After weeks of political paralysis following the May 2023 general election, Thailand finally has a government that can begin work on pulling its economy out of a post-pandemic slump.

The 11-party coalition government under the leadership of Prime Minister Srettha Thavisin of the Pheu Thai Party was sworn in on September 5, ending more than nine years of quasi-military rule following the May 2014 coup. On September 18, the new cabinet passed a draft budget — which still needs National Assembly approval — that prioritizes populism over fiscal discipline. Included in the new cabinet’s budget is a debt moratorium for farmers, a 19% increase in the minimum wage, and a THB 10,000 (USD 275) cash payment to every Thai citizen. The initiatives do not come cheap, with a projected deficit of THB 693 billion (USD 19.74 billion), a 14% increase over the previous draft 2024 budget proposed by the former Prayut Chan-o-cha administration.

The draft budget has been met with concern by the business community. The president of the Japanese Chamber of Commerce, Noriaki Yamashita, said Japanese investors were opposed to “drastic changes,” such as a substantial increase in the minimum wage. Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations, also warned that overly aggressive populist measures would reduce confidence in Thailand’s fiscal and financial stability, scaring off investors. Furthermore, cash payments and ballooning deficits could lead to a downgrading of the country’s credit rating, according to Pipat Luengnaruemitchai, chief economist of Thai brokerage Kiatnakin Phatra Securities.

Despite these worries, there are indications that the Srettha administration will not upend Thailand’s traditional pro-business environment.

First and foremost, the cabinet’s draft budget is far from final. Its populist spending programs are likely to receive significant pushback from the business community. Moreover, the National Assembly, which contains large contingents from the conservative Bhumjaithai Party and military-backed parties, is also expected to push back against some of the more radical initiatives. Dissent is already evident within the cabinet. Although Srettha said on September 12 that a THB 400 (USD 11) daily minimum wage would be achieved “as soon as possible,” his Labor Minister Pipat Ratchakitprakarn broke ranks a few days later, cautioning that if the minimum wage were to rise by more than 10%, it could wipe out the country’s small and midsize enterprises.

Budget aside, political insiders believe that Srettha will revive some pro-business policies of former Prime Minister Thaksin Shinawatra’s administration (2001-2006). Although “Thaksinomics” was known primarily for populist programs aimed at the country’s rural heartland, it also included business-friendly measures such as cutting red tape, pushing for free trade agreements, privatizing state-owned enterprises, and engaging with the foreign business community.

Srettha is also expected to continue recent administrations’ efforts to move the economy towards high-tech sectors and advanced “S-Curve industries” like smart electronics, biotechnology, biofuels, and robotics. In addition, his previous statements on climate change signal a forthcoming emphasis on sustainability aimed at attracting environmentally minded investors from Japan and the EU.

For now, foreign investors need to keep abreast of the following key milestones and trends:

• Passage of the 2024 Budget. The 2024 budget may not be ratified by the National Assembly until April 2024, according to the State Planning Agency. Its passage, however, will signal the government’s viability as previous administrations have faced no confidence votes over their failure to secure approval. Beyond that, the extent to which its more populist measures – such as cash handouts, wage increases, and consumer staple subsidies – are left unscathed or, conversely, watered down, will be key indicators of Thailand’s investment climate.

• Adoption of the Board of Investment Five Year Plan. Srettha recently met with the Board of Investment, Thailand’s foreign investment promotion and licensing agency, to discuss strategies for attracting investment in high-tech sectors. Previous incentives included tax breaks for corporate office relocation or investment in priority industries, as well as non-tax benefits such as foreign worker visa allowances and exemptions on land ownership restrictions. The size and scale of the incentives in the next Five-Year Plan – expected to be released sometime in October 2023 – will be instrumental in attracting investment from multinational companies.

• Positioning vis-à-vis the Move Forward Party. Although the Pheu Thai Party (“PTP”) leads the ruling coalition, the left-wing Move Forward Party (“MFP”) controls the largest contingent in the National Assembly’s lower chamber, the House of Representatives, with 151 seats to the PTP’s 141 seats. Some have predicted that the MFP will be the most influential opposition party that Thailand has ever seen and will force the full National Assembly to vote on strong progressive legislation, such as breaking up monopolies and reforming the country’s strict lèse-majesté laws. How well the Srettha administration manages the opposition MFP will be a key factor in its revival of Thaksinomics.

• Role of Thaksin Shinawatra. Srettha also must manage the presence of former Prime Minister Thaksin, who is still a major political force within the PTP, which he founded in 2007. Even with his incarceration – now in the luxury wing of a Bangkok police hospital – some believe that Thaksin still commands the loyalty of PTP parliamentarians and may co-opt the current government, forcing Srettha into a figurehead position. Despite the alliance between the PTP and military-backed parties, a deep-seated enmity remains between Thaksin and the military establishment, which overthrew his government in 2006. Should Thaksin play an assertive role in the PTP, it could lead to a breakdown in the new ruling coalition.