some 500 billion baht or 25% of the 2-trillion-baht gross from international arrivals. The estimate of tourism revenue’s direct contribution to GDP was 7% last year, and when including indirect travel and tourism receipts, the 2018 total was estimated at 18.1% of GDP.
The fee exemption covered not only tourists from China, but also 20 other nations and territories from Nov 15, 2018 to Jan 14, 2019. The exemption measure has been extended three times, and the latest one offers an extension of the VOA fee waiver for citizens of 19 nations through the end of April 2020.
Improvement in the China market was detected after the implementation. Chinese arrivals edged up by over 7% in December, a month after enforcement. Tourists from other countries benefiting from the VOA fee waiver, notably India, also surged sharply.
But visa facilitation alone may not be sufficient to induce travellers to visit Thailand amid the slowing global economy and trade tensions between the US and China.
This year, the strong baht was another unfavourable condition impeding arrivals, prompting the government to revise down its projection of international tourists this year to 39-39.8 million from 40.2 million earlier.
Some other form of visa easing is being considered, namely double-entry or multiple-entry visas, which let visitors enter the country a number of times without needing a new visa.
The government is positive that the additional measures could ensure that the tourism sector grows continuously through next year at a rate of 4.1% for 41.5 million foreign arrivals.
DIGITAL TV EXITS
In 2019, the digital TV industry faced a crucial twist when operators were allowed to exit the sector without penalties under an order based on Section 44 invoked in April.
Operators who decided to leave would also be subject to compensation given by the National Broadcasting and Telecommunications Commission (NBTC) for the return of the spectrum, according to the order.
The order also waived all financial burdens shouldered by operators, including their remaining licence payment and remaining broadcasting network (MUX) fee.
Seven digital TV channels run by six operators had submitted letters by the May deadline and exited the sector by August. They were Spring News 19, MCOT 14, Spring 26, Voice TV 21, Bright TV 20, Channel 3 Family 13 and Channel 3 SD 28.
The seven channels received compensation that differed according to their winning prices in licence auctions and the date they went off air. The net compensation for the seven channels was a combined 2.7 billion baht.
Previously, two other digital TV channels — Channel 15 and Channel 17 — decided to leave the business even before Section 44 was invoked in April. Both were operated by Thai TV Group (TV Pool).
Only 15 channels are now operational, down from 24 at the 2013 licence auction.
At present, these 15 channels are permitted to leave the industry without penalties but they will no longer receive any compensation, as the Section 44-based assistance has ended.
Life remains difficult for the surviving operators, due to the threat from overthe-top platforms, while revenue from advertising continues to dry up.
New technologies are also taking a toll on TV operators.
Brands are exploring artificial intelligence (AI) technology to help them reach out to their targeted customers, which means traditional TV ads will decline.
The advent of 5G will give consumers easier and faster access to other innovative content platforms.
NBTC secretary-general Takorn Tantasith revealed that several existing TV operators had asked the regulator whether they would be able to exit the industry and receive compensation.
According to experts, the operators now have to focus more on creating quality content and gaining trust from audiences to survive in the digital era.
TASTE-SHOP-SPEND
Shortly after the Prayut Chan-o-cha administration was installed, the roll-out of a 316-billion-baht stimulus package was a priority task to shore up the sluggish economy after the second quarter expanded at the slowest pace in 19 quarters.
The Taste-Shop-Spend scheme, which involved a 1,000-baht cash giveaway and cash rebate, was part of the stimulus measures.
The first phase of Taste-Shop-Spend, given to 10 million recipients, proved a success, with a daily 1-million-registrant quota reached within hours. To be eligible for the cash handout and the 15% cash rebate of up to 30,000 baht for tourism-related spending, Thais aged 18 and older were required to sign up at the specified website and download the Pao Tang mobile app from Krungthai Bank.
The cash handout needed to be spent at participating shops in specified provinces within two weeks, while the 15% rebate could be spent in any province. Neither perk could be used in the recipient’s home province.
Given its popularity, the government launched the second phase, targeting 3 million additional recipients, and raised the ceiling cash rebate to 20% for 30,001-50,000 baht in spending while maintaining 15% cash back for up to 30,000 baht in spending.
The second phase also hit a fever pitch, leading a third phase to be unveiled.
Some 2 million new registrants are eligible, of which 500,000 spots have been allotted for the elderly, for the third phase.
Unlike the previous two phases, the third offers a cash rebate for spending at participating merchants without a restriction by province. However, those who sign up for the third phase are no longer eligible for the 1,000-baht cash handout.
The Taste-Shop-Spend scheme’s expiry has also been moved to the end of January.
The central bank recently said private consumption indicators in October expanded at a higher rate than in the previous month, thanks to the stimulus measures, particularly Taste-ShopSpend, which boosted spending on non-durable goods and services.
The bank will monitor whether the stimulus in October stole from future spending.
PLASTIC BAG BAN
Some 24,500 retail distribution channels plan to ban the use of plastic bags from Jan 1, 2020, based on the guidelines of 75 member stores of the Thai Retailers Association.
The “Everyday Say No to Plastic Bags” campaign is an effort to slash plastic bag usage in Thailand.
But the movement is pressuring local plastics converters because of the declining demand for plastic bags.
Somchai Techapanichgul, president of the Thai Plastic Industries Association (TPIA), said demand will drop from this campaign, while many plastic converters, largely small and medium-sized enterprises (SMEs), will reduce their production of plastic bags in 2020.
The ban action stems from not just the retail sector but the government as well. Authorities issued new measures on April 16 to wipe out single-use plastic within three years.
By 2019, Thailand will be free of three types of plastic — microbeads, cap seals and oxo-degradable plastics — with four other types of single-use plastics to be banned by 2022, according to the government’s plan, approved by the cabinet.
The four single-use plastics to be rid of by 2022 are lightweight plastic bags less than 36 microns thick, styrofoam food containers for takeaways, plastic cups and plastic straws.
“SMEs in the plastic-converting sector are suffering from campaigns and measures because they cannot adjust as fast as required,” Mr Somchai said. “SMEs have less capability to begin new investment in other eco-friendlier plastic products.”
According to the TPIA, Thailand produces 600,000 tonnes of plastic products a year, with 400,000 tonnes of the output going to plastic bags.
Up to 500 members of the TPIA make many types, such as rice bags, sugar bags, food bags, sanitary bags and trash bags. Some 40-50 companies produce plastic bags for end-users, Mr Somchai said.
“The TPIA is calling for the government to extend all time frames of singleuse plastic bans and launch support measures to help plastic converters,” he said. “Moreover, the government’s announcement is not clear enough to specify which plastic types are to be banned. It is nonsense to ban all of them, as some plastic products are still necessary.”
The TPIA estimates that many plastic converters will reduce their workforce from 2020 because the measures and campaigns are taking effect.
“If there is no help from the government, roughly 7,000 people will be laid off from the plastic-converting sector,” Mr Somchai said.