Thailand kicks off bumper cash handouts to boost ailing economy

Thailand kicks off bumper cash handouts to boost ailing economy

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Thailand has begun rolling out a $14bn stimulus programme this week to distribute cash to millions of citizens, but the much-anticipated scheme may not be enough to turn around years of sluggish growth in south-east Asia’s second-largest economy.

The ruling Pheu Thai party has promised to give 45mn people a handout of 10,000 baht ($300), pitching it as the centrepiece of an economic plan to boost growth, which has lagged regional peers due to high household debt, weak exports and a slump in tourism revenue.

Since taking office in August last year, the party has struggled to implement the policy amid opposition from some politicians and the central bank as well as concerns about the cost and financing of the programme.

To get it off the ground, new Prime Minister Paetongtarn Shinawatra is introducing it in phases, with the government estimating that the first phase alone should boost growth by 35 basis points this year.

In the first tranche, the government will distribute funds to about 14.5mn people, including some of the most vulnerable sections of the population. Initially intended to be distributed through a digital wallet, the handout will now be directly transferred to the recipients’ bank accounts.

“[The cash handout] will truly benefit the people, help distribute economic opportunities to the people,” Paetongtarn said at a launch event this week. “There will be many more stimulus policies following this one. The government will continue and move forward with the digital wallet project.”

About 36mn Thai people have registered for the handouts, but economists warn they will have a limited, one-off impact and will do little to repair an economy burdened by structural issues and political instability. The Thai economy grew 1.9 per cent last year, lagging regional peers such as Indonesia, south-east Asia’s biggest economy, which grew 5 per cent.

Thailand is grappling with high household debt, which has held back consumer spending and, at more than 90 per cent of GDP, is one of the highest in Asia. The economy has also been hit by weak exports and a slowdown in tourism since the Covid-19 pandemic.

“The digital wallet scheme indubitably benefits near-term consumption . . . the concern remains that without accompanying structural reforms, this could simply be a temporary boost, rather than a long-term solution to the country’s deeper economic issues,” said Luca Castoldi, senior portfolio manager at Reyl Intesa Sanpaolo. 

Some also doubt the programme will be implemented in full, given the pressures on the Shinawatra family, which has a history of clashing with the military-royalist establishment.

Paetongtarn is the 38-year-old daughter of the influential former premier Thaksin, who was removed in a coup in 2006. Yingluck Shinawatra, Thaksin’s sister, was impeached by parliament in 2015 for alleged mismanagement of a rice subsidy scheme, another populist programme.

Fast turnover of prime ministers, through military coups or the judiciary, has also hurt investor sentiment, economists said.

Former premier Srettha Thavisin, whose dismissal by the Constitutional Court in August paved the way for Paetongtarn to take over, failed to implement the digital wallet programme due to backlash against his initial plan to fund it through borrowing and warnings from the national anti-corruption agency that the scheme could violate Thai laws on fiscal discipline.

Thailand’s central bank has also cast doubts on the programme’s benefits and called it a fiscally reckless initiative. The bank has been under pressure from the government to cut interest rates to bolster growth, which economists say could happen this year due to the baht’s recent strength.

OCBC’s senior Asean economist Lavanya Venkateswaran said the economic benefit from the first tranche would quickly fade, forecasting the programme would lift GDP by 100 basis points if it were fully implemented.

“Is the boost to growth going to last? Is this the best way to spend funds? Is it actually going to help address any of the structural issues that the Thai economy faces? Those concerns have not gone away,” she said.