BOT sees low risk of Thai currency crisis as reserves remain high

Thailand is unlikely to face a currency crisis similar to Indonesia’s current troubles, despite a record current-account deficit in April, a senior Bank of Thailand official has said.

Don Nakornthab, assistant governor for the Monetary Policy Group at the Bank of Thailand, said the sharp deficit was driven mainly by energy imports and government efforts to build up fuel reserves, rather than by dangerous levels of excessive consumption.

His comments came after Thailand posted a current-account deficit of US$7.6 billion in April, the largest on record and almost twice the previous record of US$4.1 billion in April 2013.

The figure turned Thailand’s cumulative current-account position from a surplus in the first three months of the year into a deficit of US$4.4 billion. It also pushed the economy back into a “twin deficit”, a current-account deficit alongside a budget deficit, for the first time in four years.

Don said the number had caused understandable concern, especially among those asking whether Thailand could face a repeat of the 1997 Tom Yum Kung crisis or the kind of currency pressure now affecting Indonesia.

However, he said it was still far too early to treat the latest figure as a new structural weakness in the Thai economy.

The main reason, he said, was that US$7.4 billion of the April deficit came from net energy imports. This reflected higher oil and natural gas prices, as well as the government’s accelerated purchase of oil reserves, which have now risen to more than 110 days from about 60 days previously.

Looking ahead, he said the government was not expected to continue building reserves at the same pace, as current stockpiles were already sufficient. Future energy-related deficits would therefore depend mainly on price movements.

Under the BOT’s latest economic assumptions, tensions in the Middle East are expected to ease in the second half of the year, allowing energy prices to fall. If that happens, Thailand’s full-year current-account balance should return close to equilibrium or show only a small deficit of no more than 1% of GDP, far from the levels seen before the 1997 crisis.

Before the 1997 financial crisis, Thailand’s current-account deficit stood at about 8% of GDP.

Don said the more important message was that the era of Thailand recording large current-account surpluses was probably over.

Part of the shift comes from damage to energy-production infrastructure in the Middle East during the early stage of the war, which could keep energy prices above pre-war levels for some time. Another factor is the expected rise in imports of machinery and equipment linked to new investment, including data centre projects.

He stressed that a current-account deficit was not always negative, just as a surplus was not always positive. The key issue is whether the deficit is caused by consumption or investment.

In recent years, excluding the Covid-19 period when tourism revenue collapsed, Thailand ran large current-account surpluses. These surpluses helped strengthen the baht, hurt export competitiveness and placed Thailand within the scope of the US Treasury’s currency-manipulation assessment, which uses a current-account surplus above 3% of GDP as one of its criteria.

Don said Thailand’s earlier surpluses also reflected weak domestic investment, which, together with demographic change, had weighed on the country’s long-term growth potential. From that perspective, he said, Thailand should not be too comfortable with persistent current-account surpluses.

A deficit caused by investment that improves the country’s future competitiveness should not necessarily be seen as a problem, he said. He compared this with the period when Thailand invested heavily in the Eastern Seaboard to strengthen future earning capacity.

The problem before the 1997 crisis, he added, was that much of the later investment shifted into property, which did not strengthen national competitiveness.

Don said he would not be worried if Thailand’s current-account surplus declined or moved into a modest deficit because of investment that helped improve the country’s competitiveness.

However, he warned that the assessment depended on the assumption that energy prices would eventually fall. If they remain elevated, Thailand could face a more persistent current-account deficit driven by energy consumption.

He also raised concern over Thailand’s widening trade deficit with China. Imports that are later re-exported are less worrying, he said, but imports for domestic consumption, particularly cheap goods that compete directly with Thai SMEs, could become a serious risk to the economy.

On the question of whether Thailand could face a currency crisis like Indonesia, Don said the two countries were in very different positions.

Although Indonesia’s broad macroeconomic indicators may appear stronger than Thailand’s in some areas, particularly fiscal data, he said Indonesia still faced structural risks that continued to worry markets. These included rising debt among state-owned enterprises, questions over governance and transparency surrounding the new Danantara fund, and a current-account deficit linked to the energy crisis.

Once confidence weakened, short-term capital flows that Indonesia had relied on began to leave quickly, he said.

Thailand, by contrast, has much stronger international reserves, giving the country a larger buffer against external shocks. This makes the risk of a Thai currency crisis in the short term very low, Don said.

The real challenge for Thailand, he concluded, is not an imminent currency crisis, but how to restructure the economy to restore the country’s competitiveness.

Thansettakij