Thailand

major macro economic indicators

(e): Estimate. (f): Forecast. *Fiscal year 2020 from 1st October 2019 to 30th September 2020.

RISK ASSESSMENT

Slowdown in foreign trade hinders growth

After a sharp slowdown in 2019, the Thai economy is likely to rebound only modestly in 2020, remaining below its potential level of growth. Exports (65% of GDP), which are being hurt by the strong baht, will also continue to be affected by the global slowdown, particularly among the country’s main partners (China, the United States, the Eurozone), given Thailand’s integration in value chains. As a result, the manufacturing sector will continue to see unfavourable momentum, particularly in the electronics, chemical and automotive industries. In spite of the unsupportive international economic situation, resilient domestic demand should enable growth to remain robust. Public investment will increase, with the launch of several transport infrastructure projects linked to the Eastern Economic Corridor initiative, a development plan to create a vast industrial and technological cluster in a region south-east of Bangkok. In addition, the government decided to relax its tax policy in late summer 2019, announcing a stimulus package worth about 2% of GDP and consisting of two sets of measures. The first aims to support consumption, with increased benefits for low-income earners, aid for farmers affected by the severe drought of 2019, and spending money for domestic tourists. The second intends to support FDI with new tax incentives designed to attract more production relocations from China. However, although the decline in central bank policy rates is expected to ease credit conditions slightly, private investment will remain severely constrained by uncertainties about protectionist risks and the global slowdown, which led to a deterioration in business confidence in 2019. Despite the announced budget support and contained inflation, household consumption will remain moderate, in particular due to the level of household debt (almost 80% of GDP) and waning consumer confidence. Tourism is still expected to make a significant contribution to growth, despite the strong baht and slightly slower visitor growth.

A more expansionary fiscal policy

In FY 2020, the public deficit is expected to increase, in line with the government’s commitment to support growth. Expenditure will increase by nearly 7% in value, particularly in social assistance, investment and defence. The education and interior ministries will receive the largest amounts. In addition, while the VAT hike from 7% to 10% is to be postponed again, revenues should still continue to increase thanks to recent tax reforms, such as the revision of the income tax code. Public debt remains contained and relatively low risk: it is almost entirely denominated in Thai baht and contracted in the medium and long term.

Turning to the external accounts, the current account surplus is expected to narrow again in 2020. After plummeting in 2019, exports of goods are not expected to rebound significantly this year, with external demand still depressed. This drop in exports has a severe impact on imports of intermediate goods, dragging down total imports. Nevertheless, the resilience of household spending, supported by the tax stimulus, should ensure that imports of consumer goods continue to grow briskly, especially as the baht will remain strong. Therefore, while the trade surplus may decline, it will remain significant at almost 4% of GDP. In addition, the services surplus (5.5% of GDP) will be maintained, supported by continued growth of tourism revenues. The income balance (-4.5% of GDP), conversely, will once again make a negative contribution to the current account, due to profit repatriations by foreign companies.

Elections maintain the army’s hold on power

Thailand has been a constitutional monarchy since 1932. It is plagued by chronic political instability and numerous army-led coups. The most recent one, which took place in 2014, had the king’s support and resulted in the appointment of General Prayuth Chan-o-cha as Prime Minister. After postponing parliamentary elections six times, the ruling junta finally held them in March 2019. Although a seven anti-junta party front claimed an absolute majority in the lower house, Mr Prayuth stayed on as Prime Minister, supported by a new constitution adopted in 2017 that institutionalises military power, increases the king’s power and gives little chance to opposition parties. In the new electoral process, the Prime Minister is elected by parliament, which is composed of 500 seats in the lower house and 250 seats in the senate. However, as the junta appoints all senators, pro-army parties only need a quarter of the seats to stay in power. A multi-party coalition supporting the Prime Minister was finally formed, but it has a very slim majority. This could affect the government’s ability to reform, forcing it to make compromises within its majority. However, the government has the support of the junta and the king, which ensures a certain degree of stability in the country.

Last update: February 2020

Payment

Credit transfer is the main form of payment used by large companies in Thailand. The majority of credit transfers are made electronically and the popularity of this payment method is growing as clearing systems have become more developed.

Cheques are still a popular form of cashless payment in terms of value. They are used by companies and consumers to make a wide range of payments. Post-dated cheques are a common mean of short-term credit.

Nevertheless, cash remains the dominant payment method in Thailand.

Debt collection

Amicable phase

According to the 2015 debt collection Act BE 2558 (AD 2015), the debtor is an individual person or personal guarantor. The Act was created to regulate collection activities carried out by creditors, or by collection agencies in cases of consumer debt. Commercial debt collection houses are also expected to follow the practices set out within the Act. For example, during the amicable phase, creditors can only communicate with the debtor or other persons as authorised by debtor. Creditors or collection agencies are also limited to identifying themselves with the details of debt to the debtor.

Legal proceedings

Thailand’s Judicial Court System comprises three levels:

• the Supreme Court: this is the highest court authority in the country. All of its decisions are final and must be executed. It hears appeals and contests against decisions made by the Courts of Appeal, Regional Courts of Appeals and Courts of First Instance;
• Courts of Appeal: these are divided into Courts of Appeal and Regional Courts of Appeal. Both handle appeals against the decisions or orders made by the lower courts;
• Courts of First Instance: these lower courts comprise the courts in Bangkok, courts in provinces, specialised courts and juvenile and family courts.

A preliminary stage of legal action can be conducted if there is failure to reach an amicable settlement with the debtor. This phase includes communications, negotiations, meetings with debtors, letters of demand and notifying the police in cases where there is a criminal penalty.

Ordinary proceedings

If the debtor fails to comply with demand notices, the creditor can file a claim with the Court, depending on the value of the debt:

• if the debt does not exceed THB 300,000 (Thai baht), the complaint must be lodged at the District or Provincial Court;
• if the debt exceeds THB 300,000, the complaint must be filed at the Civil or Provincial Court.

Court policy is to screen unnecessary cases from court trial. Most Civil Courts have mediation centres for parties to negotiate and compromise on an arrangement. Once a case has been decided amicably, a compromise agreement is prepared and the court passes judgment in accordance. Each of the parties is responsible for documenting evidence and the burden of proof associated with their case. A judgement is made once the court has considered and weighed the evidence presented by both parties.

The time frame for proceedings with the Court of First Instance can take between one to three years.

Enforcement of a Legal Decision

If the debtor fails to comply with a domestic judgment, the creditor is entitled to apply for the execution of the judgment before the court. This can involve the issuance of an execution decree, delivery of an execution decree to the debtor, issuance of a writ of execution and the seizure and sale of property belonging to the debtor.

Thailand has no reciprocal recognition and enforcement agreements with other countries. Enforcing foreign judgments requires new legal proceedings, where the evidence will be considered and legal defence made available to both parties.

One exception is that Thailand is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1985). International arbitration awards by member countries of the Convention can be enforced if they are already final.

Insolvency Proceedings

Thailand has legislation on bankruptcy and reorganisation proceedings (Bankruptcy Act BE 2483).

Reorganisation Proceedings

Limited Companies, Public Limited Companies and Financial Institutions (Large Enterprises)

A petition can be filed against an insolvent corporate debtor who owes one or more creditors a known sum of THB 10 million (USD 333,000) or more. Once the court has accepted the petition for further proceedings, it appoints a planner to prepare and submit a reorganisation plan to the official receiver within three months. The court may extend this period up to a maximum of two times, for one month from the publication date of the court order appointing the planner. Secured and unsecured creditors must then apply for payment of debts within one month from the date of publication of the order for appointment of the planner. Once the official receiver is in possession of the reorganisation plan, he will convene a meeting with the creditors to consider the proposal. If it is accepted, the court needs to approve it and confirm the appointment of the plan’s administrator. The latter is then responsible for the debtor company’s reorganisation, as set out within the plan.

SMEs registered with the Office of SME Promotions or other government agencies for conducting business

Petition can be filed against:

• insolvent individuals who owe one or more creditors a known sum of THB 1 million or more;
• insolvent limited partnerships, registered partnerships, non-registered partnerships, groups of persons or other juristic entities who owe one or more creditors a known sum of THB 3 million or more;
• insolvent private limited companies owing one or more creditors a known sum of between THB 3 million and 10 million.

In cases such as these, the petitioner should file a petition, along with a proposed plan of not more than three years in length in execution.

Bankruptcy proceedings

A creditor can file a bankruptcy petition against a debtor if the latter is insolvent and owes one or more creditors a definitive sum of over THB 1 million (if the debtor is an individual), or owes more than THB 2 million (if the debtor is a legal entity).

Once a petition for bankruptcy has been filed, the proceedings normally include hearing the witnesses, temporary receivership of the debtor’s property, the appointment of an official receiver, filing of claims for debt payments by creditors within two months from the publication date of the permanent receivership order, a bankruptcy order against the debtor (if no agreement can be reached with the creditors, issuance of a permanent receivership order, seizure of property, sale of property by public auction and pro rata distribution of the sale proceeds to creditors.