Rising Political Uncertainty in Thailand Poses Risks to Cash-Handout Scheme

Economists from Citigroup Inc. and Nomura Holdings Inc. have highlighted the substantial risks facing Prime Minister Srettha Thavisin’s $13.6 billion cash handout strategy aimed at revitalizing Thailand’s economy.

Recent legal challenges against Srettha and former leader Thaksin Shinawatra suggest a resurgence of political turmoil in Thailand, potentially leading to delays or disruptions in economic policies, according to analysts.

Citigroup economist Nalin Chutchotitham raised concerns in a note, indicating that the ongoing political unrest might hinder the implementation of the digital wallet scheme, a key component of the economic stimulus plan. The uncertainty surrounding the cash handout, targeting 50 million Thais with 10,000 baht each, set for rollout in the fourth quarter, is further exacerbated by challenges in securing funding.

Both Citigroup and Nomura foresee hurdles for Srettha’s administration in funding the cash handout, with doubts looming over the approval of a $3.3 billion supplementary budget. Political tensions within parliament have made the passage of the budget uncertain, as certain lawmakers remain hesitant about supporting the fiscal stimulus plan.

The cash handout initiative was pivotal in Srettha’s strategy to boost an economy that has grappled with subpar growth rates for over a decade. Nomura economists expressed concerns about the heightened political risks impacting the administration’s policy implementation and budget plans, citing recent legal developments as sources of instability and uncertainty.

Thailand witnessed a resurgence of political turbulence following legal actions against Srettha and former leader Thaksin, contributing to a climate of increased political risk and uncertainty.

Potential repercussions from ongoing legal cases could lead to a reshuffle in the government, prompting coalition partners to renegotiate their terms of cooperation, further complicating the already fragile political landscape.

Amid the unfolding legal and political saga, Citigroup adjusted its budget deficit projections, reflecting the heightened uncertainty and potential delays in economic measures. The revised estimates lower the base case budget deficit for fiscal year 2024 to 3.2% of gross domestic product, down from the prior forecast of 3.5%, and reduce the fiscal gap outlook for the following year to 3.7% from 4.1%.