Thailand currency

Thailand’s currency wilts as Covid wreaks havoc on tourism

Updates from Thailand

The Thai baht has gone from one of Asia’s strongest currencies before the pandemic to one of its worst performers this year as the coronavirus crisis ravages its crucial tourism sector.

The Thai currency has lost more than 9% against the dollar since the end of 2020, placing it among the weakest in the world this year, alongside peers such as the Turkish lira and the Peruvian sol.

The loss of tourism dollars upon which the Thai economy relies, combined with a wave of Covid-19 infections that dashed hopes for a rapid economic recovery, have turned once-optimistic buyers of its assets into bearish ones.

“The baht is particularly vulnerable to the collapse of cross-border services, and tourism is obviously the most important,” said Mark Baker, chief investment officer at Aberdeen Standard Investments. “That number practically collapsed to zero, and there was a massive balance of payments shock.”

In 2019, the last pre-pandemic year, Thailand welcomed a record 40 million foreign visitors. Tourism was a reliable source of foreign exchange which kept the current account in large surplus and the interest of foreign investors in the baht was high. Since the start of the pandemic, the reversal of fortunes has been brutal.

In the 12 months leading up to the end of June, Thailand’s current account deficit was $ 2.2 billion, a “massive turnaround” from the $ 40 billion surplus the country reported before the pandemic, said Khoon Goh, Asia research manager for ANZ in Singapore.

“One of the main drivers of the baht’s strength before the pandemic was its large current account surplus, mainly due to the tourism sector,” Goh said. “It’s gone now: he’s completely gone and won’t be back for a long time, considering what’s going on.”

Prayuth Chan-ocha, the Prime Minister of Thailand, has promised to reopen the country – which sealed its borders to most travelers in March 2020 – to international visitors by October.

Phuket, Thailand’s largest island, launched a “sandbox” program last month designed to begin admitting foreign tourists who have been vaccinated and intended to serve as a model for other resort areas looking to reopen.

However, arrivals have lagged behind more cautious forecasts from tourism authorities. Many Thais doubt the goal of reopening Prayuth in October will be met.

Line graph of current account balance (rolling 12 months, in billions of dollars) showing fall in tourism causing balance of payments

Daily reported Covid infections, mostly blamed on the more infectious Delta variant, have reached record highs of nearly 20,000 and semi-lockdown restrictions on work, travel and entertainment are in effect in Bangkok and a band of other severely affected “dark red” provinces.

Market analysts said foreign investment by Thai companies was also weighing on the baht, as were global trends, including pressure in emerging markets over expectations that the strong US economic recovery would prompt the Federal Reserve to begin. to curb its massive monetary stimulus measures.

“People expected that by the end of the year we could have a recovery in tourism, but it is now clear that this will not happen,” said Pipat Luengnaruemitchai, chief economist at Phatra Securities in Bangkok. “We don’t think we can open up to tourism in any more meaningful way until the second half of next year.”

Follow John Reed on Twitter at @JohnReedwrites.

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