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Thailand’s baht has gone from being 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 is down by more than 9 per cent against the dollar since the end of 2020, placing it among this year’s weakest performers globally with peers such as the Turkish lira and Peruvian sol.
The loss of tourism dollars on which Thailand’s economy used to rely, combined with a new wave of Covid-19 infections that have quashed hopes of a quick economic recovery, has turned formerly bullish buyers of its assets into bears.
“The baht is uniquely exposed to the collapse in cross-border services, and obviously tourism is the big one,” said Mark Baker, investment director with Aberdeen Standard Investments. “That number has basically collapsed to zero, and there has been a massive balance of payments shock.”
In 2019, the last pre-pandemic year, Thailand hosted a record 40m foreign visitors. Tourism was a reliable source of foreign exchange that kept the current account in significant surplus, and foreign investors’ interest in the baht, high. Since the start of the pandemic, the reversal of fortunes has been stark.
In the 12 months to the end of June, Thailand’s current account deficit was $2.2bn, a “massive turnround” from the $40bn surplus the country reported before the pandemic, said Khoon Goh, head of Asia research for ANZ in Singapore.
“One of the major drivers of baht strength pre-pandemic was its large current account surplus, driven largely by the tourism sector,” Goh said. “That is gone now: it has completely disappeared and won’t come back for a long time, given what’s happening.”
Prayuth Chan-ocha, Thailand’s prime minister, has promised to reopen the country — which sealed its borders to most travellers in March 2020 — to international visitors by October.
Phuket, Thailand’s largest island, last month launched a “Sandbox” scheme designed to begin admitting vaccinated foreign tourists, and meant to serve as a model for other resort areas seeking to reopen.
However, arrivals to the Sandbox so far have lagged behind tourism authorities’ more conservative forecast. Many Thais doubt Prayuth’s October reopening target will be met.
Daily reported Covid infections, blamed mostly on the more infectious Delta variant, are at record levels of nearly 20,000, and semi-lockdown restrictions on work, travel and entertainment are in effect in Bangkok and a swath of other severely hit “dark red” provinces.
Market analysts said that foreign investments by Thai companies were also weighing on the baht, as well as global trends, including pressure on emerging markets prompted by expectations that the strong US economic recovery will prompt the Federal Reserve to begin reining in its massive monetary stimulus.
“People were expecting by the end of the year we could have a recovery of tourism, but it’s quite clear now that this isn’t going to happen,” said Pipat Luengnaruemitchai, chief economist at Phatra Securities in Bangkok. “We don’t believe we can open to tourism more meaningfully until the second half of next year.”
The reporter on this story is on Twitter at @JohnReedwrites.