IMF Executive Board Concludes 2018 Article IV Consultation with Thailand

June 4, 2018

On May 21, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Thailand.

A cyclical recovery is underway 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. A rebound in public investment, in line with the government’s infrastructure plans, is expected to crowd in private investment. The current account surplus is projected to gradually decline over the medium term, as investor and consumer confidence strengthen, and domestic demand gathers speed. Inflation is expected to remain below the 2.5 percent target. Risks to the near-term outlook arise from potential weaknesses in the external environment, including protectionism, as well as domestic structural challenges. On the other hand, a stronger than projected rebound in investment provides an upside risk to growth, and greater dynamism in regional trade could further boost Thai exports.

Executive Board Assessment [2]

Executive Directors welcomed Thailand’s improving economic prospects, which are supported by strong global and regional trade. Directors noted, however, that the recovery has yet to become broad‑based, as structural challenges continue to be a drag on domestic demand, while inflation dynamics remain weak. Against this backdrop, they encouraged the authorities to calibrate the policy mix and use available space to support domestic demand and external rebalancing, and implement structural reforms to boost growth potential.

Directors welcomed the enactment of the fiscal responsibility law, and ongoing efforts to anchor fiscal policy in a medium‑term fiscal framework, which are key to safeguarding fiscal sustainability. They agreed that scaling up macro‑critical infrastructure projects would crowd in private investment, stimulate domestic demand, and facilitate external rebalancing. Directors emphasized the importance of fiscal reforms aimed at strengthening public investment implementation capacity and better targeting of social expenditures to boost demand on a sustained basis. They concurred that additional growth‑friendly revenue mobilization will be needed in the medium to long term, as part of a broader strategy to prepare for aging‑related expenditure pressures.

A number of Directors agreed that monetary easing, within a broader expansionary policy mix, could help steer inflation back to target, with macroprudential policy used to address financial stability concerns. A number of other Directors considered the current monetary stance to be sufficiently accommodative, and that monetary policy should balance support for inflation against financial stability risks. Directors noted that enhanced communication would improve the effectiveness of monetary policy transmission by strengthening the expectations channel. They emphasized the importance of exchange rate flexibility, with intervention limited to avoiding disorderly market conditions. A number of Directors encouraged publication of the intervention data with appropriate lags to improve transparency and communication. A few other Directors, noting the potential sensitivity of the data, supported a more cautious approach.

Directors agreed that the financial system remains sound, and commended the authorities for measures taken to strengthen financial system stability. While not expected to pose systemic risks, they called for close monitoring of vulnerabilities in the nonbank financial sector. Directors broadly concurred that strengthening macroprudential policy should help ensure continued containment of systemic risks. They looked forward to the forthcoming FSAP, which will conduct a more comprehensive assessment of risks in the financial sector.

Directors called for a comprehensive package of reforms to boost potential growth and improve inclusiveness. They underscored the need to increase productivity and address the impact of aging through pension reform, human capital development, higher female labor force participation, and improvements in the business environment. Directors welcomed the authorities’ plans to expedite investment in infrastructure and logistics as part of a broader strategy to deepen economic integration within the ASEAN region.

Most Directors agreed that Thailand’s external position is substantially higher than warranted by medium‑term fundamentals and desirable policies. Some Directors called for a more cautious interpretation of the external balance assessment citing Thailand‑specific issues as contributing factors.

Thailand: Selected Economic Indicators 2014–19

Prel.

Proj.

Proj.

2014

2015

2016

2017

2018

2019

Real GDP growth (y/y percent change) 1/

1.0

3.0

3.3

3.9

3.9

3.8

Consumption

1.2

2.3

2.8

2.6

3.7

4.4

Gross fixed investment

-2.2

4.3

2.8

0.9

6.8

7.4

Inflation (y/y percent change)

Headline CPI (end of period)

0.6

-0.9

1.1

0.8

0.8

1.0

Headline CPI (period average)

1.9

-0.9

0.2

0.7

1.4

0.7

Core CPI (end of period)

1.7

0.7

0.7

0.6

1.2

1.3

Core CPI (period average)

1.6

1.1

0.7

0.6

0.9

1.3

Saving and investment (percent of GDP)

Gross domestic investment

23.9

22.3

21.1

22.8

24.2

24.7

Private

19.4

18.2

17.6

17.2

17.4

17.6

Public

5.2

6.3

6.4

6.0

6.8

7.1

Change in stocks

-0.7

-2.2

-2.9

-0.3

0.0

0.0

Gross national saving

27.7

30.3

32.8

33.4

33.2

33.1

Private, including statistical discrepancy

23.0

23.2

25.6

28.2

27.9

27.6

Public

4.7

7.1

7.2

5.3

5.3

5.4

Foreign saving

-3.7

-8.0

-11.7

-10.6

-9.0

-8.3

Fiscal accounts (percent of GDP) 2/

General government balance 3/

-0.8

0.1

0.6

-0.6

-0.9

-0.9

SOEs balance

-0.5

0.7

0.8

0.7

0.2

0.0

Public sector balance 4/

-1.3

0.9

1.4

0.1

-0.8

-0.9

Public sector debt (end of period) 4/

43.3

42.5

41.8

41.9

41.6

41.6

Monetary accounts (end of period, y/y percent change)

Broad money growth

4.6

4.4

4.2

5.1

4.5

5.3

Narrow money growth

1.3

5.7

4.8

9.4

4.5

5.3

Credit to the private sector by depository corporations

4.7

5.3

3.9

4.5

4.5

4.3

Balance of payments (billions of U.S. dollars)

Current account balance

15.2

32.1

48.2

48.1

43.4

43.3

(Percent of GDP)

3.7

8.0

11.7

10.6

9.0

8.3

Exports, f.o.b.

226.6

214.0

214.3

235.1

255.0

274.6

Growth rate (dollar terms)

-0.4

-5.6

0.1

9.7

8.4

7.7

Growth rate (volume terms)

0.8

-2.0

0.1

5.6

5.9

5.6

Imports, f.o.b.

209.4

187.2

177.7

203.2

224.9

243.0

Growth rate (dollar terms)

-7.9

-10.6

-5.1

14.4

10.7

8.0

Growth rate (volume terms)

-6.3

0.2

-2.3

8.5

6.1

7.4

Capital and financial account balance 5/

-16.4

-26.3

-35.4

-22.0

-33.7

-43.3

Overall balance

-1.2

5.9

12.8

26.1

9.7

0.0

Gross official reserves (including net forward position,

end of period) (billions of U.S. dollars)

180.2

168.2

197.6

239.3

249.0

249.0

(Months of following year's imports)

11.6

11.4

11.7

12.8

12.3

11.4

(Percent of short-term debt) 6/

257.7

280.2

273.8

326.8

352.5

321.9

(Percent of ARA metric)

187.4

203.9

211.2

221.2

...

...

Forward position of BOT (end of period)

-23.1

-11.7

-25.8

-36.7

...

...

Exchange rate (baht/U.S. dollar)

32.5

34.2

35.3

33.9

...

...

NEER appreciation (annual average)

-3.0

4.4

-3.2

4.3

...

...

REER appreciation (annual average)

-3.2

2.5

-4.0

3.4

...

...

External debt

(Percent of GDP)

34.8

32.7

32.1

32.7

33.7

33.3

(Billions of U.S. dollars)

141.7

131.1

132.2

149.0

162.9

173.4

Public sector 7/

25.3

20.6

22.6

31.1

41.6

45.5

Private sector

116.4

110.5

109.6

117.9

121.3

127.9

Medium- and long-term

60.4

58.3

56.8

59.5

60.8

64.3

Short-term (including portfolio flows)

56.0

52.2

52.8

58.4

60.5

63.7

Debt service ratio 8/

4.9

6.3

5.8

5.7

6.0

6.3

Memorandum items:

Nominal GDP (billions of baht)

13,230

13,747

14,533

15,450

16,150

17,003

(Billions of U.S. dollars)

407.3

401.4

411.8

455.3

Sources: Thai authorities; CEIC Data Co. Ltd.; and IMF staff estimates and projections.

1/ This series reflects the new GDP data based on the chain volume measure methodology, introduced by the Thai authorities in May 2015.

2/ On a fiscal year basis. The fiscal year ends on September 30.

3/ Includes budgetary central government, extrabudgetary funds, and local governments.

4/ Includes general government and SOEs.

5/ Includes errors and omissions.

6/ With remaining maturity of one year or less.

7/ Excludes debt of state enterprises.

8/ Percent of exports of goods and services.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

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