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Days after being elected as Thailand’s youngest-ever prime minister, Paetongtarn Shinawatra threw cold water on a policy question that had been simmering for months.

At a press conference soon after she got the position, Paetongtarn said that a $14 billion stimulus plan , a major campaign pledge from her predecessor, needed further review to see whether it complied with the country’s laws on fiscal discipline. It’s the latest stumble in Thailand’s drive to juice consumption in its economy, stumbling under a weaker-than-hoped tourism recovery and slower manufacturing.

Paetongtarn was sworn in as Prime Minister on August 18, after Thailand's constitutional court ousted Srettha Thavisin due to an alleged ethics violation. Srettha was accused of appointing a minister with a criminal conviction.

Paetongtarn is the youngest daughter of Thaksin Shinawatra, Thailand’s former (and controversial) prime minister, and the niece of Yingluck Shinawatra, Thaksin’s younger sister who also served as prime minister.

Srettha, also backed by Thaksin, made the consumption stimulus a key part of his campaign in last year's general elections, and continued to push it as prime minister, calling it a “life-changing policy for the people.”

In July, Srettha said Thais could start registering on August 1 for the digital cash handout. The program is meant to give as many as 50 million Thais would get 10,000 Thai baht ($290) in government stimulus through a digital wallet by the fourth quarter of the year. Someone had to earn less than 70,000 baht a month ($2,030) and hold less than 500,000 baht ($14,500) in a savings account to qualify.

But critics, including economists, former central bankers, and opposition politicians, argued that a direct stimulus that could reach as large as $14 billion would worsen Thailand’s deficit and stoke inflation. In April, Thailand’s budget director warned that the gap for the current fiscal year would widen by $23.6 billion, making up 4.4% of GDP.

The threat of legal challenges pushed Srettha to rework the funding model for his stimulus package. Instead of resorting to a one-time borrowing, Srettha instead proposed using money from the state budget for its next fiscal year, starting Oct. 1, as well as a supplementary budget from the current fiscal year.

What's happening with the Thai economy?

But with a new prime minister, the $14 billion stimulus plan could be getting revised again.

Thailand’s economy could use the help. The country expanded by just 1.9% last year, lagging regional peers. The country is Southeast Asia’s second-largest economy, yet it is losing ground to peers like Vietnam and Malaysia, which are aggressively courting manufacturing.

That’s partly why Syetarn Hansakul, a senior economist at the Economist Intelligence Unit, thinks that stimulus will still be coming, though perhaps in a less digital form.

“[The government] received feedback from their grassroots supporters in the northeast who find [getting stimulus] difficult to do through the official app,” she says.

Middle-income and lower-middle-income Thais are struggling and may benefit from direct stimulus, she says. But she thinks any boost in economic activity will be fleeting, lasting only two quarters at most.

The government’s hope that stimulus will increase GDP by 1.6% is “highly optimistic,” thinks Alexandra Hermann, lead economist for macro forecasting and analysis at Oxford Economics.

“The digital money can only be spent in registered stores in one’s voting district, with further restrictions on what items the money can be spent on,” Hermann said.

Thailand’s economy is starting to recover, with year-on-year growth of 2.3% last quarter, ahead of expectations. The expansion was driven by more government expenditure and exports. Yet Thailand’s Office of the National Economic and Social Development Board noted that public and private investments contracted, hinting at underlying weakness in the economy.

Syetarn warns that long-term issues could risk Thailand getting caught in the “middle-income trap” as it loses out to competition from its neighbors.

Thailand has one of the highest levels of household debt in the region, at 92% of GDP in the last quarter of 2023, and much higher than the 70% recorded over a decade ago. High debt suppresses consumers as households prioritize paying off their loans.

The Southeast Asian country might also be paying the price for its overly-tourism reliant economy. Thailand’s growth since the global financial crisis in 2008 has been driven mostly by tourism, even as other sectors shrank, Hermann notes. But the COVID pandemic torpedoed Thailand’s tourism sector, which has yet to recover to pre-pandemic levels. The country has implemented initiatives like relaxed visa restrictions to attract tourists again. A possible return of Chinese tourists might also lead to growth.

But the rest of the economy is struggling. Pichai Chunhavajira, the caretaker finance minister, said recently the economy is "nearly in crisis" because of declining exports and uncompetitive manufacturing. He said exports account for 70% of Thailand’s economy but the manufacturing sector can’t meet demand.

While Thailand is still the region's dominant car production hub, the rest of the manufacturing sector is still focused on older products, like office machinery—think telephones and printers—still counting as a major export. Thailand’s electronics industry also focuses on producing mature chips, meaning it’s “unable to capitalize on the AI-driven boom that has benefited its northeast Asian peers,” Syetarn wrote in a recent research note.

Thailand needs more IT and science graduates to take up jobs in innovative industries, Syetarn explains, to help make the country more attractive versus regional neighbors like Malaysia and Vietnam, ahead in the race to get a share of the advanced chipmaking supply chain.

And then there’s uncertainty—exemplified by Paetongtarn’s novel path to the prime minister position.

“Political instability is no new thing in Thailand, but it is certainly weighing on investor confidence, both domestic and foreign,” Hermann said.