Thailand's first twin deficit in nearly a decade to hit baht, Asia's worst-performing currency

The reversal of fortunes for Asia's worst-performing major currency this year echoes the damage wrecked by the pandemic on Thailand's economy.
The reversal of fortunes for Asia's worst-performing major currency this year echoes the damage wrecked by the pandemic on Thailand's economy.PHOTO: AFP

BANGKOK (BLOOMBERG) - Thailand is heading for a rare current account deficit this year with the country missing out on the billions of dollars earned from tourism, likely piling more pressure on the nation's already battered currency.

South-east Asia's second-largest economy may post a current account shortfall of US$10.3 billion (S$14 billion), or 2 per cent of gross domestic product (GDP), the first deficit since 2013, the National Economic and Development Council estimated.

Add to it a budget deficit seen topping 10 per cent of GDP for the 12 months to September, and it is a double blow for the baht, which was on a US manipulator watch list earlier this year.

The reversal of fortunes for Asia's worst-performing major currency this year echoes the damage wreaked by the pandemic on Thailand's economy. With the nation reeling under the deadliest phase of the Covid-19 outbreak so far, the authorities have imposed growth-sapping restrictions on businesses and movement. This has dented any chances of a quick recovery and plans for a wider reopening of borders to foreign visitors, who contributed more than US$60 billion to the economy before the pandemic.

The baht has tumbled 10.2 per cent this year to trade near a three-year low and is on course for its biggest annual drop since 2000, according to data compiled by Bloomberg. More losses and volatility may be in store for the baht because of the domestic factors, according to the Bank of Thailand's Monetary Policy Committee.

The worsening outlook for growth and the raging outbreak have spurred foreign investors to pull out a net US$3.34 billion from Thailand's stocks, weighing further on the currency. The Bank of Thailand (BOT) sees downside risks to its GDP forecast of 0.7 per cent for this year and governor Sethaput Suthiwartnarueput this week called for 1 trillion baht (S$41 billion) in additional government spending to cushion the pandemic blow to the economy.

Nomura Holdings expects the baht to weaken to 34 to the dollar in the near term, supported by a more pro-growth central bank that is likely to lower its key rate and a wider current account deficit on weak tourism outlook.

While a weaker baht is beneficial to Thai exports, the central bank should be more active in curbing excessive volatility as the currency has fallen more than its regional peers, according to Mr Kobsidthi Silpachai, head of capital market research at Kasikornbank in Bangkok.

"The BOT might be forgetting its mandate of managed float," Mr Kobsidthi said. Excessive moves in the currency are "counterproductive economically as businesses cannot plan and price their products and service properly".

The baht may also have to contend with risks from global financial market volatility, especially as the United States Federal Reserve draws closer to eventual tapering, said Mr Dhiraj Nim, a foreign exchange strategist at Australia & New Zealand Banking Group.

But he added that the ebbing of pandemic cases "can help reverse the sentiment towards the baht".