Thailand's extended Songkran holiday is ending, but the anger from failed negotiations with Iran over 21 hours by U.S. President Donald Trump continues to unsettle people worldwide amid the Persian Gulf war. This conflict is expected to persist through multiple phases, days, months, and possibly extend into next year.
I would like to invite readers to hear the perspective of Bank of Thailand Governor Witthaya Rattanakorn, a genuine economist responsible for maintaining economic stability alongside the Ministry of Finance, including the country's financial system and exchange rate stability. At least, understanding his views may provide insights useful for work and daily living.
After President Trump extended his ultimatum on the morning of 8 April to negotiate anew with Iran, everything changed. What was once thought to have a low chance of severe incidents now seems less likely to escalate, and prolonged fighting through this year or next is considered less probable.
Initially, the worst-case scenario was expected to reduce Thailand's GDP growth below 1%. Now, that worst-case seems to have passed. The best-case expectation of resolution by June needs adjustment. However, oil prices are unlikely to return to previous lows, especially as much of the oil business infrastructure has been severely damaged, requiring months or years to rebuild.
We estimate that if the Persian Gulf war drags on, Thailand's GDP growth this year will be only 1.3%. If it ends quickly, growth might reach 1.7%. The Bank of Thailand considers whether these figures can be raised. For example, Thailand's GDP currently stands at 19 trillion baht. Increasing the public debt ceiling by 10% could raise GDP by 1%, equivalent to 1.9 trillion baht.
If the ceiling is increased by only 5%, it could yield 900 billion baht. Whether this increase happens remains uncertain (the current debt ceiling is near 70%, totaling about 12 trillion baht). The oil fund alone accounts for 1.5%, currently at a deficit of 50 billion baht. If the government issues a law allowing the Ministry of Finance to borrow another 1.5 trillion baht, raising the debt ceiling to 75% may be a better opportunity, possibly used gradually. A sudden jump to 80% might be more difficult.
When asked if Thailand has the potential to increase GDP growth, the answer is yes. We can raise GDP to 2.5 - 2.7% by spending approximately 400 to 500 billion baht. But the only way to increase GDP is "investment." Especially as the situation shifts to a supply-side condition, clearly seen in the need for raw materials, machinery, manufacturers, and new technology.
Investing in people and technology, particularly in Energy Transition, must be more serious than before. Governor Witthaya emphasized, "Invest, not hand out"... allocate all resources fully to reach full growth potential... Then growth will happen. Previously, there was analysis but no action. Stop arguing over who will monopolize energy or whether the state will buy energy, and instead focus on seriously increasing investment. These investments occur between Thai entities, foreign entities, or both, with possible government support for funding. There are many investment methods—private or government—but all must aim to increase GDP potential.
There is a question whether Thailand might face a sharp downturn as prices rise—will interest rates have to rise too? The answer is inflation currently stems from the supply side, notably surging energy prices and the large gap between crude oil and refined oil prices in Singapore. These fluctuate with the situation, so raising interest rates now would not reduce inflation. Therefore, no interest rate hikes are planned. The baht is depreciating as desired due to the intensity of conflict, affecting Asia's economies including Thailand. As all suffer, regional currencies weaken.
Does "losing control" mean Thailand's economy is doomed? The economy is affected, but not to the point of collapse. The baht’s depreciation is acceptable (32.05 baht per U.S. dollar as of 14 April), not abnormally large. Thailand has sufficient reserves to maintain currency and economic stability, including tourism.
Another point to share is that the Bank of Thailand is preparing to announce adjustments to commercial banks' fees charged to new depositors to ensure fairness across 15 to 19 items. A public consultation is ongoing, with completion expected for implementation early next month, May.
Starting with commercial banks easing debt payments for borrowers to pay interest only for three months without principal repayment. Those who have had a home loan for three years are advised to refinance to reduce interest rates. When the economy improves and income, bonuses, or extra yearly payments come in, use those funds to repay the loan faster. At such times, assessing borrowers' or prospective homebuyers' repayment capacity is not advised. This is being coordinated with the government.
For SMEs, who often use land purchases as assets and collateral, when problems arise and banks refuse loans, pressure is applied to allow loans of 30-40% of land value to maintain cash flow and liquidity. The Government Savings Bank is ready to offer soft loans for those wanting to buy EVs or install solar panels.
Commercial banks have historically earned high profits—about 320 billion baht annually. While banks are wealthy, the poor and SMEs suffer, which is unfair. The Bank of Thailand plans to reduce financial costs for the public while maintaining economic stability amid high external uncertainty by setting new standards based on the industry's lowest levels to reduce service fee disparities, such as...
Account maintenance fees, previously as high as 100-500 baht in some places, will be reduced to 20 baht across all accounts. Baht net transfer fees will drop to 50-100 baht. SME loan fees will be capped at 2.5% for small credit amounts.
The Bank of Thailand will also assist borrowers step-by-step. Besides requesting commercial banks to reduce debt burdens by deferring principal payments, unsecured personal and car title loans will be monitored. For example, minimum credit card payments may be fixed at 8%, not increased to 10% as originally planned.
Governor Witthaya also hopes to shift the Bank of Thailand's stance by narrowing the interest rate spread between deposits and loans, which could impact banks’ net interest income. Sources say this is a significant concern for the governor, as it may reduce commercial banks' profits by about 2-3.5%, or roughly 12 billion baht.
We thank Governor Witthaya again for his care for the public and both depositors and borrowers. These demands have been made for a long time but seem never to have reached the ears of some executives in the ivory tower in Bang Khun Phrom.