Thailand 2021 Article Iv Consultation Press Release Staff Report And Statement By The Executive Director For Thailand

A nascent recovery is underway in Thailand following the COVID-19 downturn. Ample policy buffers, underpinned by judicious management of public finances, allowed the authorities to implement a multipronged package of fiscal, monetary, and financial policies to mitigate the COVID-19 impact on households, businesses, and the financial system. This, together with rigorous containment measures, led to a successful flattening of the infection curve during most of 2020. Nevertheless, the pandemic has taken a large toll on the economy, potentially inducing long-term scarring and increasing inequality.

Thailand’s economy is recovering from an unprecedented crisis emanating from multiple waves of the COVID-19 pandemic. Ample policy space has allowed a swift and bold policy response and vaccine rollout has accelerated. However, the recovery is weak and uneven across sectors, with inflation rapidly rising driven by energy prices. Downside risks dominate the outlook, sharpening policy tradeoffs. The pandemic has also brought to the fore the urgency for Thailand to identify new growth drivers to reverse the pre-pandemic trend of declining productivity growth and meet the challenges of the post-pandemic world.

This 2019 Article IV Consultation discusses Thailand’s robust policy framework and ample buffers continue to underpin its resilience to external headwinds. The authorities have taken measures to strengthen medium-term fiscal management and financial stability. With respect to the outlook, growth is projected to slow down to about 3 percent in 2019–20 reflecting external and domestic headwinds. On the external side, the projected slowdown in global demand and uncertainty about trade tensions are expected to weigh on exports throughout 2019. Policies should aim at boosting growth, while promoting domestic and external rebalancing and making growth more inclusive. The IMF staff recommends a front-loaded fiscal impulse in FY 2020. Thailand should use available fiscal space judiciously to spur domestic demand and support potential output. Implementation of macro-critical public infrastructure projects would also crowd in private investment. The report also highlights that structural reforms aimed at improving the implementation of public investment, strengthen social safety nets, and raise productivity in an increasingly digital economy, would boost growth and enhance its inclusiveness.

This 2018 Article IV Consultation highlights that a cyclical recovery is under way in Thailand but has yet to become broad based. GDP growth is estimated at 3.9 percent in 2017, boosted by strong tourism services and manufacturing exports. Domestic demand remained sluggish amid structural challenges, and export gains failed to trickle down to household incomes and investments in other sectors. Headline inflation averaged 0.7 percent, below the target band for the third year in a row, reflecting low food prices and weak core inflation. The current account surplus remained large, at about 10.6 percent of GDP. Financial system stability continued to strengthen. The growth momentum is expected to continue in 2018 and 2019, supported by sustained export dynamism.

This 2018 Article IV Consultation highlights that a cyclical recovery is under way in Thailand but has yet to become broad based. GDP growth is estimated at 3.9 percent in 2017, boosted by strong tourism services and manufacturing exports. Domestic demand remained sluggish amid structural challenges, and export gains failed to trickle down to household incomes and investments in other sectors. Headline inflation averaged 0.7 percent, below the target band for the third year in a row, reflecting low food prices and weak core inflation. The current account surplus remained large, at about 10.6 percent of GDP. Financial system stability continued to strengthen. The growth momentum is expected to continue in 2018 and 2019, supported by sustained export dynamism.

This paper discusses recent developments, outlook and risk, and policies required for a long-lasting recovery of Thailand’s economy. Thailand remains resilient in the face of external and internal challenges. However, political uncertainty and structural bottlenecks cloud long-term prospects. The economy recovered in 2015 after a slowdown induced by political uncertainty. Public investment supported economic activity, particularly through community-based infrastructure projects. Monetary policy was eased in the face of below-target inflation. The credit cycle moderated, but household debt reached a historic high. Implementing high-quality fiscal stimulus, easing monetary policy, and safeguarding financial sector stability can strengthen long-term sustainability, equity, and efficiency of Thailand’s economy.

Malaysia’s economy is showing signs of a gradual yet steady recovery thanks to the authorities’ impressive vaccine rollout, swift and coordinated implementation of multi-pronged support measures. The recovery nevertheless remains uneven and the output gap sizeable, with significant downside risks. Going forward, the authorities should calibrate macroeconomic policies to the pace of the recovery, while preserving policy space given pandemic-related uncertainties, and simultaneously accelerate structural reforms.

The Thai economy has demonstrated its strength in its rapid rebound from the global crisis. But the loss of its former dynamism has slowed trend growth and left it largely dependent on exports. Executive Directors encourage an infrastructure-led growth strategy to make a difference to Thailand’s medium-term outlook. The significant obstacles to this strategy is that large infrastructure projects are particularly complex, with difficulties at the design, contracting, and implementation phases. An infrastructure-led growth strategy would also require budgetary resources and strengthening the medium-term fiscal framework.