## 1thaea2024001 - 1.3 percent in the year. Growth is projected to accelerate briefly in 2024, on account of ## Source details **Canonical URL:** [1thaea2024001 - 1.3 percent in the year. Growth is projected to accelerate briefly in 2024, on account of](https://www.imf.org/-/media/files/publications/cr/2024/english/1thaea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1thaea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1thaea2024001.pdf.json) --- ### Growth outlook and drivers - Growth projection and drivers - Growth is projected to accelerate briefly in 2024 on account of improvements in external demand and robust growth in private consumption bolstered by the government’s fiscal stimulus. - Driven by the demand boost, headline inflation is expected to accelerate mildly in 2024—but remain within the Bank of Thailand’s target range. - The current account balance is expected to turn into a small surplus in 2023 and further increase in 2024, as the continued recovery in tourism receipts and decline in freight costs offset the weak performance of merchandise exports. ### Downside risks - External risks - An abrupt global slowdown—including in China. - Hikes in commodity prices. - Tighter-than-expected global financial conditions. - Deepening of geo-economic fragmentation. - Domestic risks - Lack of fiscal discipline could undermine macroeconomic stability. - Elevated private sector debt poses a threat to financial stability. - Over-reliance on tourism increases vulnerability to external shocks. ### Executive Board assessment and policy guidance - Near-term stance - Continue gradual policy normalization in the near term. - Implement bold structural reforms to boost productivity, potential growth, and build climate resilience. - Fiscal policy recommendations - Consider a neutral fiscal stance, with targeted and sustained support for vulnerable groups through enhanced social safety nets and greater progressivity in the tax system. - Medium-term fiscal strategy should aim to place public debt on a downward path while providing fiscal space for investments in human and physical capital and reducing risks from state-owned enterprises and extra-budgetary funds. - Enhanced revenue mobilization—through gradually increasing the VAT rate and improving spending efficiency, including by removing costly universal energy subsidies—should be key priorities. - Monetary and financial sector recommendations - The Bank of Thailand’s neutral monetary policy stance remains appropriate; authorities should be ready to tighten if domestic or external risks to inflation materialize. - Continue unwinding policy interventions in the financial sector. - Reduce elevated private debt by facilitating restructurings, promoting responsible lending and borrowing, and strengthening the macroprudential framework instead of relying on debt moratoria. - Continue efforts to strengthen the AML/CFT framework. - Exchange rate should continue to act as a shock absorber; foreign exchange intervention should be limited to addressing disorderly market conditions and preventing excessive deviations in hedging and financing premia due to large non-fundamental shocks. ### Structural reform priorities - Remove excessive regulation. - Upskill the labor force. - Reform the social protection system. - Manage climate transition risks and build resilience to natural disasters. ### Key statistics and projections (selected, preserved exactly as in source) - Real GDP growth (y/y percent change): 2019: 2.1; 2020: -6.1; 2021: 1.5; 2022: 2.6; 2023: 2.5; 2024: 4.4; 2025: 2.0. - Consumption: 2019: 3.4; 2020: -0.3; 2021: 1.3; 2022: 5.0; 2023: 4.8; 2024: 6.0; 2025: 0.3. - Headline CPI (period average): 2019: 0.7; 2020: -0.8; 2021: 1.2; 2022: 6.1; 2023: 1.3; 2024: 1.7; 2025: 1.9. - Core CPI (period average): 2019: 0.5; 2020: 0.3; 2021: 0.2; 2022: 2.5; 2023: 1.2; 2024: 1.4; 2025: 1.6. - Gross domestic investment (percent of GDP): 2019: 23.8; 2020: 23.7; 2021: 28.6; 2022: 27.8; 2023: 21.9; 2024: 19.7; 2025: 20.7. - Gross national saving: 2019: 30.8; 2020: 27.9; 2021: 26.6; 2022: 24.6; 2023: 22.6; 2024: 21.1; 2025: 22.8. - General government balance (percent of GDP): 2019: 0.4; 2020: -4.5; 2021: -6.8; 2022: -4.5; 2023: -3.2; 2024: -6.2; 2025: -3.4. - Public sector debt (end of period): 2019: 41.1; 2020: 49.4; 2021: 58.4; 2022: 60.5; 2023: 62.4; 2024: 65.8; 2025: 66.9. - Broad money growth (end of period, y/y percent): 2019: 3.6; 2020: 10.2; 2021: 4.8; 2022: 3.9; 2023: 1.3; 2024: 5.6; 2025: 3.6. - Credit to the private sector (by other depository corporations): 2019: 2.4; 2020: 4.5; 2021: 4.5; 2022: 2.4; 2023: 1.3; 2024: 3.8; 2025: 2.4. - Current account balance (billions of U.S. dollars): 2019: 38.3; 2020: 20.9; 2021: -10.3; 2022: -15.7; 2023: 4.1; 2024: 7.7; 2025: 12.3. - Current account (percent of GDP): 2019: 7.0; 2020: 4.2; 2021: -2.0; 2022: -3.2; 2023: 0.8; 2024: 1.4; 2025: 2.1. - Exports of goods, f.o.b. (billions of U.S. dollars): 2019: 242.7; 2020: 227.0; 2021: 270.6; 2022: 285.2; 2023: 279.1; 2024: 298.8; 2025: 313.2. - Imports of goods, f.o.b. (billions of U.S. dollars): 2019: 216.0; 2020: 186.6; 2021: 238.2; 2022: 271.6; 2023: 263.3; 2024: 282.8; 2025: 295.9. - Gross official reserves (end of period, billions of U.S. dollars): 2019: 259.0; 2020: 286.5; 2021: 279.2; 2022: 245.8; 2023: 245.8; 2024: 245.8; 2025: 245.8. - Exchange rate (baht/U.S. dollar): 2019: 31.0; 2020: 31.3; 2021: 32.0; 2022: 35.1; 2023: 34.3; 2024: 34.0; 2025: 33.8. - External debt (percent of GDP): 2019: 31.7; 2020: 38.0; 2021: 38.8; 2022: 40.4; 2023: 41.0; 2024: 40.4; 2025: 41.0. - External debt (billions of U.S. dollars): 2019: 172.6; 2020: 190.1; 2021: 196.2; 2022: 200.3; 2023: 213.2; 2024: 223.7; 2025: 236.6. - Nominal GDP (billions of baht): 2019: 16889.2; 2020: 15661.1; 2021: 16166.6; 2022: 17370.1; 2023: 7839.5; 2024: 18829.8; 2025: 19509.2. - Nominal GDP (billions of U.S. dollars): 2019: 544.0; 2020: 500.5; 2021: 505.6; 2022: 495.4; 2023: 519.7; 2024: 554.4; 2025: 577.5. *Source: THAILAND STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION (IMF staff estimates and projections).* ### Context, recent developments, and medium-term challenges - Growth and inflation recent history - 2022: expanded by 2.6 percent. - 2023Q1–Q3: expanded by 1.9 percent. - 2023 (projection): 2.5 percent for the year. - Peak headline inflation: 7.9 percent in August 2022. - Headline inflation: -0.4 percent in November 2023 (y/y), below the BOT’s lower target of 1 percent. - Core inflation: 3.2 percent in November 2022 (y/y) → 0.6 percent in October 2023 (y/y). - Projected 2023 averages: headline inflation 1.3 percent, core inflation 1.2 percent. - Note: 26.4 percent of goods’ prices in the CPI basket are controlled. - Labor and socio-economic outcomes - Private consumption growth robust at 7.3 percent. - Employment gains driven by wholesale and retail trade and accommodation services; women and low-skilled workers fared relatively better in employment but gender gaps persist, especially in ICT jobs. - Public finances and monetary policy - General government deficit: estimated at 3.2 percent of GDP in FY23 (down from 4.5 percent of GDP in FY22). - Public sector debt: 62.4 percent of GDP as of end-FY23. - BOT implemented 8 consecutive 25 bps increments in the policy rate between August 2022 and September 2023. - Net foreign portfolio outflows in January–September 2023 contributed to some THB depreciation relative to ASEAN-5 peers. ### Financial sector soundness and vulnerabilities - Key indicators (preserved exactly) - Liquidity coverage ratio: 196 percent in 2023Q3. - NPLs: declined from 3.23 percent in 2020Q1 to 2.70 percent in 2023Q3. - NPL coverage ratio: 176 percent in 2023Q3. - Private sector credit growth: 1.1 percent in 2023Q3. - Household debt: 90.7 percent of GDP as of mid-2023 (from 94.7 percent of GDP at end-2021). - Corporate debt: 87.9 percent of GDP (stable). ### Policy guidance and recommendations (summary) - Overarching guidance - Resume policy normalization with fiscal and monetary policies operating in tandem to preserve macroeconomic stability, protect the poorest, and rebuild buffers. - Implement bold structural reforms to support sustained, green, and inclusive medium-term growth. - Fiscal policy - Adopt a more neutral near-term fiscal stance while allowing space for well-targeted support to vulnerable groups. - Medium-term: pursue high-quality fiscal consolidation focused on critical investments in physical and human capital, targeted social transfers, and enhanced revenue mobilization to boost productivity and keep public debt on a downward path. - Monetary policy - Current stance: neutral monetary policy stance deemed appropriate. - BOT should be ready to tighten further if inflationary risks from external shocks or domestic policies materialize. - Financial sector policy - Adopt a comprehensive approach to address elevated private debt. - Accelerate ongoing debt restructuring programs, strengthen the insolvency regime, and avoid moral hazard. - Use macroprudential tools to prevent excessive leverage. ### Risks and outlook (selected) - Staff baseline projections subject to uncertainty from delays in the FY24 budget process and the implementation of the new government’s near-term economic policies. - Projections use the revised MTFF through FY27 and incorporate the debt-financed Digital Wallet (DW) program but exclude impacts of potential minimum wage increases due to lack of clarity. - Alternative scenarios include a smaller, targeted DW program and full implementation of minimum wage increases. ### Fiscal consolidation and quantitative fiscal targets (selected exact figures) - Staff targets and scenarios - Implement the DW program within the MTFF deficit limit in FY24 without new borrowing. - Scale down the DW program to fit within the FY24 budget envelope (a 3.6 percent of GDP deficit) and target only vulnerable groups. - Limiting transfers to people below the poverty line would cost 0.2 percent of GDP. - Over the medium term, pursue high-quality fiscal consolidation to bring the deficit to around 1 percent of GDP by FY29. - Text Table 2 (selected exact figures) - CG overall balance (MTFF): -3.6 (FY2024), -3.4 (FY2025), -3.4 (FY2026), -3.3 (FY2027), NANA. - GG overall balance (Baseline): -6.2 (FY2024), -3.4 (FY2025), -3.4 (FY2026), -3.2 (FY2027), -3.0 (FY2028), -2.9 (FY2029). - GG overall balance (Adjustment scenario): -2.5 (FY2024), -2.0 (FY2025), -1.5 (FY2026), -1.3 (FY2027), -1.2 (FY2028). - Primary balance (Baseline): -4.9 (FY2024), -2.0 (FY2025), -2.0 (FY2026), -1.8 (FY2027), -1.6 (FY2028), -1.5 (FY2029). - Primary balance (Adjustment scenario): -1.1 (FY2024), -0.6 (FY2025), -0.1 (FY2026), 0.1 (FY2027), 0.2 (FY2028). - Revenue and spending measures yields in percent of GDP: 1.2, 1.8, 2.4, 2.4, 2.4; 0.6, 1.2, 1.8, 1.8, 1.8; 0.5 repeated; 0.3, 0.5, 0.7, 0.7, 0.7; 0.3 repeated; 0.1 repeated; 0.2, 0.4, 0.4, 0.4. - Public debt (MTFF and scenarios): 64.0, 64.7, 64.9, 64.8, NANA; 65.8, 66.9, 66.8, 66.2, 65.4, 64.7; 66.0, 64.7, 63.0, 61.3, 59.5. ### Exchange rate and FX intervention - Findings and guidance - Continue to use the exchange rate as the first line of defense against external shocks. - Consider FXI as a complementary tool only under circumstances identified by IPF (disorderly movements, sharp risk-premia changes, risks to inflation expectations or FX market functioning). - Provide FXI data with appropriate time lags to enable assessment of rationale and effectiveness. - Phase out capital flow management (CFMs) measures on non-resident baht accounts. - Authorities’ stance - MPC views current policy rate of 2.5 percent as appropriate and consistent with returning to a neutral stance; will continue data-dependent approach. - Authorities committed to a flexible exchange rate regime and gradual liberalization of capital flows. ### Financial sector policy and consumer protection measures - Supervisor actions and recommended measures - Continue unwinding pandemic-related forbearance; enhance risk analysis and stress testing. - Implement Risk-Based Pricing (RBP) measure tentatively scheduled to start by 2024Q2. - Debt Service Ratio (DSR) to limit household borrowing being developed with implementation tentatively scheduled for 2025; staff recommends accelerating implementation and ensuring broad-based coverage. - Expand macroprudential coverage to include cooperatives and NBFIs to avoid regulatory arbitrage. - Strengthen insolvency regime and avoid broad debt moratoria. ### FinTech, AML/CFT, and sustainable finance - Measures and recommendations - Maintain a cautious approach toward digital assets; limit direct bank exposure consistent with BOT restrictions. - Finalize Beneficial Ownership Information Act and Operation of Non-Profit Organizations (NPOs) Act to require disclosure of beneficial ownership. - Progress noted by Asia Pacific Group on money laundering (APG), but Thailand remains partially compliant on six recommendations and non-compliant on one (R. 24-25). - Encourage capacity-building for environment-related risk assessment and climate-related financial products. ### Structural policy priorities (selected) - Enhance competition: streamline regulatory barriers, liberalize services, minimize distortive tax incentives, consider relaxing foreign ownership limits in some sectors. - Upskill labor force: active labor market policies, education reforms, streamline hiring of non-resident skilled workers; SMART visa program steps. - Social protection reform: increase effectiveness and targeting, reduce overlaps, consider targeting DW program to SWC recipients, streamline SWC benefits to a single monthly cash transfer, raise retirement age and/or contribution rate. - Climate policy: implement broader and more binding ETS and adopt carbon pricing through forthcoming “Climate Change Act”, while protecting vulnerable groups. - Numeric highlights: RBP tentatively scheduled to start by 2024Q2; DSR implementation tentatively scheduled for 2025; social spending about 0.8 percent of GDP annually versus 1.6 percent average in upper middle-income countries; social insurance coverage about 3.6 percent of the population; emissions pledges: 30-40 percent reduction by 2030; carbon neutrality in 2050; net-zero by 2065; cooling-related emissions reduction target of 68 percent. *International Monetary Fund — Thailand Article IV Consultation, December 18, 2023* ### 1.3 percent in the year. Growth is projected to accelerate briefly in 2024, on account of ### 1thaea2024001 - 1.3 percent in the year. Growth is projected to accelerate briefly in 2024, on account of ### Growth outlook and drivers - Growth is projected to accelerate briefly in 2024 on account of improvements in external demand and robust growth in private consumption bolstered by the government’s fiscal stimulus. - Driven by the demand boost, headline inflation is expected to accelerate mildly in 2024—but remain within the Bank of Thailand’s target range. - The current account balance is expected to turn into a small surplus in 2023 and further increase in 2024, as the continued recovery in tourism receipts and decline in freight costs offset the weak performance of merchandise exports. ### Downside risks - External risks: - An abrupt global slowdown—including in China. - Hikes in commodity prices. - Tighter-than-expected global financial conditions. - Deepening of geo-economic fragmentation. - Domestic risks: - Lack of fiscal discipline could undermine macroeconomic stability. - Elevated private sector debt poses a threat to financial stability. - Over-reliance on tourism increases vulnerability to external shocks. ### Executive Board assessment and policy guidance - Directors welcomed Thailand’s post-pandemic economic recovery and commended the authorities for maintaining macroeconomic stability amidst multiple shocks. - Directors noted the recovery has been slower than in ASEAN peers and risks are tilted to the downside. - Near-term stance: - Continue gradual policy normalization in the near term. - Implement bold structural reforms to boost productivity, potential growth, and build climate resilience. - Fiscal policy recommendations: - Consider a neutral fiscal stance, with targeted and sustained support for vulnerable groups through enhanced social safety nets and greater progressivity in the tax system. - Medium-term fiscal strategy should aim to place public debt on a downward path while providing fiscal space for investments in human and physical capital and reducing risks from state-owned enterprises and extra-budgetary funds. - Enhanced revenue mobilization—through gradually increasing the VAT rate and improving spending efficiency, including by removing costly universal energy subsidies—should be key priorities. - Monetary and financial sector recommendations: - The Bank of Thailand’s neutral monetary policy stance remains appropriate; authorities should be ready to tighten if domestic or external risks to inflation materialize. - Continue unwinding policy interventions in the financial sector. - Reduce elevated private debt by facilitating restructurings, promoting responsible lending and borrowing, and strengthening the macroprudential framework instead of relying on debt moratoria. - Continue efforts to strengthen the AML/CFT framework. - Exchange rate should continue to act as a shock absorber; foreign exchange intervention should be limited to addressing disorderly market conditions and preventing excessive deviations in hedging and financing premia due to large non-fundamental shocks. ### Structural reform priorities - Remove excessive regulation. - Upskill the labor force. - Reform the social protection system. - Manage climate transition risks and build resilience to natural disasters. ### Key statistics and projections (selected, preserved exactly as in source) - Real GDP growth (y/y percent change): 2019: 2.1; 2020: -6.1; 2021: 1.5; 2022: 2.6; 2023: 2.5; 2024: 4.4; 2025: 2.0. - Consumption: 2019: 3.4; 2020: -0.3; 2021: 1.3; 2022: 5.0; 2023: 4.8; 2024: 6.0; 2025: 0.3. - Headline CPI (period average): 2019: 0.7; 2020: -0.8; 2021: 1.2; 2022: 6.1; 2023: 1.3; 2024: 1.7; 2025: 1.9. - Core CPI (period average): 2019: 0.5; 2020: 0.3; 2021: 0.2; 2022: 2.5; 2023: 1.2; 2024: 1.4; 2025: 1.6. - Gross domestic investment (percent of GDP): 2019: 23.8; 2020: 23.7; 2021: 28.6; 2022: 27.8; 2023: 21.9; 2024: 19.7; 2025: 20.7. - Gross national saving: 2019: 30.8; 2020: 27.9; 2021: 26.6; 2022: 24.6; 2023: 22.6; 2024: 21.1; 2025: 22.8. - General government balance (percent of GDP): 2019: 0.4; 2020: -4.5; 2021: -6.8; 2022: -4.5; 2023: -3.2; 2024: -6.2; 2025: -3.4. - Public sector debt (end of period): 2019: 41.1; 2020: 49.4; 2021: 58.4; 2022: 60.5; 2023: 62.4; 2024: 65.8; 2025: 66.9. - Broad money growth (end of period, y/y percent): 2019: 3.6; 2020: 10.2; 2021: 4.8; 2022: 3.9; 2023: 1.3; 2024: 5.6; 2025: 3.6. - Credit to the private sector (by other depository corporations): 2019: 2.4; 2020: 4.5; 2021: 4.5; 2022: 2.4; 2023: 1.3; 2024: 3.8; 2025: 2.4. - Current account balance (billions of U.S. dollars): 2019: 38.3; 2020: 20.9; 2021: -10.3; 2022: -15.7; 2023: 4.1; 2024: 7.7; 2025: 12.3. - Current account (percent of GDP): 2019: 7.0; 2020: 4.2; 2021: -2.0; 2022: -3.2; 2023: 0.8; 2024: 1.4; 2025: 2.1. - Exports of goods, f.o.b. (billions of U.S. dollars): 2019: 242.7; 2020: 227.0; 2021: 270.6; 2022: 285.2; 2023: 279.1; 2024: 298.8; 2025: 313.2. - Imports of goods, f.o.b. (billions of U.S. dollars): 2019: 216.0; 2020: 186.6; 2021: 238.2; 2022: 271.6; 2023: 263.3; 2024: 282.8; 2025: 295.9. - Gross official reserves (end of period, billions of U.S. dollars): 2019: 259.0; 2020: 286.5; 2021: 279.2; 2022: 245.8; 2023: 245.8; 2024: 245.8; 2025: 245.8. - Exchange rate (baht/U.S. dollar): 2019: 31.0; 2020: 31.3; 2021: 32.0; 2022: 35.1; 2023: 34.3; 2024: 34.0; 2025: 33.8. - External debt (percent of GDP): 2019: 31.7; 2020: 38.0; 2021: 38.8; 2022: 40.4; 2023: 41.0; 2024: 40.4; 2025: 41.0. - External debt (billions of U.S. dollars): 2019: 172.6; 2020: 190.1; 2021: 196.2; 2022: 200.3; 2023: 213.2; 2024: 223.7; 2025: 236.6. - Nominal GDP (billions of baht): 2019: 16889.2; 2020: 15661.1; 2021: 16166.6; 2022: 17370.1; 2023: 7839.5; 2024: 18829.8; 2025: 19509.2. - Nominal GDP (billions of U.S. dollars): 2019: 544.0; 2020: 500.5; 2021: 505.6; 2022: 495.4; 2023: 519.7; 2024: 554.4; 2025: 577.5. *Source: THAILAND STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION (IMF staff estimates and projections).* ### 2.5 percent in 2023, broadly on par with 2022, while inflation is expected to remain ### 1thaea2024001 - 2.5 percent in 2023, broadly on par with 2022, while inflation is expected to remain ### Context and medium-term challenges - Growth recovered after the COVID-19 contraction but was dragged by higher commodity prices since 2022, faster-than-expected monetary policy normalization in advanced economies, and the slowdown in China. - Potential growth has been trending down due to underinvestment in human and physical capital, high private sector debt, and inadequate social safety nets for a fast-aging population. - Key structural imperatives: additional investments in skills and technology to harness digital and green transformations, and mitigation of geo-economic fragmentation and climate risks. ### Recent macroeconomic developments (key findings) - Real GDP growth: - 2020: contraction (post-pandemic). - 2021–22: gradual recovery. - 2022: expanded by 2.6 percent. - 2023Q1–Q3: expanded by 1.9 percent. - 2023 (projection): 2.5 percent for the year. - Inflation: - Peak headline inflation: 7.9 percent in August 2022. - Headline inflation: -0.4 percent in November 2023 (y/y), below the BOT’s lower target of 1 percent. - Core inflation: 3.2 percent in November 2022 (y/y) → 0.6 percent in October 2023 (y/y). - Projected 2023 averages: headline inflation 1.3 percent, core inflation 1.2 percent. - Note: 26.4 percent of goods’ prices in the CPI basket are controlled. - Labor and socio-economic outcomes: - Private consumption growth robust at 7.3 percent. - Employment gains driven by wholesale and retail trade and accommodation services; women and low-skilled workers fared relatively better in employment but gender gaps persist, especially in ICT jobs. - Public finances: - General government deficit: estimated at 3.2 percent of GDP in FY23 (down from 4.5 percent of GDP in FY22). - Public sector debt: 62.4 percent of GDP as of end-FY23. - Withdrawal of pandemic measures and election-related delays in investment contributed to lower deficit. - Monetary policy and financial conditions: - Bank of Thailand (BOT) implemented 8 consecutive 25 bps increments in the policy rate between August 2022 and September 2023. - Net foreign portfolio outflows in January–September 2023 contributed to some THB depreciation relative to ASEAN-5 peers. - Financial sector soundness: - Liquidity coverage ratio: 196 percent in 2023Q3. - NPLs: declined from 3.23 percent in 2020Q1 to 2.70 percent in 2023Q3. - NPL coverage ratio: 176 percent in 2023Q3. - Private sector credit growth: 1.1 percent in 2023Q3. - Household debt: 90.7 percent of GDP as of mid-2023 (from 94.7 percent of GDP at end-2021). - Corporate debt: 87.9 percent of GDP (stable). - External sector: - Current account balance: –2.0 percent of GDP in 2021 → –3.2 percent of GDP in 2022. - Current account surplus of US$2.8 billion as of September 2023. - Staff-assessed cyclically-adjusted CA gap: around 1.7-3.1 percent of GDP. - Real effective exchange rate (REER) gap: 3.6-6.5 percent. ### Policy guidance and recommendations - Overarching guidance: - Resume policy normalization with fiscal and monetary policies operating in tandem to preserve macroeconomic stability, protect the poorest, and rebuild buffers. - Implement bold structural reforms to support sustained, green, and inclusive medium-term growth. - Fiscal policy: - The new government’s planned quasi-universal transfers would significantly expand the deficit and give a temporary boost followed by contraction amid higher public debt. - Recommendation: adopt a more neutral near-term fiscal stance while allowing space for well-targeted support to vulnerable groups. - Medium-term: pursue high-quality fiscal consolidation focused on critical investments in physical and human capital, targeted social transfers, and enhanced revenue mobilization to boost productivity and keep public debt on a downward path. - Monetary policy: - Current stance: neutral monetary policy stance deemed appropriate. - BOT should be ready to tighten further if inflationary risks from external shocks or domestic policies materialize. - Continue close monitoring of financial stability risks due to vulnerabilities from sharp swings in real interest rates. - Financial sector policy: - Adopt a comprehensive approach to address elevated private debt. - Accelerate ongoing debt restructuring programs, strengthen the insolvency regime, and avoid moral hazard. - Use macroprudential tools to prevent excessive leverage. - Structural reforms: - Implement comprehensive and coordinated reforms to address long-standing structural weaknesses and new headwinds. - Key measures: enhance competition, upskill the labor force, reform the fragmented social protection system, address governance vulnerabilities, and introduce effective carbon pricing to harness digital and green transformations and reverse the trend decline in potential growth. ### Risks and outlook - Elevated global uncertainty with downside risks prevailing, increasing the premium on prudent macroeconomic management. - Staff baseline projections subject to uncertainty from delays in the FY24 budget process and the implementation of the new government’s near-term economic policies. - Projections use the revised MTFF through FY27 and incorporate the debt-financed Digital Wallet (DW) program but exclude impacts of potential minimum wage increases due to lack of clarity. - Alternative scenarios (discussed in Annex II) include a smaller, targeted DW program and full implementation of minimum wage increases. *International Monetary Fund — Thailand Article IV Consultation, December 18, 2023* ### 12. Growth is projected to accelerate briefly in 2024 before slowing down in 2025. ### 12. Growth is projected to accelerate briefly in 2024 before slowing down in 2025. ### Macroeconomic outlook and projections - GDP growth: - Projected to accelerate to 4.4 percent in 2024. - Projected to slow to 2 percent in 2025 as fiscal stimulus is withdrawn. - Converge to potential of around 3 percent in the medium term. - Output gap and tourism: - The still-negative output gap is projected to close by end-2024. - Tourism flows are expected to gradually recover to pre-pandemic levels by 2025. - Inflation and prices: - Headline inflation expected to accelerate to 1.7 percent in 2024. - Core inflation expected to accelerate to 1.4 percent in 2024. - Commodity price pressures expected to remain limited; supply chain issues expected to dissipate. - Current account (CA) and external sector: - CA balance expected to return to a surplus in 2023 and further strengthen in 2024. - CA balance expected to stabilize at around 3 percent of GDP. ### Key risks (balance of risks tilted to the downside) - Domestic risks: - Lack of fiscal discipline and substantial minimum wage increases could undermine macro stability; a delayed fiscal consolidation could worsen public debt dynamics and require abrupt policy tightening. - Private sector debt: tightening financial conditions and a slower-than-expected domestic recovery could trigger insolvencies and negatively impact growth. - Growth-at-risk analysis: an increase in household debt reduces both near- and medium-term growth; an increase in corporate debt boosts near-term growth via investment but weighs on medium-term growth. - Over-reliance on tourism: - Tourism comprised 20 percent of GDP in 2019 when including indirect and induced contributions. - Growth slowdown in China and escalation of the Middle East conflict could negatively affect tourist arrivals. - Over-reliance could weigh on medium-term growth due to resource misallocation toward a relatively low value-added sector. - External risks: - Global slowdown (including China and the U.S.) implications: - Staff analysis suggests a cumulative 4 percent decline in Thailand’s exports and a 3.9 percent decrease in firm revenues for 2 years following a one percent negative shock to China’s GDP. - Geoeconomic fragmentation: - Near-term potential benefit from FDI diversion due to Thailand’s supplier network. - Long-term GDP losses from fragmentation could range from 1.1 percent of GDP in a mild scenario (energy and high-tech decoupling) to 1.8 percent of GDP in a severe scenario (nontariff barriers at cold war levels). - Commodity price hikes could fuel inflation, deteriorate income inequality, and increase fiscal costs (notably energy subsidies). - Tighter-than-envisaged global financial conditions (higher-for-longer rates) and a slowdown in China could depreciate the exchange rate and weigh on private investment; lack of significant balance sheet mismatches should limit financial stability impact. ### Policy discussions: gradual consolidation while supporting resilient growth - Near- and medium-term stance: - Staff recommends gradual normalization of fiscal and monetary policies to rebuild buffers amidst significant downside risks. - High-quality fiscal consolidation supported by enhanced revenue mobilization and spending reallocations toward well-targeted and sustainable social protection and investments in physical and human capital. - Structural reforms to reverse the decline in potential output. - Fiscal policy (A. Fiscal Policy): - Concerns: - FY24 fiscal stance would be as expansionary as during the COVID-19 pandemic and lead to further increase in public debt. - In absence of another emergency, staff sees no merit in quasi-universal transfers given strong private consumption momentum, closing output gap, and narrowed fiscal buffers. - Public debt would peak at about 67 percent of GDP in FY25, close to the debt ceiling of 70 percent of GDP; withdrawal of stimulus in FY25 would generate a contraction. - Staff recommendations and quantitative targets: - Implement the DW program within the MTFF deficit limit in FY24 without new borrowing. - Scale down the DW program to fit within the FY24 budget envelope (a 3.6 percent of GDP deficit) and target only vulnerable groups. - Limiting transfers to people below the poverty line would cost 0.2 percent of GDP. - Over the medium term, pursue high-quality fiscal consolidation to bring the deficit to around 1 percent of GDP by FY29. - Specific fiscal measures (Text Table 2 and discussion): - Revenue measures highlighted include VAT (rate increase from 7 to 10 percent in 3 years) and reversing excise tax cuts to subsidize energy prices. - Spending measures include education expenses and reskilling, aging-related spending, and infrastructure investments including climate. - Text Table 2 entries (selected exact figures in percent of GDP where shown): - CG overall balance (MTFF): -3.6 (FY2024), -3.4 (FY2025), -3.4 (FY2026), -3.3 (FY2027), NANA (FY2028/FY2029 where indicated). - GG overall balance (Baseline): -6.2 (FY2024), -3.4 (FY2025), -3.4 (FY2026), -3.2 (FY2027), -3.0 (FY2028), -2.9 (FY2029). - GG overall balance (Adjustment scenario): -2.5 (FY2024), -2.0 (FY2025), -1.5 (FY2026), -1.3 (FY2027), -1.2 (FY2028). - Primary balance (Baseline): -4.9 (FY2024), -2.0 (FY2025), -2.0 (FY2026), -1.8 (FY2027), -1.6 (FY2028), -1.5 (FY2029). - Primary balance (Adjustment scenario): -1.1 (FY2024), -0.6 (FY2025), -0.1 (FY2026), 0.1 (FY2027), 0.2 (FY2028). - Revenue measures yield and spending measures figures listed in table (in percent of GDP): 1.2, 1.8, 2.4, 2.4, 2.4; 0.6, 1.2, 1.8, 1.8, 1.8; 0.5 repeated; 0.3, 0.5, 0.7, 0.7, 0.7; 0.3 repeated; 0.1 repeated; 0.2, 0.4, 0.4, 0.4. (All figures preserved as presented in Text Table 2.) - Public debt (MTFF) and Public debt (Baseline/Adjustment scenario) series shown in Text Table 2: 64.0, 64.7, 64.9, 64.8, NANA; 65.8, 66.9, 66.8, 66.2, 65.4, 64.7; 66.0, 64.7, 63.0, 61.3, 59.5 (as presented). - Key fiscal policy recommendations: - Increase VAT rate and rationalize tax exemptions: - Gradually increasing the VAT rate from 7 to 10 percent could yield an additional 1.8 percent of GDP in revenue. - Rationalize tax exemptions and streamline investment tax incentives. - Phase out energy subsidies and replace with targeted support: - Cost of protecting all households from elevated inflation in 2022 was about 1.9 percent of GDP. - Targeting only households under the national poverty line would cost 0.05 percent of GDP. - Reversing excise tax cuts on diesel would generate about 0.5 percent of GDP in revenue per year. - National poverty line defined as 2,763 baht (about 79 USD) per person per month; about 6.3 percent of the population are below the poverty line. - Scale up critical investment spending to boost potential output: - Increase public spending on education and training to reskill/upskill labor force. - Scale up health expenditure to address shortages, particularly in rural areas. - Increase public investment in macro-critical ICT and green resilient infrastructure to enhance export sophistication and crowd-in private investment. - Monitor fiscal risks from SOEs and extra-budgetary funds: - Oil Fund deficits and electricity subsidy pressures weaken financial position of the Oil Fund and EGAT. - Oil Fund in deficit of 74.2 billion baht (0.4 percent of GDP) in October 2023 from 125 billion baht (0.7 percent of GDP) in December 2022. - Electricity subsidy amounts to 150 billion baht financed by EGAT; about 110 billion baht financed through borrowing and the rest by EGAT’s internal funds. As of end-August 2023 EGAT had recovered part of the subsidy and total outstanding debt declined to 95 billion baht. - Cabinet approved further reduction in diesel price from September to end-December 2023 through excise tax cut worth about 16.5 billion baht. - Strengthen fiscal governance, transparency, and anti-corruption measures; expand GFS coverage to SOEs and extra-budgetary funds. ### Monetary and exchange rate policies (B. Monetary and Exchange Rate Policies) - Current stance and assessment: - Current neutral monetary policy stance is appropriate. - Both headline and core inflation are below the Bank of Thailand’s (BOT) target, with upside risks from external shocks and domestic policies given a closing output gap. - Short-term inflation expectations remain well anchored; limited signs of price pressures from wage growth despite a tight labor market. - Given Thailand’s flat Phillips Curve, the impact of the DW program on inflation is projected to be small. - With inflation projected to remain within the BOT’s target range, no tangible monetary policy response is currently necessary. - Conditional guidance: - If the inflationary impact of the DW program is larger than envisaged or significant minimum wage increases over multiple years risk de-anchoring inflation expectations, the BOT should stand ready to further tighten monetary stance. - BOT should continue to monitor financial stability risks as vulnerabilities may arise from sharp swings in real interest rates. ### Authorities’ views - Authorities broadly shared staff’s views and concerns about uncertainties but considered domestic and external risks to be more balanced. - Authorities broadly agreed with staff’s preliminary assessment of the external position but urged caution on presentation and interpretation of the External Balance Assessment (EBA) results. - Authorities welcomed staff recommendations focused on structural policies to lower the saving-investment gap. - Authorities emphasized the need to boost the economy given a lackluster post-pandemic recovery; the stimulus package aims to revive the economy and boost local community growth. - Fiscal prudence remains a priority under the MTFF with public debt expected to remain below the 70 percent ceiling. - Authorities have implemented efficiency-enhancing tax measures and agreed there is room for additional tax reforms, including VAT rate increases once the economy is stronger. - Governance actions: - Initiated review of SOE corporate governance in partnership with the OECD. - NACC’s master plan for anti-corruption and misconduct (2023-27) covers information access, whistleblower protection, law enforcement, and transparency enhancement. - Steps to improve transparency in procurement contracts using government e-platform and publishing winning bids online. *Source: IMF staff report excerpt (Thailand).* ### 23. The exchange rate should continue to be the first line of defense against external shocks. ### 23. The exchange rate should continue to be the first line of defense against external shocks. ### Exchange rate dynamics and foreign exchange intervention (FXI) - Findings - The Thai Baht’s depreciation against the U.S. dollar in the first nine months of 2023 did not have any notable impact on financial stability or inflation expectations given limited currency mismatches and weak exchange rate pass-through to inflation. - Reserves declined by US$4.3 billion to US$241.5 billion—47.3 percent of GDP over the same period, indicating that the BOT might have resorted to foreign exchange intervention (FXI). - Provision of FXI data, with appropriate time lags, would help better assess the rationale for FXI and its effectiveness. - Integrated policy framework (IPF) analysis (2022 Article IV) suggests FXI can be complementary if disorderly exchange rate movements and sharp changes in risk premia threaten to de-anchor inflation expectations or freeze the FX market. - Authorities’ efforts to increase flexibility and reduce the cost of non-residents’ foreign exchange transactions by expanding the scope of the Non-Resident Qualified Company (NRQC) scheme—to allow non-residents providing cross-border payment services to participate—are welcome. - Staff recommendations - Continue to use the exchange rate as the first line of defense against external shocks. - Consider FXI as a complementary tool only under circumstances identified by IPF (disorderly movements, sharp risk-premia changes, risks to inflation expectations or FX market functioning). - Provide FXI data with appropriate time lags to enable assessment of rationale and effectiveness. - Phase out capital flow management (CFMs) measures on non-resident baht accounts. ### Authorities’ views on monetary and exchange rate policy - Findings / Authorities’ statements - The BOT considers the gradual policy rate normalization up to the current level of 2.5 percent to be appropriate and aligned with the MPC’s intention to return the policy rate to a neutral stance while bringing the real policy rate back to positive territory. - The MPC will continue its data-dependent approach and closely monitor the outlook. - Authorities remain committed to a flexible exchange rate regime and gradual liberalization of capital flows. - Authorities acknowledge tighter global financing conditions and domestic policy uncertainty contributed to non-resident portfolio outflows and Baht weakening. - The flexible exchange rate is seen by authorities as a shock absorber; they may consider intervening at times of excess volatility that could risk making FX markets shallow. - Authorities note FXI data are highly market-sensitive and warn that data leaks or misinterpretation could be detrimental to central bank operations and monetary stability during market volatility. - Authorities requested specific examples of how FXI data would be used across surveillance tools to assess necessity and possible alternatives to FXI data provision. - BOT restrictions: banks allowed to participate in digital assets business via separate entities within a banking group and for a maximum stake of 3 percent of the banking group’s capital. ### Financial sector policies and household debt - Findings - BOT has gradually phased out pandemic-related forbearance measures, such as reverting the Loan-to-Value ratio to pre-pandemic levels. - Authorities should continue to enhance risk analysis and stress testing of commercial banks, SFIs, and other non-bank institutions. - BOT has enhanced SFI supervision regulations and is encouraged to strengthen the bank resolution toolkit and financial safety net in line with 2019 FSAP recommendations. - BOT plans measures to address elevated household debt with a focus on responsible lending and assistance to those with persistent debt issues. - Risk-based pricing (RBP) measure tentatively scheduled to start by 2024Q2 to provide risky borrowers formal credit access and incentives to build credit history. - Debt service ratio (DSR) to limit households’ borrowing is being developed with implementation tentatively scheduled for 2025. - Staff recommends accelerating DSR implementation, ensuring broad-based coverage, and setting limits in line with international benchmark thresholds. - Staff encourages expanding macroprudential coverage to include cooperatives and nonbank financial institutions (NBFIs) to avoid regulatory arbitrage. - Debt moratoria: recent government-approved debt moratorium for small farmers suspends interest and principal payments including on existing NPLs; staff warns such moratoria postpone the exit of unviable agents, weigh on growth, and create moral hazard. - Strengthening the insolvency regime—including informal and hybrid restructuring options—is recommended to facilitate debt resolution. - Staff recommendations - Continue unwinding banking-system interventions as recovery proceeds while strengthening risk analysis and resolution tools. - Accelerate implementation of DSR limits and ensure macroprudential coverage expands to cooperatives and NBFIs. - Avoid broad debt moratoria; instead, strengthen insolvency and restructuring frameworks. ### FinTech, sustainable finance, and AML/CFT - Findings - BOT initiatives: creation of virtual banks; strengthened supervision of banks’ digital asset business; guidance encouraging financial institutions to strengthen resilience, lower regulatory burden, and promote environmentally-sustainable products. - Staff encourages continued efforts to enhance financial institutions’ capacity to assess environment-related risks and to provide financial products/services supporting climate transition and mitigation, including climate-related training. - AML/CFT: Authorities are finalizing the Beneficial Ownership Information Act and the Operation of Non-Profit Organizations (NPOs) Act to require disclosure of beneficial ownership; plan to expand Anti-Money Laundering Act coverage of predicate offenses and reporting entities. - Progress noted by Asia Pacific Group on money laundering (APG), but Thailand remains partially compliant on six recommendations and non-compliant on one (R. 24-25). - Staff recommendations - Maintain a cautious approach toward digital assets and continue to limit direct bank exposure consistent with existing BOT restrictions. - Finalize and implement AML/CFT legal enhancements and ensure effective beneficial ownership transparency. ### Structural policies: competition, labor, geo-economic fragmentation, social protection, and climate - Findings - Structural weaknesses and headwinds have dampened investment and productivity; staff analysis suggests increased market power of Thai firms could be a factor. - Priorities identified for boosting productivity and potential growth: - Enhancing competition: streamline regulatory barriers to entry; further liberalize services sector; minimize tax incentives/subsidies that distort competition; keep trade and investment measures narrowly targeted and WTO-consistent; consider relaxing foreign ownership limits in some sectors. - Upskilling the labor force: active labor market policies; education reforms; strengthen coordination across agencies; streamlining administrative requirements for hiring non-resident skilled workers and SMART visa program steps are positive. - Reducing vulnerabilities to geo-economic fragmentation (GEF): capitalize on FDI diversion in EV sector; improve business environment; invest in infrastructure and digital infrastructure (as envisaged in EEC plan); diversify trading partners. - Reforming social protection: social spending relatively low at about 0.8 percent of GDP annually, compared to an average of 1.6 percent of GDP in upper middle-income countries; social insurance coverage low at about 3.6 percent of the population due to young pension system and large informal sector. - Recommendations: reduce overlaps between social protection programs, increase focus on the vulnerable, consider targeting DW program to State Welfare Card (SWC) recipients, streamline SWC benefits to a single monthly cash transfer, raise retirement age and/or contribution rate to preserve pension sustainability. - Climate policy: Thailand pledged to reduce greenhouse gas emissions by 30-40 percent (previously 20-25 percent) from the business-as-usual scenario by 2030; aims for carbon neutrality in 2050 and net-zero emissions by 2065; joined Global Cooling Pledge to reduce cooling-related emissions by 68 percent; launched voluntary ETS, green taxonomy, and green bonds. - Staff recommends implementing a broader and more binding ETS and adopting carbon pricing, including through the forthcoming “Climate Change Act”, while protecting the vulnerable. - Authorities’ views / actions - Revising Anti-Trust Act; extending competitiveness neutrality review with OECD. - Upskilling efforts: New Generation of Graduates project; tax incentives for STEM; SMART visa and long-term visa programs for skilled workers. - Scaling up public investments in infrastructure and accelerating free trade agreement negotiations to diversify trading partners. - Committed to reducing inequality and expanding social protection through tax reforms. - Created Department of Climate Change and Environment (DCCE); draft “Climate Change Act” being revised to incorporate carbon pricing instruments (carbon tax and emission trading system). - Numeric and schedule highlights to preserve - RBP tentatively scheduled to start by 2024Q2. - DSR implementation tentatively scheduled for 2025. - Social spending at about 0.8 percent of GDP annually versus 1.6 percent average in upper middle-income countries. - Social insurance coverage about 3.6 percent of the population. - Emissions pledges: 30-40 percent reduction by 2030 (previously 20-25 percent); carbon neutrality in 2050; net-zero by 2065; cooling-related emissions reduction target of 68 percent. ### Staff appraisal and policy recommendations - Findings - Thailand’s economy is recovering from multiple shocks; pandemic support is being withdrawn amid volatile commodity prices and tighter global financial conditions. - The recovery has been supported by return of foreign tourists but hampered by weak export demand and timid investment; recovery weaker than ASEAN peers due to structural weaknesses and new headwinds. - Staff near-term recommendations - Continue policy normalization given elevated uncertainty and depleted buffers. - Maintain a neutral fiscal stance in FY24 as envisaged under the revised MTFF to complement monetary policy. - Provide well-targeted support to vulnerable groups within existing budget envelope; avoid large short-term untargeted debt-financed transfers. - Staff medium-term recommendations - Implement high-quality fiscal consolidation underpinned by revenue mobilization and improved spending efficiency to rebuild buffers and put public debt on a declining trajectory. - Gradually increase the VAT rate while rationalizing tax exemptions. - Phase out universal energy subsidies and replace them with well-targeted support to vulnerable groups. - Scale up investment in education, health, and physical infrastructure and combine with measures to reduce informality. - Implement structural reforms to enhance competition, reduce excessive regulation, upskill labor force, and reform social protection. - Implement carbon pricing and a broader binding ETS to finance climate transition and mitigation costs, while protecting vulnerable groups. _Italic: IMF staff report chapter: "The exchange rate should continue to be the first line of defense against external shocks." (Content unit: 1thaea2024001 - 23.)_ ### 40. Monitoring fiscal risks and enhancing governance would help improve the efficiency of ### 1thaea2024001 - 40. Monitoring fiscal risks and enhancing governance would help improve the efficiency of ### Fiscal risks and governance - With the pandemic and rising energy prices, the authorities have increasingly resorted to off-budget and quasi-fiscal operations. - All spending should be transparently brought on budget, while ensuring cost recovery for SOEs and extra-budgetary funds. - Monitoring fiscal risks and enhancing governance would help improve the efficiency of fiscal policies. ### Monetary policy stance and risks - The current neutral monetary policy stance is appropriate, but risks require vigilance. - Inflation has declined, but risks are on the upside. - Global commodity prices could increase sharply if the conflict in the Middle East escalates. - Domestically, the government’s stimulus package could generate inflationary pressures and risk de-anchoring inflation expectations. - Monetary policy should be ready to tighten if inflation risks materialize. - The exchange rate should continue to act as a shock absorber given Thailand’s relatively liquid FX market, with no strong evidence of FX mismatches. - FXI could be a useful part of the policy mix when the FX market becomes dysfunctional and deviations in hedging and financing premia become excessive due to large non-fundamental shocks. ### External position and policy priorities - Thailand’s external position in 2023 was stronger than warranted by medium-term fundamentals and desirable policies. 22 - Going forward, enhancing social safety nets, boosting investment in human and physical capital will help reduce Thailand’s persistent saving-investment gap. ### Financial sector vulnerabilities and private debt - Elevated private debt remains a source of financial sector vulnerability and requires a comprehensive approach. - An acceleration of ongoing efforts to facilitate private debt restructurings is needed, including by addressing remaining gaps in the insolvency regime, complemented by macro-prudential measures to limit excessive leverage and related financial stability risks. - Implementing a well-calibrated DSR would be an important step in the right direction. - Debt moratoriums would only delay the inevitable exit of unviable agents and create moral hazard. *Source: 1thaea2024001 - 40. Monitoring fiscal risks and enhancing governance would help improve the efficiency of* ### 44. It is recommended that the next Article IV consultation with Thailand takes place on a ### It is recommended that the next Article IV consultation with Thailand takes place on a standard 12-month cycle. ### Real Sector Developments - Thailand’s recovery has been weaker than for its peers. - Growth drivers: - Return of foreign tourists, particularly from ASEAN countries, which fueled services sector growth and boosted net exports and private consumption. - Labor market and prices: - Ongoing recovery improved labor market outcomes without generating significant price pressures. ### Fiscal Sector Developments - Fiscal dynamics: - Fiscal balance improved in FY2022 following the end of COVID-19-related support measures. - Public debt is stabilizing after a sharp increase during the pandemic. - Thailand accumulated significant debt during the pandemic reflecting the strong fiscal response. - Thailand’s public debt remains on par with other ASEAN-5 countries despite a broader coverage. - Sovereign spreads are among the lowest in Asia. - Gross financing needs increased because of large COVID-19 related borrowing. - Selected fiscal figures (from Table 1, percent of GDP or specified): - Public sector balance (2019–2025 series): 0.8, -3.8, -7.1, -5.1, -3.3, -6.2, -3.4 (percent) - Public sector debt (end of period): 41.1, 49.4, 58.4, 60.5, 62.4, 65.8, 66.9 (percent of GDP) ### Financial Sector and Credit Developments - Credit and leverage: - Credit growth remained modest in FY23, in line with the slow economic recovery, driven by reduced lending to the corporate sector. - Household debt declined from its pandemic peak but remains elevated. - Corporate leverage remained persistently high despite the recovery. - Housing and interest rate effects: - Rising interest rates and reinstated Loan-to-Value (LTV) requirements lowered housing loans growth in FY23 while housing prices continued to increase. ### Banking Sector Developments - Resilience and risks: - Commercial banks have strong capital adequacy compared to regional peers. - Liquidity coverage ratio lags due to reliance on short-term liabilities. - Loans-to-Deposits Ratio (LDR) remained high, suggesting increased liquidity risk, while credit risk remained low. - Banks’ profitability has remained sound but consistently below peers. - Financial Soundness Indicators (selected, 2017–June 2023): - Regulatory capital to risk-weighted assets: 18.0, 17.9, 19.4, 19.8, 19.6, 18.9, 19.0 (percent) - Nonperforming loans to total gross loans: 3.1, 3.1, 3.1, 3.2, 3.1, 2.8, 2.8 (percent) - Return on assets: 1.3, 1.3, 1.7, 0.8, 1.0, 1.2, 1.3 (percent) - Loan-deposit ratio: 96.3, 98.3, 96.3, 92.2, 94.2, 92.0, 92.0 (percent) ### External Sector Developments - Current account and reserves: - Current account deficit increased in 2022; reserves declined further. - Gross official reserves (including net forward position, end of period) (billions of U.S. dollars): 259, 286, 279, 245.8, 245.8, 245.8, 245.8 (2019–2025 series as shown). - Months of following year's imports: 16.7, 14.4, 12.3, 11.2, 10.4, 10.0, 9.5 - External flows: - Tourist arrivals gradually recovering, including from China. - Export growth has been declining in line with peers. - Net foreign direct investment turned positive in 2022 despite a slowdown in inward direct investment. - Nonresident portfolio outflows in the first half of 2023 contributed to a depreciation of the real effective exchange rate. - Balance of payments highlights (selected, billions of U.S. dollars): - Current account balance (2019–2025): 38.3, 20.9, -10.3, -15.7, 4.1, 7.7, 12.3 - Exports, f.o.b. (2019–2025): 242.7, 227.0, 270.6, 285.2, 279.1, 298.8, 313.2 - Imports, f.o.b. (2019–2025): 216.0, 186.6, 238.2, 271.6, 263.3, 282.8, 295.9 ### Socio-Economic Developments - Poverty and employment: - After a slight setback during the pandemic, the poverty rate has declined reflecting strong employment performance, particularly for women. - Tourism-related sectors drove employment gains; these sectors employ mostly low-to-medium skilled workers. - Unemployment and underemployment declined substantially from peak, but unemployment rate is now higher for women. - Key indicators: - Per capita GDP (2022): US$7,070 - Exchange Rate (2022): 35.06 Baht/USD - Unemployment rate (2022): 1 percent - Poverty headcount ratio at national poverty line (2020): 6.8 percent - Net FDI (2022): US$ 3.72 billion - Population (2022): 70.1 million ### Structural Challenges - Demographics and skills: - Thailand’s population is aging fast amidst a large share of low-skilled workers in the labor force. - Large employment share in tourism-related services. - Competitiveness: - Thailand lags peers in terms of export sophistication, reflecting structural factors that weigh on competitiveness, including in professional and retail services. ### Selected Economic Indicators and Projections (Table 1 highlights) - Real GDP growth (y/y percent change), 2019–2025 series: 2.1, -6.1, 1.5, 2.6, 2.5, 4.4, 2.0 - Consumption (2019–2025): 3.4, -0.3, 1.3, 5.0, 4.8, 6.0, 0.3 - Inflation (Headline CPI end of period), 2019–2025: 0.9, -0.3, 2.2, 5.9, -0.4, 1.7, 2.0 - Gross domestic investment (percent of GDP), 2019–2025: 23.8, 23.7, 28.6, 27.8, 21.9, 19.7, 20.7 - Gross national saving (percent of GDP), 2019–2025: 30.8, 27.9, 26.6, 24.6, 22.6, 17.5, 20.2 - Current account balance (percent of GDP), 2019–2025: 7.0, 4.2, -2.0, -3.2, 0.8, 1.4, 2.1 - External debt (In percent of GDP), 2019–2025: 31.7, 38.0, 38.8, 40.4, 41.0, 40.4, 41.0 - Nominal GDP (billions of U.S. dollars), 2019–2025: 544.0, 500.5, 505.6, 495.4, 519.7, 554.4, 577.5 ### Risk Assessment Matrix — Key Risks, Likelihoods, and Policy Responses - Domestic Risks: - Lack of fiscal discipline — Likelihood: High. - Risk: Authorities’ intention to provide 2.7 percent of GDP universal transfers in 2024, increase minimum wage by 70 percent during 2024-27, and offer a debt moratorium could worsen public debt dynamics, generate significant inflationary pressures, and give rise to moral hazard. - Policy response: Implement substantial and high-quality fiscal consolidation; tighten monetary policy; accelerate structural reforms. - Elevated private sector debt — Likelihood: Medium. - Risk: Tightening financial conditions and slower recovery could trigger insolvencies and weigh on medium-term growth. - Policy response: Implement stronger lending standards informed by comprehensive credit information systems; provide legal and financial advice to indebted consumers; adopt broad-based debt-service-to-income (DSTI) ratio; enhance macroprudential coverage to include saving cooperatives and NBFIs. - Over reliance on tourism — Likelihood: Medium/Low. - Risk: Medium-term negative impact due to misallocation toward low value-added sector (tourism comprised 20 percent of GDP in 2019 when including indirect and induced contributions). - Policy response: Transition to lower-density tourism with higher unit revenue. - External Risks: - Abrupt global slowdown or recession — Likelihood: Medium. - Risk: Higher-for-longer U.S. rates and market corrections; China slowdown affecting tourism and trade. - Policy response: Allow exchange rate flexibility as first line of defense; judicious intervention if disorderly; prudent fiscal policy; promote labor and product market flexibility; targeted fiscal support; strengthen macroprudential framework and address toolkit leakages. - Commodity price volatility — Likelihood: High. - Risk: Slower growth, price and real sector volatility, food insecurity. - Policy response: Accommodate first-round cost-push effects given slack; provide targeted support to vulnerable groups; stand ready to address second-round de-anchoring risks. - Systemic financial instability — Likelihood: Medium. - Risk: Disorderly domestic market conditions and vulnerabilities in weak NBFIs. - Policy response: Let automatic stabilizers work; provide adequate liquidity to banks; allow exchange rate flexibility; use FX intervention only to address disorderly conditions. - Geo-economic fragmentation — Likelihood: High. - Risk: Reduced potential growth, supply chain disruptions, commodity shocks, semiconductor shortages affecting auto sector. - Policy response: Structural reforms and infrastructure development to boost productivity and diversify trade and supply chains; allow exchange rate flexibility. - Extreme climate events — Likelihood: High. - Risk: Disruption from typhoons, flooding, droughts, heat/cold waves; infrastructure damage; lower growth; increased emigration. - Policy response: Improve social safety nets; use efficient carbon pricing; scale up climate-resilient infrastructure and R&D; incorporate climate risks in prudential policies and stress tests; encourage sustainable, higher value-added tourism. ### Implementation of 2022 Article IV Recommendations (Table 8) — Selected Actions and Status - Fiscal Policy recommendations and implementation: - Recommendation: Continue to gradually withdraw pandemic-era fiscal stimulus; phase out universal energy subsidies; implement growth-friendly medium-term consolidation; structural tax reforms; scale up education and investment spending; expand social protection coverage; improve public investment management; enhance fiscal risks monitoring; boost fiscal transparency; move to efficient carbon pricing over time. - Implementation highlights: - Withdrawal of pandemic-related measures helped contain expenditures and the deficit in FY22 and FY23. - Broad-based subsidies and election-related spending slowed consolidation in FY23. - State Audit Office (SAO) audited pandemic response and published results online (www.gprocurement.go.th). - Monetary and exchange rate policy recommendations and implementation: - Recommendation: Data-dependent monetary policy normalization; monitor inflation; let exchange rate act as shock absorber with FXI limited to disorderly markets; publish data on FXI; phase out remaining CFMs on nonresident baht accounts. - Implementation highlights: - BOT has been proactive in normalizing policy in a data-dependent manner. - FXI has been largely two-sided. - BOT, BI, and BNM signed MoUs on 25 August 2023 to include more eligible cross-border transactions in the Framework for Cooperation to Promote Bilateral Transactions in Local Currencies. - BOT provided more flexibility for non-residents in September 2023, easing requirements and expanding participation in the Non-resident Qualified Company Scheme. - Financial policy recommendations and implementation: - Recommendation: Gradually unwind policy interventions; strengthen risk analysis and bank resolution toolkit; asset quality reviews of loans under relief (LUR); accelerate private debt restructurings; monitor financial sector risks from physical asset losses; implement macroprudential measures to limit excessive private leverage; enhance AML/CFT supervision. - Implementation highlights: - BOT let broad-based support measures expire while focusing on targeted interventions and promoting voluntary debt restructurings. - New BOT measures promoting responsible lending effective January 1, 2024; measures addressing persistent debt effective April 1, 2024. - BOT plans to allow risk-based pricing (RBP) for retail borrowers via regulatory sandbox and apply debt service ratio (DSR) limits for loan origination (DSR planned to take effect in 2025, contingent on conditions). - National Risk Assessment on ML/TF/PF performed in August 2022 with resulting recommendations. - Structural policy recommendations and implementation: - Recommendation: Enhance active labor market policies and information sharing; strengthen cooperation with private sector for vocational training; leverage digitalization; adopt comprehensive climate strategy. - Implementation highlights: - Authorities stepped up efforts to upskill and reskill the labor force with private sector cooperation; tax incentives provided to upgrade STEM skills. - Thailand increased its pledge at COP27 in 2022 to reduce greenhouse gas emissions by 30-40 percent (previously 20-25 percent) from business-as-usual by 2030. ### Financial Sector Support Measures and Timetable (Table 9 highlights) - Support measures for business: - September 2022: BOT and MOF released SME transformation loans as part of Special Loan Facility. - December 2022: Terminating applications for Corporate Bond Stabilization Fund (BSF). - April 2023: Debt restructuring through asset warehousing program ended; 500 debtors with total debt of 74.1 billion baht used the program. - September 2023: Cabinet approved 12-month debt moratorium program for agricultural sector loans up to 300,000 baht with BAAC. - April 2024 (planned): SME transformation loans measure and Special Loan Facility measures expected to end. - Support measures for households: - January 2022: Long-term debt restructuring and refinancing/debt consolidation programs initiated. - January 31, 2023: Debt Resolution Expo ended with 188,739 debtors and 413,780 transactions. - February 2023: BOT published Directional Paper on “Sustainable Solutions to Thailand’s Structural Debt Overhang Problems”. - July 2023: BOT detailed measures tackling household debt; measures effective January 1 and April 1, 2024; BOT exploring RBP sandbox and DSR limits (planned DSR effect in 2025 at the earliest). - December 2023 (planned): Long-term debt structuring and refinancing/consolidation programs expected to end. - 2024Q2: RBP sandbox to permit qualifying creditors to test unsecured personal loan and/or Nano Finance lending for 1–2 years. - Support measures for financial institutions: - June 2022: Removal of limit on banks’ dividend payout cap. - December 2022: Adjustment of contribution rate to Financial Institutions Development Fund (FIDF) back to 0.46 percent per year. - January 2023: Tightening loan-to-income (LTI) ratio by resuming creditor limits and tightening LTV for mortgage lending (returns LTV limit from 100% to maximum of 70-90% excluding first home buyer with housing value less than 10 million baht). ### Implementation of 2019 FSAP Key Recommendations (Table 10 highlights) - Regulatory and supervisory framework: - Progress on coordination via FIPC meetings, cross-directorships, and 3-regulator steering committee; BOT reviewing further alternatives for Thai context. - Work to improve accountability mechanisms and regulatory independence is ongoing. - Risk analysis and data: - BOT developed systemic liquidity risk indicators for some TCCs and CUs and is expanding coverage to SFIs and non-banks. - New financial stability dashboard and inclusion of SFIs and non-bank dashboards; ongoing monitoring of loan portfolio concentration. - Macroprudential measures: - Directional Paper issued on coping with household debt; DSR implementation consultation underway with initial phase applying to uncollateralized consumer loans; DSR planned for 2025 at the earliest. - BOT amended PPA/PCA internal guideline to enhance flexibility in PPA actions. - IFRS 9 effective January 2020; BOT revised regulations to support adoption. - Supervision of SFIs, TCCs, and CUs: - Phased enhancements to regulation and supervision of SFIs, including governance, capital, liquidity, credit process, and digital banking guidance. - White Paper for enhancing TCCs/CUs supervision finalized; regulations on underwriting standards, asset classification & provisioning, and liquidity are in progress. - Crisis management and resolution: - BOT Act amended in July 2018 to set current resolution framework; BOT developed resolution toolkit in 2020 and playbook in 2021; bank-specific resolution planning for D-SIBs ongoing. - To strengthen ELA arrangements, principles and guidelines for accepting loan portfolio collaterals approved in 2020; progress on assessment/pricing of loan portfolio collaterals and other ELA operational details. _Italic: Source — Thailand: IMF staff report content unit 1thaea2024001 (selected pages and tables). _ ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall assessment - Preliminary staff estimates for 2023 suggest that the external position is stronger than the level implied by medium-term fundamentals and desirable policies, although current account (CA) and real effective exchange rate (REER) gaps are narrowing. - The CA balance is expected to improve to 0.8 percent of GDP in 2023 from -3.2 percent of GDP in 2022, as tourism receipts recover further, and return to a surplus of around 3 percent of GDP in the medium term. - Potential policy responses: promote investment, diminish precautionary savings, and support domestic demand to bring the CA balance more in line with medium-term fundamentals and desirable policies. Public expenditures should focus on targeted social transfers and infrastructure investment to support a green recovery and reorientation of affected sectors. Continue reforms and expansion of social safety nets, notably fragmented pension schemes, and address widespread informality to reduce precautionary savings and support consumption. ### Foreign asset and liability position and trajectory - Background projections for 2023: - NIIP: -3.2 percent of GDP (projected, from -3.4 percent in 2022) - Gross Assets: 115.3 percent of GDP (from 117.6 percent) - Gross Liab.: 118.5 percent of GDP (from 121 percent) - Debt Assets: 39.0 percent of GDP - Debt Liab.: 41.0 percent of GDP - Composition: - Gross assets primarily consist of gross reserve assets (42 percent of GDP) and direct investment (38 percent of GDP). - Gross liabilities mainly comprise direct (about half) and portfolio (about one-fourth) investment. - Projected movements in net positions: - Net direct investment assets expected to pick up by 1.8 percentage points of GDP. - Net portfolio investment assets expected to pick up by 2.2 percentage points of GDP. - Net other investment assets projected to decline by 1.6 percentage points of GDP. - Assessment: NIIP projected to remain in a small creditor position over the medium term given CA surpluses. External debt expected to increase to 41.0 percent of GDP in 2023 from 40.4 percent of GDP in 2022; short-term debt (on a remaining maturity basis) amounts to about 15 percent of GDP. External debt stability and liquidity risks are limited. ### Current account (CA) - Background and projections: - CA registered a surplus in 2023 as partial recovery in tourist arrivals and improvement in transportation balance offset weak merchandise exports. - CA balance projected to strengthen to 0.8 percent of GDP in 2023 from -3.2 percent of GDP in 2022. - Services account improved by 3.5 percent of GDP due to decline in shipping costs and post-pandemic tourism recovery. - Going forward, CA balance expected to stabilize at around 3 percent of GDP as foreign tourist arrivals reach pre‑pandemic levels. - Model estimates and gaps (2023): - CA: 0.8 percent of GDP - Cycl. Adj. CA: 0.7 percent of GDP - EBA Norm: 0.8 percent of GDP - EBA Gap: -0.1 percent of GDP - Adjustors: 2.4 percent of GDP (aggregate adjustors of 1.3 percent and 1.1 percent of GDP applied for travel and transport shocks) - Staff Gap: 2.4 percent of GDP - Assessment: IMF staff assesses the CA gap to be in the 1.7 to 3.1 percent of GDP range, with a midpoint of 2.4 percent of GDP for 2023. Results subject to uncertainties regarding adjustors and data revisions. CA gap expected to narrow over the medium term as domestic demand recovers and social protection reforms proceed. ### Real exchange rate (REER) - Background: - Baht has been on a gradual real appreciation trend since the mid-2000s with occasional volatility. - Despite strong recovery in 2022, real exchange rate depreciated further by 1.1 percent (year) due to global volatility amid advanced economies’ monetary policy normalization. - As of October 2023, REER appreciated by 1.9 percent year-to-date relative to 2022; portfolio outflows during the first three quarters contributed to depreciation during the year. - Assessment and gaps (2023): - Using elasticity of 0.47 and IMF staff CA gap, 2023 REER assessed as undervalued in the 3.6 to 6.5 percent range, with a midpoint of 5.0 percent. - EBA index REER gap in 2023 estimated at 8.0 percent. - EBA level REER gap in 2023 estimated at 0.8 percent. ### Capital and financial accounts: flows and policy measures - Background flows (2022 to 2023): - Capital and financial account balance (excluding change in reserves) weakened to -0.8 percent of GDP in 2023 from 1.4 percent of GDP in 2022. - Portfolio investment declined from 1.2 percent of GDP in 2022 to -1.9 percent of GDP in 2023. - Outward FDI increased from 1.5 percent of GDP in 2022 to 3.2 percent of GDP in 2023. - Other net investments increased from -0.6 percent to 1.9 percent of GDP. - Assessment and policy advice: - Thailand maintains strong external buffers and fundamentals to weather volatility from external financial conditions, political uncertainty, COVID-19, and the war in Ukraine. - IMF staff welcome authorities’ steps to expand the scope of the Non-resident Qualified Company (NRQC) scheme to allow non-residents providing cross-border payment services to participate. - Recommendation: phase out capital flow management (CFMs) measures on non-resident baht accounts in line with past advice. - Advice: pursue a comprehensive package of macroeconomic, financial, and structural policies to address volatile capital flows, complemented with gradual and prudent financial account liberalization. ### FX intervention and reserves level - Exchange rate regime: classified as (de jure and de facto) floating. - Reserves (including net forward position) projected to decline to 47.3 percent of GDP in 2023 from 49.6 percent of GDP in 2022. - Reserves metrics: around 2.5 times short-term debt, 10 months of imports, and 219 percent of the IMF’s standard reserve adequacy (ARA) metric. - Assessment: reserves are higher than the range of the IMF’s reserve adequacy metrics; no need to build up reserves for precautionary purposes. Exchange rate should move flexibly as shock absorber; FX intervention should be limited to avoiding disorderly market conditions. *Source: Annex I. External Sector Assessment (preliminary staff estimates for 2023).* ### Annex II. Macroeconomic Implications of The Government’s Fiscal and Labor Market Policies ### Context and main measures analyzed - New government (took office September 2023) priorities: - Universal cash handouts to 90 percent of the Thai adult population ≈ about 50 million people, total cost US$14 billion or 2.7 percent of GDP, financed by additional borrowing. - Increase the minimum wage by about 70 percent by 2027 (timing and size uncertain; not included in staff baseline but analyzed as alternative scenarios). - Methodology: simulations use MCM’s Quantitative IPF model (QIPF) to assess debt-financed universal cash handouts, debt-neutral financing, targeted transfers, minimum wage increases with spillovers to informal workers, and combinations of transfers and minimum wage increases. ### Universal transfers: scenarios and findings - Baseline scenario (debt-financed, temporary transfers): - Assumption: 3 percent of GDP temporary transfers implemented within a year. - Effects: increases consumption and provides a short-term boost to output, increasing it by about 1.5 percent. - Side effects: higher imports deteriorate external balance; slightly higher inflation triggers marginal monetary tightening; public debt relative to trend GDP increases and remains elevated as growth impact fades after a year. - Alternative Scenario 1 (targeted transfers): - Assumption: 1.5 percent of GDP debt-financed temporary transfers targeted to vulnerable households. - Effects: achieves a broadly similar growth boost with half the transfers of the baseline. Output improves by about 1 percent (compared with 1.5 percent in baseline). Debt increase is milder at about 1 percent of trend GDP versus 3 percent of GDP increase in the baseline. - Alternative Scenario 2 (budget-neutral untargeted transfers): - Assumption: 3 percent of GDP untargeted transfers financed by temporarily raising labor income tax and cutting government consumption (budget-neutral). - Effects: reduces output because fiscal multiplier for transfers is smaller than multipliers for government consumption and taxes. Weak demand leads to lower inflation, monetary policy loosens, public debt-to-GDP remains largely unchanged. - Policy advice: - Providing untargeted transfers financed through debt or higher taxes and spending cuts is not advisable. - Thailand’s private consumption has been very strong; stimulating it further has limited merit. - Untargeted transfers do not address structural growth weaknesses. Fiscal space should be used for human and physical capital investment and strengthening well-targeted social safety nets. - Under debt-financed transfers, further monetary tightening is needed to contain inflationary pressures and much faster medium-term fiscal consolidation is required to place public debt on a declining trend. ### Minimum wage increase: scenarios, calibration, and findings - Assumptions: - Frontloaded minimum wage increases during 2024-27 that accumulate to 70 percent (frontloaded because the measure has been announced and anticipated). - The simulation assumes full enforcement of the new minimum wage. - Table/series in source text: 2024202520262027 Minimum wage increase35.08.68.07.4 - Scenario 1 (formal workers only): - Calibration used household survey data to assess share of workers affected. - Effects: gradual fall in output below baseline in medium- to long-term because increased business costs and tighter monetary policy to contain inflation offset consumption boost. - Inflation responds strongly, provoking considerable monetary policy tightening and appreciation of the REER. - Competitiveness loss deteriorates trade balance. - Near-term public debt impact positive due to higher revenues from consumption and labor income taxes; medium-term impact negative due to lower GDP. - Scenario 2 (spillovers to informal workers): - Assumption: informal workers earning below minimum wage experience wage increases proportional to their distance from the minimum wage. - Effects: stronger boost to consumption, much higher inflation, more aggressive monetary policy response, larger increase in business costs, and much lower output in the medium term. - Policy advice: - Reducing informality and investing in human capital are more efficient and sustainable ways to raise living standards given high informality and skill gaps. - If minimum wage increase implemented, sustained monetary policy tightening for the following two years will be needed. - Loss in cost competitiveness and lower medium-term output increase urgency of structural reforms. ### Combined shocks - The source provides simulations combining 3 percent of GDP debt-financed untargeted transfers with the minimum wage increase (frontloaded 70 percent during 2024-27). The note indicates combined effects are modeled and that simulations assume a somewhat steeper Phillips curve given recent inflationary environment. *Source: Annex II. Macroeconomic Implications of The Government’s Fiscal and Labor Market Policies.* ### Annex III. Rising Private Debt and Tourism Dependence: Growth-at-Risk Analysis ### Key findings on private debt - Household debt: - Household debt-to-GDP ratio was 84.1 percent in 2019 (already above peers). - Household debt-to-GDP reached a record-high level of 94.7 percent in 2021 (partly due to GDP fall during pandemic). - Corporate debt: - Corporate debt-to-GDP was 87.9 percent at end-2021, reversing a prior slightly declining trend. - Implication: increases in both corporate and household debt raise downside risks to growth in the medium term. Elevated household debt poses risks for near-term growth, especially when growth is low. High private debt can drag down growth and generate financial vulnerabilities by curtailing demand, lowering investment, and distorting resource allocation. ### Tourism dependence and growth tradeoffs - Tourism importance: - Direct share of tourism revenues to GDP rose from 4.9 percent to 11.7 percent between 2005 and 2019. - Implication: while tourism is an important growth determinant, over-reliance on tourism receipts can exacerbate downside risks as experienced during the pandemic, particularly given the sector’s labor-intensive, low-skill, and high-informality characteristics which amplify labor market impacts during shocks. *Source: Annex III. Rising Private Debt and Tourism Dependence in Thailand: Growth-at-Risk Analysis.* ### 3. To evaluate the impact of elevated private leverage and the dependence on tourism ### 3. To evaluate the impact of elevated private leverage and the dependence on tourism on Thailand's growth ### Methodology: Growth-at-Risk (GaR) framework and specification - Framework: Growth-at-Risk (GaR) methodology introduced by Adrian et al. (2019) to estimate the conditional distribution of GDP growth and capture nonlinearities. - Estimation approach: - Quantile regressions of GDP growth across the distribution (quartiles/percentiles). - Principal component analysis to group correlated variables and reduce dimensionality. - Specification (notation preserved): - 푦푦푡+푞 = 훽푦푞푦푡 + 훽푓푓푓푞푓푓푓푡 + 훽푡푡푞푡푡푡푡 + 훽푙푙푙푞푙푙푙푡 + 훽푡푡푡푡푡푡푡푡푞푡푡푡푡 + 휖푡+4푞 - 푦푦푡 is real GDP growth; q is either 4 (near-term) or 12 (medium-term). - 푓푓푓푓푓푓푡 (financial conditions) comprises credit growth, sovereign spread, VIX, house price growth, REER change, and terms of trade growth. - 푡푡푡푡푡푡 (trade partner variable) includes US GDP growth, China imports and exports growth. - 푙푙푙푙푙푙푡 (leverage block) consists of household debt level, household debt to GDP ratio, corporate debt level, and corporate debt to GDP ratio. - 푡푡푡푡 (tourism) denotes tourism revenues, and tourism revenues to GDP ratio. - Sample period: 2005Q1 to 2019Q4 (to exclude pandemic idiosyncratic effects). ### Key empirical findings - Time horizon dependence: - q choices: near-term = 4 quarters ahead; medium-term = 12 quarters ahead. - Leverage (household and corporate debt): - Both higher corporate and household debt-to-GDP ratios bolster economic growth in the short term (figure referenced). - Coefficients vary across the growth distribution; for household debt the distributional pattern shows a negative impact on growth at lower percentiles, particularly when growth is vulnerable. - Elevated household debt poses greater risks to growth during economic downturns. - The ascent in leverage, while advantageous in the short term, leads to diminished growth in the medium-term. - Tourism dependence: - Reliance on tourism boosts short-term growth across all percentiles of the growth distribution, with a slightly higher correlation during economic booms (90th percentile). - Rising tourism reliance is associated with a decline in medium-term growth, possibly due to misallocation of resources toward a relatively low value-added tourism sector. - Combined implication: - Rising leverage and tourism-dependence may contribute to short-term growth but could hinder medium-term growth. - Decreasing household or corporate debt, and reducing tourism dependence increases medium-term real GDP growth, whereas the impact on near-term growth is negative. ### Quantitative spillover and sector heterogeneity findings (China and U.S. context) - Demand shock impacts on Thai exports: - China demand shocks generate a decline on Thai exports by 4 percent at their peak. - U.S. demand shocks generate a decline on Thai exports by 1.7 percent at their peak. - China shocks produce more persistent negative impacts than U.S. shocks (U.S. shock effects become insignificant by the 7th quarter). - Sectoral heterogeneity: - Heavy manufacturing sectors experience the strongest negative spillovers; the effect reaches 5 percent in 8 quarters from China and from U.S. shocks. - Light manufacturing experiences negative spillovers but less than heavy manufacturing. - Agriculture sector export responses are subdued. - Firm-level responses: revenues and investment drop more in heavy manufacturing than in light manufacturing; investment responses show lower sectoral differentiation. - Role of Global Value Chain (GVC) participation: - Heavy manufacturing has the highest GVC participation rate, followed by light manufacturing and agriculture. - Magnitude of spillovers increases with level of GVC participation. - Export diversification (Herfindahl index) and mitigation: - More diversified sectors (low Herfindahl index) experience smaller export declines following China and U.S. demand shocks. - Sectors with higher export concentration (high Herfindahl index) suffer additional declines. - Policy implication: increasing export market diversification could mitigate negative external spillovers. ### Policy implications and recommendations - Deleveraging and preventive measures: - Given already elevated private sector debt, address existing private debt while reinforcing preventive measures for future debt accumulation. - Strengthen the insolvency regime, including adding informal and hybrid restructuring options while avoiding moral hazard, to facilitate debt restructurings. - Stronger lending standards informed by comprehensive credit information systems and a broad-based DSTI ratio. - Provision of legal and financial advice to indebted consumers to prevent excessive debt accumulation. - BOT progress: extension of MaPP implementation coverage to NBFIs and cooperatives should continue to minimize regulatory arbitrage. - BOT will start implementing DSR limits, initially applied to a certain segment of uncollateralized consumer loans before extending to other types of retail loan; careful phasing to manage short-run liquidity risks and avoid pushing borrowers to non-supervised institutions or informal channels. - Tourism sector strategy: - Transition from mass tourism to high-end, higher value-added tourism with complementary efforts to upskill workers and reduce informality in the sector. - Rationale: - Majority of incoming tourists are mass-market; average spending per tourist in Thailand lags behind countries with higher or comparable arrivals (Goretti et al. 2021). - Average spending per tourist declined in 2023 compared to pre-pandemic levels due to an increase in regional arrivals. - Recommendation: prioritize fundamental reforms to Thailand’s tourist model over short-term measures (e.g., visa and cost-free entry expansions). - Alignment with sustainability objective: shift to low-density, high-end tourism supports a reduced ecological footprint. *Source: IMF country analysis (chapter section).* ### 2. Rising inflation could also considerably impact poverty. To further study the effect of ### 1thaea2024001 - 2. Rising inflation could also considerably impact poverty. To further study the effect of ### Rising inflation and household poverty - Simulations show that, in the absence of any government intervention, the large increase in food and energy prices observed in 2022 may increase poverty. - Under the baseline, poverty could increase by about 1.3 percentage points based on the national poverty line in the absence of the government’s intervention. ### Fiscal cost of compensation for inflation-induced income erosion - Fiscal cost to compensate vulnerable households: about 0.05 percent of GDP. - Fiscal cost to compensate the entire Thai population for their income erosion from inflation: 1.9 percent of GDP. - Distributional outcomes of untargeted fiscal support: - Households under the poverty line account for 2.4 percent of the total fiscal cost. - Those with incomes above the 50th percentile of the population account for 70 percent of the fiscal cost (1.4 percent of GDP). ### Government energy support measures and costs - Total measures to mitigate rising energy prices estimated so far at 233.2 billion baht or 1.4 percent of GDP in FY22-FY23Q1. - Composition of energy-related support: - About 70 percent comprised of universal price caps on diesel, natural gas for vehicles, and excise tax reduction (29 percent) on diesel. - Targeted measures account for 1 percent. - Comparison of costs: - Total subsidies owing to the onset of increasing commodity prices: 1.3 percent of GDP. - Cost to compensate only households below the poverty line: 0.05 percent of GDP. - Cost to fully compensate all households: 1.9 percent of GDP. ### Analytical and collaborative context - This annex is prepared in collaboration with the Bank of Thailand (BOT) and the National Statistical Office (NSO) of Thailand. - For more details see P. Chote (BOT), C. Deléchat (IMF), T. Kongphalee (NSO), P. Manopimoke (BOT), V. Nahata (IMF), M. Sy (IMF), and T. Yungvichit (NSO). 2024. ‘’Rising Inflation and Household Vulnerabilities in Thailand’’, IMF Working Paper, forthcoming. *Source: IMF country chapter content (Thailand).* ### Annex IX. Updates on Climate Adaptation and Mitigation Policies ### Annex IX. Updates on Climate Adaptation and Mitigation Policies in Thailand ### Climate shocks and vulnerability - Thailand is highly vulnerable to climate change: ranked as the ninth most vulnerable country in the world to climate change in the last two decades by Global Climate Risk Index in 2021. - Extreme weather events—droughts and floods—pose the greatest threat; floods happen nearly every year with the most recent one in October 2022 that also affected Bangkok. - Thailand accounts for about 0.7 percent of global emissions but only 0.5 percent of global GDP in 2021. - Sectoral emissions contribution: the energy sector (including transport) about 69 percent; agricultural sector 16 percent. ### Adaptation needs and costs - National Adaptation Plan (NAP) priorities: water resources management, agriculture and food security, tourism, public health, natural resources management, and human settlements and security. - Investment needs: about 0.4 percent of GDP (public infrastructure resilience) and 0.7 percent of GDP annually (private infrastructure resilience). - Draft “Climate Change Act” will contain a chapter on adaptation aiming to facilitate financing adaptation projects while protecting vulnerable groups. - Identified adaptation barriers (ONEP 2022): - unfinished development of a central database and insufficient data integration and coordination on climate change projection and impacts; - lack of a national climate information center; - insufficient knowledge and research on climate-related risks for key stakeholders; - limited access to adaptive technology. ### Recent pledges and mitigation targets - Under the Paris Agreement / NDC: - COP27 (2022) pledge: reduce GHS emissions by 30-40 percent from the business-as-usual scenario (BAU) by 2030 (previous pledge: 20-25 percent below BAU). - Aim to reach carbon neutrality in 2050, and net-zero emissions by 2065. - The energy sector (including transport) is expected to be the main contributor to emission reductions. - International partnership needs: technological transfers, capacity building, and financial support are necessary for meeting climate goals. ### Policies, public spending, and market instruments - Public expenditure on “environmental protection”: 14.7 billion baht in 2021 from 2 billion baht in 2012. - First green bond issued in 2020 to finance various green projects. - Thailand’s Taxonomy Phase I (launched June 2023 by the Bank of Thailand and the Security Exchange Commission) focuses on energy and transportation sectors and aims to: - steer the market and provide guidance, frameworks, and standards; - attract international climate-oriented capital; - enable and harmonize data disclosure; - assess environmental risks and risk mitigation options; - modulate state policy in the desired manner; - serve as a basis for data collection. ### Carbon pricing, ETS, and fiscal implications - Voluntary ETS history and scope: - launched in 2015; extended in 2018; - covers the Eastern Economic Corridor area and is expected to cover state-owned enterprises from 2024; - ETS is not binding and its price remains low. - Legal and policy developments: - a draft law for a mandatory carbon pricing or compulsory reporting of emissions by the private sector is being prepared and is expected to be submitted to the cabinet for approval in the near future. - It is not yet clear if the new law will favor ETS or carbon tax or a mix of both. - IMF staff estimate: a carbon price of at least US$50 per ton is needed to meet Thailand’s NDC target for 2030. - Fiscal recycling potential: recycling the revenue from the carbon tax through high-impact spending could boost growth by 1 percentage point over the medium-term. ### Public awareness and social support - IMF-APD survey result: only 34 percent of the Thai population is aware of the government’s actions on climate issues—well below the average of 55 percent in other countries. - Recommendation: improve public awareness (for example, by showing success stories from the ETS pilot or demonstration projects) to gather broader public support for climate policies. ### Institutional reforms and additional mitigation measures - Considered measures: carbon capture, utilization, and storage; use of carbon sinks through afforestation. - Institutional restructuring to improve coordination: - creation of the National Committed on Climate Change Policy chaired by the Prime minister (OECD 2023). - creation of the Department of Climate Change and Environnement (DCCE) by merging the department of environment and the Natural Resources and Environmental Policy and Planning (ONEP). - DCCE’s primary job: coordinate with different stakeholders including various ministries, government’s agencies, and the private sector. *Source: Annex IX. Updates on Climate Adaptation and Mitigation Policies* ### introduction of a quarterly survey of private nonbank external debt. The BOT participates in the coordinated direct and ### Introduction of a Quarterly Survey of Private Nonbank External Debt ### Data and Statistical Coordination - BOT participates in the coordinated direct and portfolio investment surveys of STA and regularly reports International Reserves and Foreign Currency Liquidity Data Template. - Need to continue corroborating methodology and data with: - Ministry of Tourism and Sports (tourism). - NESDC (further improvement of the integrated business register supporting harmonized current and financial accounts). - Customs Department (to gain knowledge on free zone and ecommerce activities). - BOT recently revised their Coordinated Direct Investment Survey (CDIS) data for 2009-2022 due to a systematic inconsistency between CDIS and IIP. - Subscriber to the Special Data Dissemination Standard (SDDS) since August 9, 1996. - Data ROSC published in April 2006. ### Table of Common Indicators Required for Surveillance (selected entries and timing) - Exchange Rates: Date of Latest Observation 12/10/2023; Date Received 12/10/2023; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 11/30/2023; Date Received 12/08/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Reserve/Base Money: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Broad Money: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Central Bank Balance Sheet: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Other Depository Corporations Sectoral Balance Sheet: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Interest Rates: Date of Latest Observation 12/10/2023; Date Received 12/10/2023; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - Consumer Price Index: Date of Latest Observation 11/2023; Date Received 12/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Revenue, Expenditure, Balance and Composition of Financing—General Government: Date of Latest Observation 5/2023; Date Received 6/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Revenue, Expenditure, Balance and Composition of Financing—Central Government: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - External Current Account Balance: Date of Latest Observation 10/2023; Date Received 11/2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Exports and Imports of Goods and Services: Date of Latest Observation 2023: Q3; Date Received 10/2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - GDP/GNP: Date of Latest Observation 2023: Q3; Date Received 11/2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - Gross External Debt: Date of Latest Observation 2023: Q3; Date Received 11/2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - International Investment Position: Date of Latest Observation 2023: Q2; Date Received 10/2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. ### Recent Developments, Outlook, and Risks - Growth and inflation: - Authorities expect the economy to grow by 2.4 percent in 2023. - Inflation remained at 1.2 percent in 2023. - GDP growth in 2024 is projected at 3.2 percent. - Taking into account the government’s digital wallet scheme, growth would rise to 3.8. - Headline inflation in 2024 is expected at 2 percent, or 2.2 percent when considering the digital wallet scheme. - Drivers and risks: - Recovery driven primarily by resumption of tourism and private consumption. - External headwinds weigh on growth; exports of goods expected to become a positive contributor in 2024. - Upside inflation risks from higher food prices due to El Niño and potential increase in global energy prices from ongoing conflicts in the Middle East. - Domestic structural constraints and global uncertainty could attenuate recovery; robust domestic demand and recovery in tourism and merchandise exports could strengthen momentum. ### Fiscal Policy - Fiscal stance and projections: - MTFF approved December 26, 2023: fiscal deficit for FY24 at 3.6 percent of GDP. - Debt-to-GDP at 62.7 percent given the ceiling of 70 percent. - Fiscal deficit projected to decline to 2.9 percent of GDP in FY28. - Debt-to-GDP projected to decline from FY27 onward. - Policy priorities: - Commitment to disciplined public finance management while supporting post-pandemic recovery for the most vulnerable. - Revenue mobilization measures to enhance tax collection efficiency and prevent tax evasion. - Balanced budget and fiscal sustainability are part of the medium-term fiscal plan. ### Monetary Policy, Exchange Rate Policy, and External Balance Assessment - Monetary policy stance: - BOT has gradually normalized the policy interest rate and deems current stance appropriate for supporting long-term sustainable growth and keeping inflation within target range. - Inflation moderated from 6.1 percent in 2022 to an average of 1.3 percent in 2023. - Authorities expect inflation to remain within the medium-term target range of 1 to 3 percent for both 2024 and 2025. - Monetary policy deliberations conditioned on developments in outlook for growth, inflation, and financial stability. - Exchange rate and capital flows: - Authorities emphasize the importance of having FXI as part of toolkit to curb excessive FX volatility. - Continued progress in capital flows liberalization to enhance flexibility and reduce cost for private sector in foreign exchange transactions, including streamlined processes and fewer requirements on supporting documents. - External Balance Assessment: - Authorities note limitations of the External Balance Assessment framework, including inability to capture large residuals from structural issues and heavy reliance on exchange rate as primary adjuster. - Positive note on staff’s greater emphasis on structural reforms to narrow the saving-investment gap over the medium term. ### Financial Sector Policy - Resilience and indicators: - Financial institutions maintain high levels of capital, loan loss provision and liquidity. - At end Q3/2023: BIS ratio stood at 19.9%; liquidity coverage ratio at 196%; NPL coverage ratio at 176%. - NPLs stabilized around 2.7% in 2023 after decreasing since 2021. - Household debt: - Household debt to GDP at 90.9 percent in Q3/2023, down from peak of 95.5 percent in Q1/2021. - Tackling household debt remains a priority. - BOT measures: - Measures in the pipeline to address high household debt sustainably, offering solutions throughout debt journey. - “Responsible lending measures”, effective 1 January 2024, encourage creditors to lend responsibly and provide targeted debt restructuring for debtors with low income and persistent debts. ### Structural Policy and Climate-related Initiatives - Competitiveness and governance: - Ongoing diversification of trade partners and negotiations for more free trade agreements. - Upgrading infrastructure and connectivity to attract foreign investment. - Modernizing and streamlining regulatory environment, including revising the Anti-Trust Act. - Adoption of e-Government and online public services. - Labor, social protection, and immigration: - Active labor market policies and improved social safety nets to address aging demographics. - Tax incentives for corporate entities in targeted industries to upskill employees through certified training and education programs. - Long Term Residence (LTR) Visa program to attract non-resident skilled professionals with incentives including longer visa validity, tax reduction, and integration with work permit. - Drafting of the National Pension Act to create the National Pension Committee for pension reform coordination. - Climate and sustainable finance: - Department of Climate Change and Environment (DCCE) established in 2023 under the Ministry of Natural Resources and Environment. - Plans to introduce the first-ever Climate Change Act with elements including National Climate Change Committee, Climate Change Master Plan, GHG data and reduction, Climate Change adaptation, and penalties. - Thailand Voluntary Emission Reduction Program (T-VER) to encourage voluntary carbon credit trading participation. - Sustainable Finance Initiatives for Thailand with five strategic initiatives: developing a practical taxonomy; improving the data environment; implementing effective incentives; creating demand-led products and services; building human capital. - Phase 1 of Thailand Taxonomy covering transportation and energy sector published in June 2023. - Pilot concessional loan project for sugarcane and sugar industry conditioned on decline in sugar field burning to help reduce air pollution. - Multilateral support: - Authorities underscore role of multilateral support in knowledge transfers and blended finance to meet greenhouse gas emission reduction pledges. *Statement by Ms. Yati Kurniati, Executive Director for Thailand and Mr. Boonrith Pongrasamiroj, Advisor to the Executive Director, January 17, 2024.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1thaea2024001.pdf_