What is Thailand’s main source of foreign exchange earnings?

01 The main sources of Thailand’s foreign exchange reserves are export earnings (mainly driven by agriculture, automobile and parts industries, and tourism), foreign debt inflows, and foreign direct investment.

Foreign exchange reserves mainly refer to the foreign exchange assets held by central banks and other government agencies of various countries to meet international payment needs. The main functions of foreign exchange reserves are: to regulate the international balance of payments and ensure international payment capabilities; to intervene in the foreign exchange market to maintain the stability of the country's exchange rate; to maintain international credibility and improve financing capabilities; to enhance overall national strength and resist financial risks. Sources of Thailand’s foreign exchange reserves: The main sources of Thailand’s foreign exchange reserves are export earnings (mainly driven by agriculture, automobile and parts industries, and tourism), foreign debt inflows, and foreign direct investment.

1. Export revenue

Import and export are the main aspects of transactional demand for foreign exchange reserves. Export earnings are an important source of foreign exchange reserves. Increased exports from Thailand are a reliable source of growth in Thailand’s foreign exchange reserves. Thailand's exports are mainly driven by agriculture, the automobile and parts industry, and tourism.

(1) Agriculture

Agriculture is Thailand’s pillar industry, and agricultural products are one of the main commodities for foreign trade exports. Thailand is the world's largest producer and exporter of rubber, as well as the largest exporter of cassava and rice. The annual rubber production is about 4.5 million tons, accounting for 1/3 of the global total production. Most of the rubber produced is exported, and the annual export volume accounts for 40-45% of the world's total rubber exports. In 2017, rubber exports brought Thailand 500 billion baht in revenue. Cassava production ranks third in the world, 60% of which is exported. In 2017, Thailand's rice exports reached 1,125 tons, setting the highest annual export record, with a year-on-year increase of 14.77%, and export value of 168 billion baht.

(2) Automobile industry

Thailand is one of the top ten automobile and parts manufacturers in the world. In 2017, Thailand’s domestic sales of automobiles were 871,000 units and exports were 1.14 million units. Exports are greater than domestic sales. In 2018, Thailand became the 12th largest motor vehicle producer and the fifth largest light commercial producer in the world, and the largest motor vehicle producer in ASEAN.

(3) Tourism

Thailand’s tourism industry is very developed, and the number of tourists arriving every year drives the continuous development of Thailand’s economy. According to statistics from the World Tourism Organization, Thailand’s tourism industry and the related industries it drives account for nearly one-fifth of Thailand’s GDP. The employment structure of Thailand's service industry has begun to rise, with nearly half of the labor force concentrated in the service industry. In addition, Thailand has unique advantages in natural and cultural landscapes, and its tourism trade surplus, one of its exports, has grown year by year.

2. Foreign debt inflow

External borrowing is an important way for developing countries to use foreign capital to accelerate their economic development. It can make up for the lack of domestic construction funds and introduce advanced technology and equipment to achieve their own economic development. . The larger the scale of foreign debt and the more short-term foreign debt, the more foreign exchange reserves the country needs in order to maintain its solvency.

From 2005 to 2018, Thailand’s external debt averaged US$105,957.14 million, with the highest value being US$158,129.39. Most of the foreign exchange held by Thailand is needed to prepare for the repayment of foreign debt. Thailand uses external borrowing for domestic investment and consumption, promotes the development of its own infrastructure, and invests in the real estate market.

3. Foreign direct investment

Foreign direct investment manifests itself as an increase in capital inflows and imports. Encouraged by expectations of the Thai baht's appreciation, the growth of foreign exchange reserves caused by capital inflows accelerated significantly in 2005 and 2006. Thailand continues to improve its economic environment and investment system to attract more foreign investors to invest directly in Thailand. Thailand is very open to investment from abroad, especially foreign capital inflows (such as FDI) that have a great relationship with physical trade and investment.

According to the Thailand Board of Investment (BOI), the amount of direct investment applications from overseas doubled in 2018 from the previous year, reaching approximately 582.5 billion baht (approximately RMB 125.4 billion). In recent years, foreign direct investment has largely contributed to the further growth of Thailand’s foreign exchange reserves.