BANGKOK – A perfect storm of economic headwinds and political turbulence is buffeting Thai Prime Minister Prayut Chan-ocha’s eight-month-old coalition government, a rising tempest that is shaking the stability the ex-army commander was nominally elected to uphold.

While Prayut’s allies and backers maintain the situation is manageable and under control, true to the army commander-cum-premier’s pro-stability credo, many wonder if that party line is underestimating fast mounting risks.

Economic and financial analysts universally predict Thailand will likely take the biggest economic hit, outside of China and Hong Kong, from the Covid-19 crisis that is spreading panic, fear and poor growth prospects in Asia and worldwide.

Goldman Sachs, a US investment bank, recently sharply downgraded its 2020 forecast for Thai growth from 2.4% to 1%, due largely to the impact the virus crisis is having on the crucial tourism industry.

The China-born disease has exposed the downside of Thailand’s rising reliance on Chinese tourism and related investments, including in China-specific retail, property, logistics and services, for its economic well-being.

Chinese travelers accounted for 28% of Thailand’s 40 million tourists last year, foreign currency spending that amounted to 3.3% of Thailand’s gross domestic product (GDP).

Chinese tourists watch a traditional Thai dance at Erawan shrine, a popular spiritual landmark in Bangkok, January 27, 2020. Photo: AFP/ Mladen Antonov

Provisional industry estimates show Chinese tourism in Thailand was down 80%-90% in February, from over 800,000 in 2019 to some 50,000 this year, as Beijing has clamped down on foreign travel to contain the epidemic at home and cease exporting it worldwide.

The collapsing numbers are already causing a liquidity crunch among the large but uncertain number of Thai small and medium-sized enterprises (SMEs), including shops, restaurants, hotels and condos bought for Airbnb rentals, which cater exclusively to Chinese travelers.

The Bank of Thailand, the central bank, earlier quietly goaded Thai banks to restructure their SME loans to avoid a spike in new non-performing loans (NPLs) that would raise market questions about the kingdom’s broad financial health, one research analyst said.

“If they [SMEs] have zero cash flow for two or three months, they won’t be able to hold on for very long,” the same analyst says.

The Bank of Thailand has since approved a moratorium for as long as one year on the principal repayment for tourism-related SME loans; credits to SMEs represent 33% of Thai banks loans, according to Fitch Ratings, a credit rating agency.

That financial foregiveness is based on the wishful assumption that Chinese traveler numbers will return to normal by mid-year, with some speculating warmer weather in China will cause the virus to die and spark a fast return to business and tourism as usual.

Tourists wear face masks amid concerns over the spread of the Covid-19 novel coronavirus at an unusually empty Grand Palace in Bangkok, March 2, 2020. Photo: AFP/Lillian Suwanrumpha

Prayut’s government expects to be “front-in-line” when Beijing guides where to dispatch the post-Covid-19 next wave of Chinese tour groups as a “reward” for maintaining its lax visa-on-arrival policy for Chinese travelers throughout the Covid-19 crisis, the research analyst reckons.

Over 60% of Chinese tourists in Thailand travel as part of Beijing-steered tour groups, with their itineraries, lodging and destinations often strictly controlled and determined by Chinese national operators.

But China won’t likely reopen those floodgates any time soon, the same analyst reckons, both to avoid the possible diplomatic damage of unleashing a second wave of the disease before the first has been contained, and to keep cash-rich Chinese travelers home to revive its own virus-hit moribund economy.

Markets already sense Thailand’s emerging economic and financial weakness, judging by the recent offloading of Thai stocks and dumping of the local baht currency by foreign investors and traders.

Last week, the Stock Exchange of Thailand fell 4.1% to its lowest intraday level in three years, albeit amid a global rout. The baht, Asia’s best performing currency over the last two years, is down 6% against the dollar in 2020, making it the region’s worst performer.

Fitch Ratings still rates Thailand’s banks as “stable,” but said in a cautionary March 3 note that “tourism-dependent Thailand … is likely to be the most affected” by the caronavirus crisis and that a “further slowdown in [economic] growth could affect this assessment.”

Fast disbursal of a 3.2 trillion baht (US$101 billion) national budget, frozen and delayed from October until February 26 due to political wrangling, will serve as a de facto stimulus package that will spark growth mainly through big-ticket infrastructure building.

Commuters wearing face masks amid fears of the spread of the novel coronavirus wait for a canal boat in Bangkok, March 2, 2020. Photo: AFP/ Mladen Antonov

That, too, is likely wishful thinking considering Thailand’s woeful record over the last decade of never hitting disbursal targets, where on average only 70% of allocated funds are spent, and big capital projects are especially slow to move due to bureaucratic red tape.

There is also the irony that the biggest of those projects, a high-speed railway connecting Bangkok’s two airports to U-Tapao airport near the eastern resort town of Pattaya, was designed mainly to shuttle projected as ever-rising numbers of Chinese tourists.

The Ministry of Finance tabled on Wednesday a 100 billion baht ($3.2 billion) virus relief package replete with cash handouts for low income earners beyond the tourism sector but it must still receive Cabinet approval and will likewise undoubtedly be hounded by disbursal issues.

Observers and analysts wonder if Prayut’s increasingly fractious coalition will actually be more focused on its political survival than economic revival in the weeks and months ahead.

A controversial court decision in late February to dissolve the opposition Future Forward party, the third biggest vote-getter at the March 2019 elections with a fervent youth following, could not have come at a more inopportune time for former coup-maker Prayut.

The verdict has sparked anti-government, pro-democracy protests at high schools and universities across the nation in recent days, a student-led mobilization not seen since the volatile 1970s when soldiers opened fatal fire on students.

A Thai protester wearing a face mask amid fears over the spread of the Covid-19 novel coronavirus holds a banner during an anti-government rally in Bangkok, March 1, 2020. Photo: AFP/ Mladen Antonov

Whether the “flash mob” protests are sustainable or rather a flash in the pan is not yet clear, though some are already drawing analogies to the early phases of Hong Kong’s recent debilitating student-led agitation and unrest.

Officials have drawn hard red lines under the social media-driven protests, warning that flash mobs must stay on campus and not move to the streets, and that a return to the previous era of fortified protest sites will not be tolerated.

But any new turn towards violence, where soldiers clash with students baying for democracy and amid a fast-faltering viral economy, would be the perfect storm of instability Prayut’s allies and backers do not yet seem to see gathering on the horizon.