Overall score 20 – Stable

Political risk: Stable 6/10

Economic risk: Stable 7/10

Commercial risk: Stable 7/10

The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the lowest risk and 10 the highest.

Political Risk – Stable 6

Political uncertainty remains at high levels in Thailand. This partly reflects the large and diverse mix of political parties in the ruling coalition, led by former general Prayut Chan-o-cha, who returned to power as prime minister following the March 2019 election. Cabinet reshuffles and delays in enacting the budget are symptomatic of the lack of cohesion in the government. Meanwhile, the opposition continues to question the legitimacy of Prayut, who seized power in the 2014 military coup.

There are regular street protests demanding a new constitution, the dissolution of parliament, a halt to perceived intimidation of political dissidents, and reform of the monarchy. Prayut is likely to survive while he continues to enjoy the backing of the royalist-military establishment. However, the opposition is effectively exploiting the government’s missteps in handling the pandemic, ensuring that the two-decade-old crisis in Thai politics continues for the foreseeable future. Rivals within the coalition are also manoeuvring against Prayut.

Moreover, the political temperature will rise sharply if, as seems likely, Prayut uses legal loopholes to try to extend his premiership beyond 24 August 2022. That is the date on which he will have been prime minister for eight years, the maximum term of office for a premier under the Thai constitution. Opinion polls indicate that most Thais want Prayut to quit this year, and street protests and court challenges by the opposition are likely should he fail to heed public opinion.

The polarisation of Thai politics and society has been further aggravated by the ascension of a new and controversial monarch, King Vajiralongkorn (Rama X), who succeeded his long-serving father King Bhumibol on the latter’s death in 2016. The pandemic and the new king´s eccentric behaviour has undermined traditionally widespread support for the monarchy. Reports that Vajiralongkorn was travelling across Europe during the pandemic resulted in the hashtag, #whydoweneedaking? being shared over a million times on social media.

Economic Risk – Stable 7

The outlook for the economy is improving despite Thailand’s reliance on international tourism, which accounted for around 22 per cent of national income, and was battered by the pandemic. The country saw foreign tourist arrivals plunge to 6.7 million in 2020 and to just 400,000 in 2021, from the almost 40 million visitors who generated more than US$60 billion in revenue in 2019.

However, positive changes that point to a rebalancing of the economy appear to be underway. Foreign investment is rising and exports are surging towards record levels. Exports rose by 17.1% in 2021, the highest growth seen in 11 years, led by autos and autoparts, iron and steel products, IT equipment and chemicals. That helped the country record an annual trade surplus of US$3.57 billion.

Manufacturing is certainly rebounding according to the IHS Markit Thailand Manufacturing PMI, which rose to a record peak of 51.7 in January 2022, from 49.5 in the prior month. Output rose the most since the October 2021 survey record; and buying levels grew at a record peak as some firms increased their input buying to safeguard against shortage.

A number of factors explain Thailand´s export-led manufacturing rebound, and its growing appeal to investors. The depreciation of the Thai baht has boosted competitiveness as global trade accelerates from the severe pandemic associated lockdowns of 2020.

Thailand is also benefiting from Sino-US trade tensions with foreign and Chinese companies shifting production from China to countries such as Thailand, particularly in the automotive and parts, electronics, and platform and digital information cloud services industries.

Thailand offers many particular attractions as an alternative source of production to China. It is home to the second largest domestic market in Southeast Asia, which has been growing rapidly for decades. It is already one of Asia’s major automotive, electronics and petrochemical production hubs with relatively good infrastructure and an attractive business climate in terms of the Ease of Doing Business and receptiveness to foreign direct investment (FDI).

The latest figures certainly suggest investment in Thailand is booming. The combined value of foreign and local applications for investment in 2021 rose by 59% to 643 billion baht. This was led by an increase in FDI in tech sectors and more projects in the bio-, circular and green industries, as well as a continued focus on the power generation sector. FDI accounted for around 71% of total investment with Japan, China and Singapore being the main sources of these funds. The Thai Board of Investment said it was seeing constant growth in foreign investments in sectors such as smart electronics, speciality chemicals, bioplastics and the medical cluster.

However, the economy continues to face long-term challenges that were evident before the pandemic, reports the IMF. In 2019, Thailand recorded its lowest growth in five years, having trailed regional peers for the better part of a decade. This, the IMF argued in its 2021 Article IV Consultation, reflects “low productivity growth and lacklustre human and physical capital accumulation, high household debt, and weak social safety nets. Inequality and informality remain high, and a savings-investment imbalance persists”. The upturn in investment will hopefully address some of these problems.

Commercial Risk – Stable 7

Thailand has made significant gains in the World Bank’s Ease of Doing Business index in recent years, rising to 21st position out of 190 economies in 2020, from 46th position in 2016. That is considerably better than the average emerging and developing Asian country rating of 95. However, Thailand remains less competitive than its neighbours Malaysia (in 12th position) and Singapore (2nd), partly due to gaps in educational outcomes and labour skills shortages.

The country ranked 104th out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index. Thailand tied with Vietnam in 104th place, two spots behind Indonesia. Malaysia ranked 57th, with a score of 51 points. Thailand was placed ahead of the Philippines (115th), Laos (134th), Myanmar (137th) and Cambodia (160th) in Southeast Asia.

A national survey in 2017 found that almost 80 per cent of Thais believed most or all of the police force was corrupt, while half of Thais felt that most or all local government councillors were corrupt. Businesses and individuals reportedly commonly pay irregular payments and bribes in order to obtain favourable judicial decisions.

The country ranks 42nd in terms of economic freedom, according to the Heritage Foundation’s 2021 index. Its overall score increased by 0.3 points, primarily because of an improvement in business freedom. Thailand is ranked 9th among 40 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

The Thai government has invested heavily in expanding and improving its infrastructure networks over the past decades. Severe road congestion remains a problem in Bangkok, which accounts for half of Thailand’s GDP, but the country has made significant strides in improving its digital infrastructure. Since the beginning of the COVID-19 pandemic, mobile internet speeds have improved by 81% and now average 40.79 Mbps, according to an analysis by Surfshark. At the same time, broadband speeds have increased by 29% and now average 189.54 Mbps – the second best in the world. According to Surfshark’s Digital Quality of Life Index for 2021, Thailand ranks third in Southeast Asia (behind Singapore and Malaysia) in terms of internet affordability, internet quality, e-infrastructure, e-security and e-government.

August 2022 bulletin

Political Risk – Stable at 6/10

Although the economy now appears to be recovering, many Thais have been hit hard by the pandemic and support for the government is dwindling. Economic hardship has sparked unrest among working class Thais and young protestors, united by anger at the military´s poor management of the economy and the pandemic. Sharp increases in the price of staple goods such as pork and noodles, is sparking further dissatisfaction with the government.

The divisions between the Red Shirts and Yellow Shirts is fading.  Most Thais are now simply united against the current authoritarian “hybrid democracy”, where military and ex-military leaders exert significant control.

Prayut appears to be on a collision course with the opposition and the pro-democracy movement, which are adamant that he should step down next year. According to the military-sponsored 2017 constitution, a prime minister’s tenure is capped at eight years. Prayut, who staged a coup that ousted an elected government in 2014, has already run the country for more than seven years. By 24 August next year, he will have been in power – as junta leader and head of a government – for a full eight years. His four-year term after the 2019 poll will end in 2023.

The government faces a critical test in July when the opposition is expected to launch a no-confidence debate against the government and General Prayut. The government controls 268 MPs but there is speculation that some may defect. If the government fails to muster 238 votes it needs to survive, the prime minister and the cabinet are obliged to resign.

Economic Risk – Stable at 7/10

The number of international tourists is expected to rise to 5.6 million in 2022, with a sharp upswing in the second half of the year, before increasing further to around 19 million arrivals in 2023 – still just half the pre-pandemic 2019 level. Chinese tourists accounted over a quarter of the overall number of overseas visitors to Thailand in 2019. China continues to implement measures that are significantly curbing overseas travel and this situation is unlikely to change this year.

Sanctions imposed on Russia following the invasion of Ukraine could affect the tourism sector. Before the Covid-19 pandemic, Thailand attracted thousands of Russian tourists. However,

Russians cannot now directly pay hotel and other travel bills or business investments via the SWIFT international banking system because of US sanctions.

Nonetheless, the pandemic has almost certainly accelerated a shift away from tourism and towards higher value-added manufacturing and services. In the short term, booming investment and exports will power the economy´s recovery in 2022. Economic activity is expected to return to pre-pandemic levels by early 2023 according to the Bank of Thailand. In April, the central bank projected economic growth of 3.2% this year and 4.4% next year, driven by domestic demand and tourism. Those figures are lower than earlier forecasts and reflect the outbreak of war in Ukraine, which has caused rising energy and food prices so dampening domestic demand.

Higher global interest rates and a sharp slowdown in international growth, as well as a renewed COVID-19 outbreak, pose the main threats to the economic outlook in 2022. Much depends on prospects for inflation and interest rates in the US. If the Federal Reserve raises borrowing costs significantly to contain inflation this year, the Bank of Thailand (BoT) will have little option but to follow suit to stem capital outflows. At the end of 2021, foreign investors held 1.03 trillion baht of Thai debt instruments. The BoT will act to ensure this capital does not leave the country in search of higher yields elsewhere.

A slowdown in global growth would also clearly weigh on the country´s export-led recovery. Thailand is particularly vulnerable to slower growth in the US and China, which account for a combined 30% of exports.

It also has close ties to Russia so trade could be affected by the Moscow’s invasion of Ukraine. Thailand has not imposed sanctions on Russia, but the international sanctions imposed on Moscow are likely to hamper trade, and finance. The deep recession now underway in Russia will also hit demand for Thai goods. Thailand exports sugar, rice, gems, clothes, canned food and furniture to Russia, while importing steel, scrap metal, fertilizers, minerals, synthetic rubber, diamonds and paper.

Overall, Russia is Thailand’s 30th most important trading partner, so it is doubtful that any disruption to trade will have a significant impact on the Thai economy. However, some sectors are being particularly hard hit by the Russia-Ukraine war. Steel prices, for example, rose by more than 20% following the outbreak of war between two of the world’s major steel exporters – Russia and Ukraine – which will hit the construction sector and parts of manufacturing.

The Bank of Thailand forecasts headline inflation at 4.9% this year, above its target range of 1% to 3%, before easing back to 1.7% next year. The expectation that inflation will subside means the central bank is unlikely to take any measures to counter inflation.

COVID-19 continues to pose a threat. The spread of Omicron in December slowed the economy in January 2022. The abrupt suspension of a quarantine programme for international arrivals in December has already delayed the recovery in the tourism sector. A quarantine programme for international arrivals was reintroduced in February. Covid-19 cases began to edge down again in April 2022 suggesting the worse may be over.

Commercial Risk – Stable 7/10

In December 2021, Fitch Ratings affirmed Thailand’s Long-Term Foreign-Currency Issuer Default Rating at ‘BBB+’ with a Stable Outlook. Fitch said the rating balanced Thailand´s robust external finances, well-managed public finances, and a strong macroeconomic policy framework, against weaker structural features than its peer group, including lower per capita income and World Bank governance scores. Fitch added that medium-term growth prospects are constrained by adverse demographic factors and potential scarring from the Covid-19 pandemic.

Fitch also issued an improving outlook on Thailand’s banks. The agency said that he household debt-to-GDP ratio remained elevated at 89.3% of GDP as of end-Q421, and could constrain the recovery in private consumption, particularly for low-income households. Elevated unemployment and underemployment due to the Covid-19 pandemic weigh on household incomes and hinder their ability to service debt. However, the agency added that banks’ asset-quality buffers appear adequate, and downside risks are mitigated by healthy reserve coverage and core capital. Positive trends in loan growth and non-interest revenues will drive higher profitability, despite elevated credit costs and a low-interest environment.

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