## 1thaea2025001-print-pdf ## Source details **Canonical URL:** [1thaea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1thaea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1thaea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1thaea2025001-print-pdf.pdf.json) --- ### Outlook and growth - Real GDP projection: 2.9 percent in 2025, supported by the rebound of tourism-related activities and fiscal stimulus. - Recent growth: economy expanded by 2.3 percent in the first three quarters of 2024. - Potential output growth: current estimate 2.7 percent; staff estimate to reach high-income threshold would require potential output growth to increase to about 5 percent. - Output gap: still negative; recovery nearly complete but slower than peers; output gap expected to close by end-2025. - Tourism: - Tourist arrivals in 2024 reached 89.1 percent of the pre-pandemic figure. - Travel receipts were 71.2 percent of the pre-pandemic level in the first three quarters of 2024. - Investment: - Public investment declined by 2.3 percent in the first nine months of 2024. - Private investment declined by 1.4 percent. - Growth projections: - 2024: 2.7 percent - 2025: 2.9 percent - 2026: 2.6 percent - Medium-term potential rate estimated at around 2.7 percent (compared with 3 percent before the pandemic). - Staff baseline incorporates fiscal stance including additional cash transfers of 1.0 percent of GDP in FY25 and a rebound in public investment. - Private consumption, supported by tourism-related activities and cash handouts, expected to continue driving growth. ### Inflation and labor market - Inflation trajectory: - Average headline inflation was 0.4 percent (y/y) in 2024. - Core inflation averaged 0.6 percent (y/y). - Headline inflation trough: contraction of 1.1 percent (y/y) in January 2024. - Bank of Thailand (BOT) target range: 1 to 3 percent. - Price controls/subsidies: - Price controls apply to about 26.4 percent of the goods’ prices in the consumer price index basket. - Bank of Thailand estimates headline inflation would be about 1.1 percent higher in 2024Q1 without the energy subsidies. - Staff estimates implicit costs of energy subsidies amounted to about 0.6 percent of GDP in FY24. - Labor market: - Unemployment rate low and stable at around 1 percent. - Minimum wage: raised around 2.9 percent effective January 1, 2025, differentiated across regions (ranging from THB 337 to 400). - Wage growth: stagnated; wage growth was negative for the first half of 2024 except in agriculture. - Inflation drivers and empirical findings: - Persistence of inflation: point estimate close to 0.8 in ASEAN-5 Phillips curve. - External shocks: global energy price shock increases headline inflation by about 0.2 percentage points per 1 percentage point change; global food price shock about 0.1 percentage point per 1 percentage point change. - Chinese export prices: about 0.03 percentage points effect per 1 percentage point change. - Raw food and energy account for 33 percent of the CPI basket in Thailand. ### Fiscal developments and public debt - FY23 general government deficit: 2.0 percent of GDP (down from 4.5 percent of GDP in FY22). - FY24 fiscal execution: only 70.4 percent of the planned capital budget executed following late budget approval. - Digital Wallet (DW) program: - First tranche transferred THB 145 billion (0.8 percent of GDP) in late September 2024 to the most vulnerable groups. - Authorities indicated subsequent tranches: THB 40 billion (0.2 percent of GDP) to elderly people in 2025Q1, and remaining THB 148bn (0.8 percent of GDP) in 2025Q2 (modality uncertain). - FY24 general government overall deficit: staff estimate around 2.2 percent of GDP. - Excise/fuel policy: elimination of excise tax cuts on fuel products in April 2024; diesel price cap adjusted from 30 to 33 baht per liter. - Fiscal stance and projections: - FY25 budget projects a 3.6 percent of GDP general government deficit, which would result in a fiscal impulse of 1.6 percent of GDP. - FY26 budget bill envisages a general government deficit of 3.2 percent of GDP, then gradually declining to 2.8 percent of GDP. - Public debt projected: 64.7 (FY25), 65.4 (FY26), 66.0 (FY27), 66.1 (FY28), 66.4 (FY29) percent of GDP under baseline. - Staff assesses the risk of debt stress as moderate given the debt trajectory and elevated gross financing needs. - Key numerical indicators (baseline selected): - Revenue (% of GDP): 20.8 (FY25), 20.6 (FY26), 20.8 (FY27), 20.9 (FY28), 20.9 (FY29) - Expenditures (% of GDP): 24.4 (FY25), 23.8 (FY26), 23.7 (FY27), 23.7 (FY28), 23.7 (FY29) - Overall balance (% of GDP): -3.6 (FY25), -3.2 (FY26), -2.9 (FY27), -2.8 (FY28), -2.8 (FY29) - Alternative scenario (staff recommendations) selected figures: - Revenue (% of GDP): 20.8 (FY25), 22.2 (FY26), 23.0 (FY27), 23.2 (FY28), 23.6 (FY29) - VAT rate increase (contribution): 1.2 (FY25), 1.8 (FY26), 1.8 (FY27), 1.8 (FY28) - Expenditure (% of GDP): 24.3 (FY25), 24.6 (FY26), 24.4 (FY27), 24.4 (FY28), 24.5 (FY29) - Overall balance (% of GDP): -3.5 (FY25), -2.4 (FY26), -1.4 (FY27), -1.2 (FY28), -0.9 (FY29) - Public debt (% of GDP): 64.1 (FY25), 64.1 (FY26), 63.1 (FY27), 61.7 (FY28), 60.0 (FY29) - Real output increase compared to the baseline (%): 0.7 (FY25), 0.3 (FY26), 0.0 (FY27), 0.0 (FY28), 0.0 (FY29) ### External position and current account - Current account (CA) balance: - Projected to increase from 1.4 percent of GDP in 2023 to 1.8 percent of GDP in 2024. - Projected medium-term stabilization at around 2.8 percent of GDP. - Selected CA projections (billions USD): 7.4 (2023), 9.5 (2024), 11.9 (2025), 13.2 (2026), 14.6 (2027), 16.5 (2028), 18.2 (2029), 19.4 (2030). - CA as percent of GDP: 1.4 (2023), 1.8 (2024), 2.2 (2025), 2.3 (2026), 2.4 (2027), 2.6 (2028), 2.7 (2029), 2.8 (2030). - Goods balance projected to decline in 2024 by 0.2 percent of GDP as imports expand faster than exports. - Financial account expected net outflow: 1.8 percent of GDP in 2024 (2.3 percent of GDP in 2023). - FX intervention and reserves: - Reserves increasing from 49.4 percent of GDP in 2023 to 49.8 percent of GDP in 2024, 239.6 percent of the ARA metric (also cited as 231.8 percent in another table). - Gross official reserves (end of period, billions USD): 262.5 (2024) and constant in subsequent projection years. - Exchange rate regime: de jure and de facto floating; exchange rate should move flexibly to act as a shock absorber. - External assessment: - Preliminary staff estimates for 2024 suggest the external position is moderately stronger than warranted by fundamentals and desirable policies. - EBA CA model: cyclically adjusted CA of 1.9 percent of GDP and a CA norm of 0.8 percent of GDP for 2024; EBA CA gap of 1.1 percent of GDP. - IMF staff assesses the CA gap to be in the 1.1 to 2.5 percent of GDP range, with a midpoint of 1.8 percent of GDP for 2024. - Using an elasticity of 0.49 and IMF staff CA gap, the 2024 REER is assessed to be undervalued in the 2.3 to 5.0 percent range, midpoint 3.7 percent. - EBA level REER gap estimated at -5.4 percent; another headline figure: 3.9 percent (context in source). - Capital and financial flows (selected changes 2023→2024): - Portfolio investment: from -2.7 percent of GDP in 2023 to -1.3 percent of GDP in 2024. - Inward FDI: from -1.4 percent of GDP in 2023 to -1.3 percent of GDP in 2024. - Other net investments: from 1.8 percent of GDP in 2023 to 0.7 percent of GDP in 2024. - Overall change noted: 1.8 percent of GDP from –1.9 percent of GDP in 2023 (driven by increases in portfolio investment and inward FDI). ### Financial sector and private debt - Household and corporate debt-to-GDP ratios (end-September 2024): household 89.0 percent; corporate 77.5 percent (marginal declines from 90.8 and 79.8 percent at end-March). - Private sector credit growth: 0.66 percent (y/y) as of end-October 2024. - NPLs for total loans in commercial banks: 3 percent. - Special mention (SM) loans: over twice NPLs in some segments; SM loans defined as loans in default with no principal and interest repayments for 30-90 days. - NPL coverage ratio for commercial banks: 170.3 percent in 2024Q3 (179 percent at end-2023). - Financial institutions holding of household loans: commercial banks 38 percent; SFIs 27 percent; saving cooperatives 15 percent; credit card, leasing and personal loan companies 12 percent. - Share of unsecured household loans: 28 percent. - Bank capitalization/provisioning: banks and SFIs described as well-capitalized and well-provisioned. - Financial sector actions and programs: - “Khun Soo, Rao Chuay” retail debt restructuring project initiated in December 2024: - Eligible loans capped at a relatively small amount, overdue >30 days but ≤1 year. - Debt payments reduced with interest payments suspended for up to three years; retained interest waived at the end of 3 years if reduced payments made on time. - Funded by reduction of 50 percent of the Financial Institution Development Fund fee for banks (from 0.46 percent of deposits to 0.23 percent). - Responsible Lending Guidelines since January 2024 which allowed restructuring of over 6 million accounts. - BOT developing a DSR consultation paper and macroprudential toolkit; planned DSR implementation earliest in 2025 pending conditions. - Government implemented DSR ceiling of 70 percent on government employees (including loans granted by cooperatives). ### Monetary policy and exchange rate - Policy rate history: - Held at 2.5 percent from September 2023 until mid-October 2024. - Reduced by 25 bps on October 16, 2024. - Monetary framework: BOT pursues flexible inflation targeting; authorities advised to remain data and outlook dependent and adjust stance as needed. - Exchange rate behavior: acted as shock absorber; depreciated earlier in the year then rallied after June; FX interventions largely two-sided in line with capital flows to deal with excessive exchange rate movements. - Staff advice: a further reduction in the policy rate would support recovery and improve borrowers’ debt-servicing capacity with little risk of additional leverage amid tightened lending, but authorities should remain ready to adjust stance given high uncertainty and two-sided inflation risks. - Effective interest rate projections (percent): 2024 2.8; 2025 2.7; 2026 2.7; 2027 2.6; 2028 2.6; 2029 2.6; 2030 2.5; 2031 2.5; 2032 2.5; 2033 2.4; 2034 2.4. ### Key risks and uncertainty - External risks (selected): - Escalation of global trade tensions or geoeconomic fragmentation, commodity price volatility, tighter-for-longer global financial conditions, intensification of regional conflicts, more frequent extreme climate events. - Domestic risks (selected): - Longstanding structural weaknesses: underinvestment in human and physical capital, declining labor force due to rapid population aging, large informal sector, insufficient social protection. - Financial sector risks: deteriorating credit quality—particularly for vulnerable households and SMEs—and risks concentrated in NBFIs exposed to vulnerable borrowers (e.g., hire purchase or credit card companies). - Fiscal risks: rising spending needs from population aging and climate change. - Balance of risks: - Downside risks highlighted as significant; upside scenarios include stronger-than-expected growth in China or earlier policy rate cuts in advanced economies. - Risk matrices and scenario projections: - Adverse scenario projections (Real GDP growth %): Adverse Scenario: 0.7 3.4 3.2 3.1 2.9; Adverse Scenario with FXI: 0.9 3.2 3.1 3.0 2.9; Adverse Scenario with Fiscal Stimulus: 1.7 2.3 3.3 3.1 2.9. - Public debt outcomes under scenarios shown (selected): Adverse Scenario public debt (% of GDP): 65.9 66.8 67.1 67.1 67.3; with Fiscal Stimulus: 67.1 68.7 69.0 68.9 69.2. - CPI Inflation under scenarios (percent): Adverse Scenario: 1.1 1.7 1.9 2.0 2.0; with FXI: 1.0 1.5 1.7 1.8 1.8; with Fiscal Stimulus: 1.2 1.8 2.0 2.0 2.0. ### Policy recommendations (staff) - Fiscal - Shift focus to rebuilding fiscal space as slack narrows. - Near-term: adopt a less expansionary stance or rationalize cash transfers to redirect resources toward productivity-enhancing investments while still supporting recovery. - Medium-term: implement revenue-based fiscal consolidation to bring down public debt and rebuild buffers to tackle rising spending needs from population aging and climate change risks. - Strengthen revenue mobilization: gradually increase the VAT rate from 7 to 10 percent (statutory rate); rationalize tax exemptions; streamline investment tax incentives. Authorities’ decision to adopt the Global Minimum Tax (OECD Pillar II) seen as positive; additional revenues should be channeled to the general budget and not earmarked. - Phase out energy subsidies: continue elimination and gradual phasing out while providing targeted support; staff estimates implicit energy subsidy costs about 0.6 percent of GDP in FY24. - Fiscal rules and transparency: adopt a risk-based rules approach when debt is close to ceiling; clearly-defined escape clause; strengthen monitoring of SOEs and quasi-fiscal operations; bring remaining energy subsidies on budget. - Monetary - A further reduction in the policy rate would support recovery and improve debt-servicing capacity, but given uncertainty and two-sided risks to inflation, authorities should remain data and outlook dependent. - Maintain flexible exchange rate as shock absorber; consider complementary use of FXI in line with the Integrated Policy Framework (IPF) under safeguards and with improved FXI data provision. - Financial - Implement a multipronged strategy for orderly private debt deleveraging. - Strengthen personal debt workout programs and insolvency arrangements; avoid rolling over unviable loans to prevent moral hazard; target the most vulnerable and engage private sector to limit fiscal cost. - Continue responsible lending guidelines, enhance macroprudential toolkit and extend coverage to all financial institutions (including SFIs, TCCs, CUs, and NBFIs) to prevent leakages. - Improve financial literacy and expand credit information systems. - Structural - Pursue resolute reforms to boost productivity and competitiveness: facilitate competition and openness, upgrade physical and ICT infrastructure, upskill and reskill labor force, increase export sophistication via digitalization, strengthen governance. - Provide an adequate social protection floor to vulnerable households to enhance resilience and address structural drivers of household debt accumulation. - Specific recommendations on SSO financial sustainability: gradually increase retirement age; increase the maximum earnings cap to THB 17,500 immediately and index thereafter; consider phased increases in contribution rates (examples: increase total contribution rate by 3% in 2026, 2031 and 2036 to ensure long-run surplus). ### Authorities’ views (summarized) - Authorities broadly shared staff’s assessment of the outlook and risks but were slightly more optimistic on medium-term growth. - Authorities projected inflation to gradually increase and remain in the target range over medium term. - Authorities agreed with staff on promoting investment, diminishing precautionary savings, liberalizing services, and minimizing tax incentives and subsidies to facilitate external rebalancing. - On fiscal policy: authorities recognize narrowing fiscal space and the importance of prioritizing investments in human and physical capital; revising FY25 budget would be challenging. - On monetary/FX: BOT agreed monetary policy will continue to be outlook-dependent; October policy rate cut viewed as recalibration; BOT stresses independence and clear communication; authorities plan further liberalization of the FX ecosystem and phased removal of CFMs on nonresident baht accounts. - On financial stability and deleveraging: authorities view risks as contained, accept need to address household debt overhang while cautioning against moral hazard; BOT ready to deploy tools (DSIBs, CCyB, LCR, LTV, DSR) when appropriate. ### Scenario analysis and policy implications - Productivity-boosting fiscal stimulus (Scenario 1): - Reallocating 0.8 percent of GDP from cash transfers to digital/physical capital or education yields a multiplier of around 1.7 in near term and increases productivity by around 0.5 percent in medium term. - Alternative spending leads to persistently higher output, higher private consumption and real wages, lower inflation, lower policy rates, real exchange rate depreciation, stronger external balance, and lower public debt-to-GDP ratio compared to baseline. - Adverse scenario — policy uncertainty (Scenario 2): - FX intervention (about 2 percent of annual GDP cumulatively reaching 3.4 percent of GDP by fifth quarter) reduces UIP premium, limits depreciation, moderates inflation, allows countercyclical monetary policy, supports near-term output but reduces medium-term trade gains. - Fiscal stimulus (2 percent of GDP transfers) stabilizes demand short-term but increases inflation, worsens trade balance, raises policy rates, and increases public debt (public debt increases by 2.4 percent of GDP in implementation year and 3.2 percent of GDP the next year relative to adverse scenario without stimulus), moving debt closer to 70 percent ceiling. - Debt dynamics (selected projected public debt percent of GDP): - Public debt: 2024 actual 63.3; 2025 64.7; 2026 65.4; 2027 66.0; 2028 66.1; 2029 66.4; 2030 66.4; 2031 63.6; 2032 62.6; 2033 61.6; 2034 61.0. - Debt sustainability: overall risk of sovereign stress assessed as moderate; mechanical indicators include Debt fanchart width 48.8 (percent of GDP), Probability of debt non-stabilization 43.0 (percent), Debt fanchart index (DFI) 1.9 — Risk signal: 3/Moderate. ### Governance, anti-corruption, and institutional reforms - Corruption perceived as pervasive and macro-critical; Transparency International CPI around 35-38 since 2012 (0 to 100 scale). - Legal/institutional framework enhancements: Organic Act on Anti-Corruption (2018), Public Procurement Act (2017), NACC, Anti-Corruption Court (2016). - Procurement risks: In FY23, 51 percent of corruption cases were in public procurement; Integrity Pact introduced but not mandatory. - OECD recommendations: streamline coordination among anti-corruption bodies, improve asset declaration system, strengthen whistleblower protections, collect comprehensive data on corruption cases. - AML/CFT: Thailand compliant or largely compliant with 33 out of 40 recommendations (Asia-Pacific Group on Money Laundering, 2023); partially compliant with six recommendations (including transparency of beneficial ownership); non-compliant with one recommendation (customer due diligence for designated non-financial businesses and professions). - Authorities urged to accelerate amendments (Anti-Money Laundering Act) and improve preventive controls through risk-based supervision. ### Social protection and inclusiveness (Annex V summary) - Social Protection (SP) system: nearly 50 different schemes; ILO estimates around 70 percent of population covered by at least one SP benefit. - Key programs and coverage: - Universal Health Coverage: covers around 70 percent of population. - Child Support Grant: THB 600 per month to children in households earning less than THB 100,000 per month; in 2023 some 2.3 million children covered but one third estimated excluded. - State Welfare Card (SWC): means-tested benefit to 13.5 million people with consumer goods allowance THB 200–THB 300 a month. - Disability Grant: THB 800 per month (THB 1000 for children and SWC-eligible) to severe disability recipients (~2 million). - Old-Age Allowance (OAA): universal benefits to over 80 percent of those aged over 60; amounts range from THB 600 to THB 1000 per month. - Coverage gaps and adequacy: - Less than 1/3 of those aged 0–14 received SP support compared to >80 percent of elderly. - Informal sector largely uncovered; many formal sector workers also not members of SSO. - OAA amounts represent on average 21.7 percent of the national poverty line. - Thailand spent 8.5 percent of GDP on social protection in 2022 (3.6 percent on health, 4.9 percent on other SP benefits) vs. Asia-Pacific average 11.8 percent. - Policy recommendations: - Establish a National Social Protection Strategy (NSPS) to anchor the SP system. - Strengthen Tier 0 basic social assistance (increase OAA to THB 2000 per month per ILO suggestion; universalize child benefit up to age 14; expand Disability Grant coverage). - Move to universal and mandatory social insurance (Tier 1): broaden Section 33 SSO coverage, phase out Sections 39 and 40, raise SSO earnings cap to THB 17,500 in 2026 and index thereafter, reduce years required for pension benefit from 15 to 5 as an option, consider minimum pension. - Encourage supplementary employer/individual provision (Tier 2 and 3); ensure financial sustainability via tax financing, reprioritization, subsidy reform, and contribution reforms. - ILO estimate: guaranteeing a basic social protection floor would require increasing SP expenditure by 0.8 percent of GDP in 2024. - Recommendations to strengthen SSO sustainability (ILO): - Gradually increase retirement age (e.g., to age 65 over 50 years reduces recommended contribution rate by nearly 3%). - Increase maximum earnings cap to THB 17,500 immediately and index to wages. - Gradually increase contribution rate (example: increase total contribution rate by 3% in 2026, 2031 and 2036) to keep SSF surplus for 50 years. ### Financial stability, supervision, and macroprudential governance - Introduce a Composite Indicator of Systemic Stress (CISS) to assess financial system instability and interconnectedness. - Collect more granular data on SFIs to refine stress tests; SFIs have conducted solvency and liquidity stress tests under BOT review. - Clarify mandates and improve coordination between FIPC and MPC; extend BOT macroprudential authority to cover SFIs, TCCs, CUs, and NBFIs. - Phased supervisory upgrades for SFIs and cooperatives; guidelines on telebanking, operational risk, internal control, governance, capital, liquidity, underwriting, provisioning. - Affordability and residual income recommendations for cooperatives: consider residual income criterion of 30 percent for cooperative debtors who are government employees; define maximum DTI ratios and reporting to the NCB. - Crisis management and resolution: BOT Act amended in July 2018; BOT developed resolution toolkit (2020), playbook (2021), and ongoing bank-specific resolution planning for D-SIBs. - AML/CFT and crisis management reforms: amendments to Anti-Money Laundering Act, Counterterrorism and Proliferation Act updates, draft Operation of NPOs Act, updated National ML/TF Risk Assessment. ### Implementation and recent actions (selected) - Mission discussions: Bangkok during November 11-26, 2024. - Mission team listed in source; report approved by Rupa Duttagupta (APD) and Martin Sommer (SPR); report date January 27, 2025. - Recent policy actions: - First DW tranche THB 145 billion (0.8 percent of GDP) in late September 2024. - Excise tax cuts on fuel phased out/terminated April 2024. - Revenue-neutral carbon tax introduced; adoption of global corporate minimum tax indicated for 2025. - Thailand became second OECD Accession Country from the region in June 2024; approved Thailand-EU Comprehensive Partnership and Cooperation Agreement on August 29, 2024. - Authorities progressing on Thailand Taxonomy Phase II (expected by 2025) and plan to publish Climate Change Act measures and carbon tax in January 2025. _International Monetary Fund staff report excerpts on Thailand’s 2024 external position, macro outlook, risks, and policy recommendations. Prepared by Asia and Pacific Department; January 27, 2025._ ### 2.9 percent in 2025, supported by the rebound of tourism-related activities and fiscal ### 1thaea2025001-print-pdf - 2.9 percent in 2025, supported by the rebound of tourism-related activities and fiscal ### Outlook and growth - Real GDP projection: 2.9 percent in 2025, supported by the rebound of tourism-related activities and fiscal stimulus. - Recent growth: economy expanded by 2.3 percent in the first three quarters of 2024. - Potential output growth: current estimate 2.7 percent; staff estimate to reach high-income threshold would require potential output growth to increase to about 5 percent. - Output gap: still negative; recovery nearly complete but slower than peers. - Tourism: tourist arrivals in 2024 reached 89.1 percent of the pre-pandemic figure; travel receipts were 71.2 percent of the pre-pandemic level in the first three quarters of 2024. - Public and private investment: public investment declined by 2.3 percent in the first nine months of 2024; private investment declined by 1.4 percent. ### Inflation and labor market - Inflation trajectory: muted; average headline inflation was 0.4 percent (y/y) in 2024; core inflation averaged 0.6 percent (y/y). - Headline inflation trough: contraction of 1.1 percent (y/y) in January 2024. - BOT target range: 1 to 3 percent. - Price controls: apply to about 26.4 percent of the goods’ prices in the consumer price index basket. - Employment/unemployment: unemployment rate low and stable at around 1 percent. - Minimum wage: raised around 2.9 percent effective January 1, 2025, differentiated across regions (ranging from THB 337 to 400). - Wage growth: stagnated; wage growth was negative for the first half of 2024 except in agriculture. ### Fiscal developments and public debt - FY23 general government deficit: 2.0 percent of GDP (down from 4.5 percent of GDP in FY22). - FY24 fiscal execution: only 70.4 percent of the planned capital budget executed following late budget approval. - Digital Wallet (DW) program: first tranche transferred THB 145 billion (0.8 percent of GDP) in late September 2024 to the most vulnerable groups. - FY24 general government overall deficit: staff estimate around 2.2 percent of GDP. - DW subsequent tranches indicated by authorities: THB 40 billion (0.2 percent of GDP) to elderly people in 2025Q1, and remaining THB 148bn (0.8 percent of GDP) in 2025Q2 (modality uncertain). - Excise tax/fuel policy: elimination of excise tax cuts on fuel products in April 2024; diesel price cap adjusted from 30 to 33 baht per liter. ### Financial sector and private debt - Household and corporate debt-to-GDP ratios (end-September 2024): household 89.0 percent; corporate 77.5 percent (marginal declines from 90.8 and 79.8 percent at end-March). - Private sector credit growth: 0.66 percent (y/y) as of end-October 2024. - NPLs for total loans in commercial banks: 3 percent. - Special mention (SM) loans: over twice NPLs in some segments; SM loans defined as loans in default with no principal and interest repayments for 30-90 days. - NPL coverage ratio for commercial banks: 170.3 percent in 2024Q3 (179 percent at end-2023). - Financial institutions holding of household loans: commercial banks 38 percent; SFIs 27 percent; saving cooperatives 15 percent; credit card, leasing and personal loan companies 12 percent. - Share of unsecured household loans: 28 percent. - Bank capitalization/provisioning: banks and SFIs described as well-capitalized and well-provisioned. ### Monetary policy and exchange rate - Policy rate history: held at 2.5 percent from September 2023 until mid-October 2024. - Policy rate action: reduced by 25 bps on October 16, 2024. - Monetary framework: BOT pursues flexible inflation targeting; authorities advised to stand ready to adjust stance in a data and outlook-dependent manner. - Exchange rate: acted as shock absorber; exchange rate depreciated earlier in the year then rallied after June. ### Key risks and uncertainty - External environment: significant uncertainty and downside risks cloud the outlook. - Domestic headwinds: longstanding structural weaknesses (underinvestment in human and physical capital, declining labor force due to rapid population aging, large informal sector, insufficient social protection) and emerging headwinds contribute to slow recovery and muted inflation. - Financial sector risks: deteriorating credit quality—particularly for vulnerable households and SMEs—and risks concentrated in NBFIs exposed to vulnerable borrowers (e.g., hire purchase or credit card companies). - Fiscal risks: rising spending needs from population aging and climate change. ### Policy recommendations - Fiscal - Shift focus to rebuilding fiscal space as slack narrows. - Near-term: adopt a less expansionary stance or rationalize cash transfers to redirect resources toward productivity-enhancing investments while still supporting recovery. - Medium-term: implement revenue-based fiscal consolidation to bring down public debt and rebuild buffers to tackle rising spending needs from population aging and climate change risks. - Monetary - A further reduction in the policy rate would support the ongoing recovery and improve borrowers’ debt-servicing capacity with little risk of additional leverage amid tightened lending. - Given high uncertainty and two-sided risks to inflation, authorities should remain data and outlook dependent and adjust stance as needed; maintain flexible exchange rate as shock absorber. - Financial - Implement a multipronged strategy to facilitate orderly private debt deleveraging. - Strengthen personal debt workout programs through more effective bankruptcy proceedings to reduce household debt burden. - Continue tight responsible lending guidelines, enhance macroprudential toolkit and extend its coverage to all financial institutions to prevent leakages, strengthen risk analysis, and improve financial literacy to prevent further debt buildup and over-indebtedness. - Structural - Pursue resolute reforms to boost productivity and competitiveness to reverse the downward trend in potential growth. - Priority reforms: facilitate competition and openness; upgrade physical and ICT infrastructure; upskill and reskill the labor force; increase export sophistication by leveraging digitalization; strengthen governance. - Provide an adequate social protection floor to vulnerable households to enhance resilience to shocks and address structural drivers of household debt accumulation. ### Recent mission and report metadata - Discussions took place in Bangkok during November 11-26, 2024. - Mission team: C. Deléchat (Head), S. Kim, E. Kitsios, N. M. A. Purwanto, and Y. Xu (all APD); Mr. Sumawong (alternate ED) joined concluding meeting; Mr. Pongrasamiroj (OED) accompanied the mission; Mr. Tan (APD) provided analytical inputs; Ms. Reis (APD) coordinated production. - Approved by: Rupa Duttagupta (APD) and Martin Sommer (SPR). - Report date: January 27, 2025. *THAILAND — INTERNATIONAL MONETARY FUND, January 27, 2025.* ### 11. Thailand’s external position for 2024 is preliminarily estimated to be moderately ### Thailand’s external position for 2024 is preliminarily estimated to be moderately stronger than warranted by fundamentals and desirable policy settings. ### External position and current account - Current account (CA) balance projected to increase from 1.4 percent of GDP in 2023 to 1.8 percent of GDP in 2024, as the recovery in tourist arrivals and increase in transport balance offset the decline in trade balance. - Goods balance projected to decline in 2024 by 0.2 percent of GDP, as imports expand faster than exports. - Financial account expected to record a net outflow of 1.8 percent of GDP in 2024 (2.3 percent of GDP in 2023). - Foreign exchange intervention (FXI) largely two-sided in line with capital flows; reserves increasing from 49.4 percent of GDP in 2023 to 49.8 percent of GDP in 2024, 239.6 percent of the ARA metric. ### Growth and inflation outlook - Growth projections: - 2024: 2.7 percent - 2025: 2.9 percent - 2026: 2.6 percent - Medium-term potential rate estimated at around 2.7 percent (compared with 3 percent before the pandemic). - Output gap expected to close by end-2025. - Staff baseline incorporates the fiscal stance in the budget, including additional cash transfers of 1.0 percent of GDP in FY25 and a rebound in public investment. - Private consumption, supported by tourism-related activities and cash handouts, expected to continue driving growth. - Inflation outlook: muted; headline and core inflation would further recover but remain in the bottom half of the target range over the medium term, partly reflecting remaining price controls and subsidies. ### Current account medium-term outlook - Current account surpluses will moderate: expected to stabilize at around 2.8 percent of GDP, below pre-pandemic levels owing to diminishing export competitiveness and subdued tourism receipts. ### Balance of risks - Downside risks (external and domestic): - Escalation of global trade tensions or deepening geoeconomic fragmentation could slow export recovery and dampen FDI. - Increased commodity price volatility and potentially tighter-for-longer global financial conditions. - Intensification of regional conflicts or more frequent extreme climate events. - Private sector debt overhang could lead to increased defaults and impaired financial institutions. - Renewed political uncertainty could hinder policy implementation, disrupt trade and financial flows, and slow growth. - Upside risks: - Stronger-than-expected growth in China driven by stimulus measures. - Faster-than-expected disinflation in advanced economies prompting earlier policy rate cuts. - Near-term trade and FDI diversion opportunities. - Continuation of expansionary fiscal policy beyond FY25 could boost near-term growth at the cost of worse medium-term prospects. ### Inflation risks - Downside risks: - Slower global growth reducing demand for exports and tourism; increased cheaper imports from China; continued or increased government interventions (subsidies) leading to deflationary pressures; persistent under-execution of fiscal spending; sharper decline in credit growth. - Upside risks: - Global supply chain disruptions, heightened energy price volatility, diesel price ceiling (higher than in early 2024) adding upward pressure, larger-than-expected fiscal impulse, extreme weather events adding pressure to food inflation. ### Authorities’ views - Authorities broadly shared staff’s assessment of the economic outlook and risks, but were slightly more optimistic on the medium-term growth outlook. - Authorities projected inflation to gradually increase and remain in the target range over the medium term. - Authorities broadly agreed with the external sector assessment but maintained higher current account norm estimates and expressed reservations regarding the EBA approach. - Agreed with staff that policies to promote investment, diminish precautionary savings, liberalize the services sector, and minimize tax incentives and subsidies would facilitate external rebalancing. ### Fiscal policy: near- and medium-term recommendations - Context and fiscal stance: - FY25 budget projects a 3.6 percent of GDP general government deficit, which would result in a fiscal impulse of 1.6 percent of GDP. - The budget reflects a 12.4 percent increase in capital spending compared to the FY24 budget (0.3 percent of GDP) and includes THB 188 billion (1.0 percent of GDP) for additional cash transfers. - FY26 budget bill envisages a general government deficit of 3.2 percent of GDP, after which it is projected to gradually decline to 2.8 percent of GDP. - Public debt would rise to 66 percent of GDP and remain elevated. - Staff assesses the risk of debt stress as moderate given the debt trajectory and elevated gross financing needs. - Staff recommendations for FY25: - Recalibrate the fiscal stance to be less expansionary, targeting around ½ percentage points of GDP lower overall deficit. - Alternatively, better-target additional cash transfers to the most vulnerable and redirect resources toward productivity-enhancing investments in human and physical capital. - Medium-term (starting in FY26) recommendations: - Implement a growth-friendly, revenue-based fiscal consolidation to restore fiscal space and bring down public debt below 60 percent of GDP. - Improve spending composition toward productivity-enhancing investments and enhanced social protection. - Deploy comprehensive and well-coordinated measures to facilitate orderly private debt deleveraging. - Prioritize structural reforms to boost productivity and foster more equitable growth. ### Specific policy measures recommended - Strengthen revenue mobilization: - Gradually increase the VAT rate from 7 to 10 percent (statutory rate). - Rationalize tax exemptions for personal and corporate income taxes. - Streamline investment tax incentives. - Authorities’ decision to adopt the Global Minimum Tax (OECD Pillar II) seen as positive; additional revenues should be channeled to the general budget and not earmarked. - Phase out energy subsidies: - Staff welcomes elimination of the excise tax cut on fuel products and recommends gradually phasing out remaining subsidies while providing targeted support for the most vulnerable. - Staff estimates implicit costs of energy subsidies amounted to about 0.6 percent of GDP in FY24. - Address social protection gaps: - Permanent reforms to strengthen the social protection floor by raising the Old Age Allowance (OAA) and improving targeting and rationalizing schemes such as the State Welfare Card (SWC). - Staff advises against minimum wage hikes to preserve competitiveness; instead encourage investing in human capital. - Scale up public investments: - Increase public investments in human, digital, and physical infrastructure to boost productivity and sustain growth; improve efficiency of education and training spending; invest in ICT infrastructure to enhance export sophistication and crowd in private investment. ### Fiscal rules, transparency, and risk monitoring - Fiscal rules: - Thailand’s fiscal framework demonstrated flexibility during the pandemic when the debt ceiling was raised from 60 to 70 percent of GDP. - With public debt continuing to rise close to the new ceiling, staff recommends a risk-based rules approach where a more ambitious deficit target embedded in the Medium-term Fiscal Framework (MTFF) is triggered when debt is close to the ceiling. - A clearly-defined escape clause requiring a medium-term path to return below the ceiling would improve credibility. - Streamlining other fiscal rules would enhance effectiveness and accountability. - Fiscal risk monitoring and transparency: - Strengthen monitoring of fiscal risks from SOEs and quasi-fiscal operations of SFIs. - Bring all remaining energy subsidies on budget to avoid off-budget liabilities and debt surprises. - Clarify discrepancies and reconciliation items between national budget-based figures and government finance statistics (GFS), and expedite release of SOE operations data in GFS format to reduce stock-flow discrepancies on public debt projections. ### Key numerical indicators and illustrative projections (Text Table 3 highlights) - Baseline scenario (selected): - Revenue (% of GDP): 20.8 (FY25), 20.6 (FY26), 20.8 (FY27), 20.9 (FY28), 20.9 (FY29) - Expenditures (% of GDP): 24.4 (FY25), 23.8 (FY26), 23.7 (FY27), 23.7 (FY28), 23.7 (FY29) - Overall balance (% of GDP): -3.6 (FY25), -3.2 (FY26), -2.9 (FY27), -2.8 (FY28), -2.8 (FY29) - Public debt (% of GDP): 64.7 (FY25), 65.4 (FY26), 66.0 (FY27), 66.1 (FY28), 66.4 (FY29) - Alternative scenario (staff recommendations) (selected): - Revenue (% of GDP): 20.8 (FY25), 22.2 (FY26), 23.0 (FY27), 23.2 (FY28), 23.6 (FY29) - VAT rate increase (contribution): 1.2 (FY25), 1.8 (FY26), 1.8 (FY27), 1.8 (FY28) - Expenditure (% of GDP): 24.3 (FY25), 24.6 (FY26), 24.4 (FY27), 24.4 (FY28), 24.5 (FY29) - Overall balance (% of GDP): -3.5 (FY25), -2.4 (FY26), -1.4 (FY27), -1.2 (FY28), -0.9 (FY29) - Public debt (% of GDP): 64.1 (FY25), 64.1 (FY26), 63.1 (FY27), 61.7 (FY28), 60.0 (FY29) - Real output increase compared to the baseline (%): 0.7 (FY25), 0.3 (FY26), 0.0 (FY27), 0.0 (FY28), 0.0 (FY29) *International Monetary Fund staff report excerpts on Thailand’s 2024 external position, macro outlook, risks, and policy recommendations.* ### Annex VI). ### Annex VI). Authorities’ Views ### A. Fiscal Policy: Narrowing Fiscal Space and Medium-Term Consolidation - Authorities broadly agreed with staff’s recommendations on the narrowing fiscal space and the need for fiscal consolidation to reduce public debt. - Authorities recognize the importance of prioritizing investments in human and physical capital over cash transfers. - Revising the FY25 budget would be challenging at this stage; the budget already envisages a significant increase in capital spending, in line with staff’s recommendations. - In the medium term, authorities reaffirm commitment to fiscal consolidation; the forthcoming MTFF for FY26-29 will ensure fiscal policy aligns with economic and social priorities, including enhancing the social protection system through the use of big data. - On revenue mobilization, authorities highlighted ongoing work on a Tax Reform Plan aimed at modernizing the tax system, enhancing revenue, promoting fairness, and improving competitiveness, to strengthen the revenue base. ### B. Monetary and Exchange Rate Policy: Managing Policy Trade-Offs - Staff welcomes the BOT’s decision to cut the policy rate in October and sees scope to loosen the monetary policy stance further. - Staff assessment: a further reduction in the policy rate would improve the balance of risks for both growth and inflation, given that financial conditions have turned restrictive while there is remaining slack in the economy. - Lower interest rates would improve borrowers’ debt-servicing capacity with little risk of additional leverage amid plummetting credit growth. - Given remaining high uncertainty and two-sided inflation risks, BOT should remain ready to adjust its stance in a data and outlook-dependent manner, with the flexible exchange rate continuing to act as a shock absorber. - Central bank independence with clear communication is essential to maintaining credibility and effectiveness of monetary policy; staff advises reviewing the inflation target at longer intervals than one year, for example as part of a regular medium-term review of the entire monetary policy framework, because current annual revisions could undermine central bank credibility. - Staff presented an adverse scenario assuming a spike in policy uncertainty that impairs consumer confidence, reduces tourist arrivals, induces capital outflows, lowers productivity, and leads to stagflation with sharp currency depreciation (Text Table 4, Annex III). - In this adverse scenario: - FX intervention (FXI) can ease the inflation-output tradeoff by reducing the uncovered interest parity (UIP) premium and limiting the extent of depreciation, allowing monetary policy to become countercyclical and better contain the debt-to-GDP ratio. - A fiscal expansion would be more effective in stabilizing demand short term and supporting growth, but would also lead to inflationary pressures, a tighter monetary policy response, and raise fiscal risks by pushing public debt-to-GDP ratio close to the ceiling. - The simulations highlight the importance of maintaining appropriate fiscal and FX buffers to address future shocks. - In line with the Integrated Policy Framework (IPF), complementary use of FXI might alleviate policy trade-offs by smoothing destabilizing premia when FX markets become dysfunctional due to large non-fundamental shocks; however, time-varying IPF frictions and nonlinear shock effects make such situations difficult to identify, and high-frequency FXI decisions complicate ex-post assessment with low-frequency data. Provision of FXI data, with safeguards and time lags, would help assess rationale and effects. - Further liberalization of the FX ecosystem and measures to enhance FX market depth would limit the need for FXI over time; staff welcomes authorities’ efforts to liberalize the financial account, including expansion of the scope of the Non-Resident Qualified Company (NRQC) scheme, and recommends phasing out remaining capital flow management (CFMs) measures on nonresident baht accounts, including the 2021 tightening in access limits for non-NQRC investors. - Text Table 4. Thailand: Downside Risk Scenario and Policy Responses (Projections) - Real GDP growth (%) - Adverse Scenario: 0.7 3.4 3.2 3.1 2.9 - Adverse Scenario with FXI: 0.9 3.2 3.1 3.0 2.9 - Adverse Scenario with Fiscal Stimulus: 1.7 2.3 3.3 3.1 2.9 - General Government Overall Balance (% of GDP) - Adverse Scenario: -3.5 -2.8 -2.7 -2.7 -2.7 - Adverse Scenario with FXI: -3.5 -2.8 -2.7 -2.7 -2.7 - Adverse Scenario with Fiscal Stimulus: -5.3 -3.0 -2.7 -2.6 -2.6 - Public Debt (% of GDP) - Adverse Scenario: 65.9 66.8 67.1 67.1 67.3 - Adverse Scenario with FXI: 65.8 66.6 66.8 66.7 66.8 - Adverse Scenario with Fiscal Stimulus: 67.1 68.7 69.0 68.9 69.2 - CPI Inflation (%) - Adverse Scenario: 1.1 1.7 1.9 2.0 2.0 - Adverse Scenario with FXI: 1.0 1.5 1.7 1.8 1.8 - Adverse Scenario with Fiscal Stimulus: 1.2 1.8 2.0 2.0 2.0 - Notes: Fiscal balance and public debt projections refer to Fiscal Years. Sources: IMF Staff estimates. Authorities’ Views on Monetary and FX Policy - BOT agreed monetary policy will continue to be outlook-dependent and emphasized the current policy stance remains broadly neutral. - BOT indicated the October policy rate cut was a recalibration in response to evolving balance of risks and outlook; they view the current policy rate as appropriate to support economic growth close to its potential, facilitate an orderly deleveraging process, and avoid accumulation of long-term financial imbalances. - Authorities stressed low inflation in 2024 has been primarily driven by supply and structural factors largely unaffected by policy rate, and inflation expectations have remained well anchored. - Authorities cautioned that model-based estimates of the neutral rate should be approached with caution given imprecision. - Authorities reiterated commitment to exchange rate flexibility while highlighting that FXI and CFMs helped Thailand cope with the shock-prone global environment; they plan to further relax restrictions to promote FX-hedging market development. - Authorities noted market perception of the baht being highly correlated with gold prices amplified baht volatility and at times disrupted orderly market functioning. - Authorities welcome IMF IPF work and recognition of FXI as part of the complementary policy toolkit; they reiterated that FXI data are highly market-sensitive and misinterpretation might undermine central bank credibility. ### C. Financial Sector Policies: Securing Orderly Private Deleveraging - Enhanced coordination among financial supervisors is necessary to improve financial stability risk monitoring and prevent regulatory leakage; supervision is split between BOT and other government ministries. - Relevant authorities should closely monitor SFIs and NBFIs with largest exposures to vulnerable borrowers/sectors, and where SM loans and NPLs are increasing fast. - Staff welcomes efforts to improve cooperation among supervisors, draft legislation to regulate hire-purchase companies, and enhance regulatory framework for savings cooperatives and credit unions; these should be accelerated to prevent leakages. - A centralized and uniform supervision of financial institutions supported by adequate legislation would be important to ensure effective risk monitoring—through enhanced analysis and stress-testing of commercial banks, SFIs, and other NBFIs. - BOT’s crisis resolution framework should be further enhanced in line with FSAP and recent TA recommendations. Addressing Household Debt Overhang — Staff Recommendations - Adopt a multipronged approach combining ex post measures to address existing debt stock and ex ante measures to prevent new unsustainable debt buildup. - Strengthen personal debt workout programs for households with prolonged debt issues: - Further develop the personal debtor rehabilitation program, insolvency arrangements, and a socially acceptable and relatively simple personal bankruptcy mechanism. - Debt restructurings should avoid rolling over unviable loans to prevent moral hazard; authorities should target the most vulnerable households and engage with the private sector to minimize potential fiscal cost. - Staff welcomes the new debt restructuring program launched in December 2024 focusing on household and SME viable debt and designed to limit moral hazard; staff noted international experience where fiscal cost of similar programs was reduced through greater private sector participation. - Implement responsible lending guidelines and further develop the prudential policy toolkit: - Staff welcomes responsible lending guidelines implemented by BOT since January 2024 which strengthened consumer protection and allowed restructuring of over 6 million accounts. - BOT is working on introducing a broad-based debt service-to-income ratio and has developed a macroprudential policy toolkit to deploy once credit recovers. - Other measures: reinforce loan-to-value ratios, implement risk-informed pricing, strengthen documentation and verification for new credit, and enhance credit information systems. - Policies should cover all financial institutions to ensure a level-playing field, orderly deleveraging and prevent unsustainable debt buildup. - Education and financial literacy enhancement are necessary to prevent over-indebtedness; staff welcomes collaboration with education ministries to improve financial education. Specific Program Details - “Khun Soo, Rao Chuay” (You Fight, We Help) retail debt restructuring project initiated in December 2024 aims at alleviating debt burden of households and SMEs. - Eligible loans are capped at a relatively small amount and can be overdue for more than 30 days but no longer than a year. - Under the program debt payments are reduced with interest payments suspended for up to three years. - All retained interest is waived at the end of the 3 years if reduced payments have been made on time. - The program is funded by a reduction of 50 percent of the Financial Institution Development Fund fee for banks (from 0.46 percent of deposits to 0.23 percent). Financial Innovation, Inclusion, and Climate Finance - Authorities are reviewing license applications for virtual banks, expected to start operations in 2026 to help reduce costs of providing financial services to SMEs. - Regulatory sandboxes introduced for digital asset applications for programmable payments in payment systems and financial markets. - Coordination to initiate an open data roadmap to expand data coverage and enhance consumer data benefits for financial inclusion. - Authorities progressing on enhancing financial institutions’ ability to support the climate transition via gradual voluntary application of Thailand’s Green Taxonomy Phase 1 and development of Phase 2. - Phase 1 focused on energy and transportation sectors. - Phase 2 will focus on manufacturing, agriculture, real estate and construction, and waste management sectors. AML/CFT Framework - Thailand’s 2017 mutual evaluation report notes significant risks from crimes including drug trafficking, corruption, and tax evasion, and identifies deficiencies in AML/CFT effectiveness. - Based on Asia-Pacific Group on Money Laundering (2023) report, Thailand is compliant or largely compliant with 33 out of 40 recommendations; partially compliant with six recommendations (including transparency of beneficial ownership) and non-compliant with one recommendation (customer due diligence for designated non-financial businesses and professions). - Authorities should accelerate efforts to amend key legislation, including ownership requirements in the Anti-Money Laundering Act, and improve application of AML/CFT preventive controls through risk-based supervision. Authorities’ Views on Financial Stability and Deleveraging - Authorities agreed financial stability risks remain contained; they view the slowdown in credit growth as due to demand, supply, debt prepayment, and market conditions rather than across-the-board tightening in credit standards. - They consider the rise in NPLs and SM loans expected after end of forbearance measures and relatively slow. - Authorities pointed to standing working groups and committees for financial stability monitoring, joint stress-testing exercises, and staff’s recommendation on legislation to enhance supervision of unregulated sectors (hire-purchase and leasing companies) to minimize potential leakages. - Authorities shared staff’s views on importance of addressing household debt overhang but expect deleveraging to continue given cyclical output recovery and credit slowdown; cautioned that faster deleveraging could be disorderly and agreed on importance of avoiding moral hazard. - BOT clarified it already has authority to implement various tools including DSIBs and CCyB capital surcharge (set at 0 percent at the moment), as well as LCR and LTV ratio, and has been working on the DSR; it would be ready to deploy these tools once credit growth recovers. ### D. Structural Policies: Raising Productivity and Boosting Growth - A multipronged structural reforms package would raise productivity and boost growth; benchmarking against regional peers and OECD countries shows large structural gaps in trade and FDI openness, governance, business regulation, vulnerable employment, and human development (Annex VII). - Addressing these gaps could yield sizable growth dividends, particularly when complementary reforms are combined. - Open and transparent mechanisms to assess reforms’ costs and benefits, monitor progress, and identify a single lead agency in various reform areas for accountability could enhance implementation effectiveness. Specific Structural Recommendations - Facilitate competition and openness: - Thailand’s primary and services sectors remain restrictive to foreign investments, with more stringent foreign equity restrictions and FDI screening and approval process than in other ASEAN countries (OECD, 2021). - Streamline business regulations and further liberalize FDI restrictions to facilitate competition and promote investments. - Authorities are pursuing extensive new bilateral and multilateral Free Trade Agreements (FTAs) to diversify export markets. - Increase export sophistication by leveraging digitalization: - Expand public R&D and investments in IT and digital infrastructure to help the manufacturing base rise up the value chain and promote export sophistication. - Authorities are promoting investments to transition the automotive industry towards electric and hybrid vehicles and developing ICT industries to strengthen linkages with existing production, to boost SMEs’ participation in the supply chain. - Strategies are complemented by infrastructure development including in the Eastern Economic Corridor (EEC) and the Special Economic Corridors (SECs). - Upskill the labor force: - Public spending on education needs to increase, with strong focus on STEM-related areas. - Authorities should scale up efforts to enhance labor productivity by transforming higher education and vocational training programs. - Strengthen governance: - Continue advancing the governance reform agenda and address weaknesses in contract enforcement and corruption. *Source: Annex VI). Authorities’ Views, IMF staff report content provided in the source PDF.* ### Box 1. Thailand: Enhancing Governance ### Box 1. Thailand: Enhancing Governance ### Corruption: nature and macroeconomic significance - Corruption in Thailand is perceived to be pervasive and is considered a macro-critical constraint to enhanced economic growth. - Forms of corruption cited: administrative corruption (e.g. procurement, licensing), abuse of power and grand corruption. - Delays in courts affect the efficiency and effectiveness of contract enforcement and property rights’ protection. - Transparency International's Corruption Perception Index (CPI) of Thailand has hovered around 35-38 since 2012 (0 to 100 scale, 0 being lowest corruption perceptions). ### Legal and institutional framework - Key legislation enacted: - Organic Act on Anti-Corruption (2018) - Public Procurement Act (2017) - Institutions established: - Office of the National Anti-Corruption Commission (NACC) - A separate central Anti-Corruption Court established in 2016 to expedite handling of corruption cases. - Despite continuous enhancements in the anti-corruption legal framework and institutions, corruption perceptions have remained high. ### Public procurement risks and mitigation efforts - In FY23, 51 percent of total corruption cases were in the public procurement area. - Government actions to address procurement corruption: - Improve transparency in procurement contracts using the government’s e-platform. - Publish winning bids information online since 2022. - Public Procurement Act introduced the Integrity Pact to allow independent observers to monitor the procurement process. - Limitations noted: - The Integrity Pact is not mandatory. - Scope of procurement processes that observers can monitor is sometimes limited (e.g. for PPPs). ### Role of civil society and prevention measures - Active participation of civil society organizations (CSO) is an important element in anti-corruption efforts. - CSO activities and recommendations: - Raise public awareness and actively involve citizens in anti-corruption efforts. - Urge government focus on addressing sources of corruption by: - Reducing opportunities for bribery (corruption prevention), - Improving whistleblowing mechanisms, - Increasing transparency in government operations. ### OECD reviews and recommendations - Thailand completed a full OECD review of key pillars of its public integrity systems—the first in Asia-Pacific—demonstrating commitment to good governance. - OECD’s main recommendations included: - Streamlining coordination mechanisms among anti-corruption bodies and related authorities. - Improving the asset declaration system for civil servants. - Strengthening protections for whistleblowers. - Collecting and maintaining comprehensive data on corruption cases to assess enforcement trends and outcomes. - The authorities have made some progress in addressing these recommendations. - OECD reviews referenced: Integrity Review of Thailand (2018, 2021) and Review of Thailand's Legal and Policy Framework for Fighting Foreign Bribery (2024). ### AML/CFT and broader anti-corruption linkages - Ongoing government efforts to strengthen the AML/CFT framework will also contribute to broader anti-corruption efforts (See paragraph 35). *IMF staff summary based on Box 1. Thailand: Enhancing Governance from the provided IMF country report content.* ### 48. It is recommended that the next Article IV consultation with Thailand take place on a ### It is recommended that the next Article IV consultation with Thailand take place on a standard 12-month cycle. ### Real sector developments - Thailand’s post-pandemic recovery is slower than its peers. - Domestic demand recovered in 2024Q3 after the decline in Q2. - Resilient growth in services and the recovery in manufacturing drove growth in 2024Q3 while agriculture remained weak. - Tourist numbers are recovering, but tourism revenue remains below the pre-pandemic level. - Downward pressure on consumer prices with core-core inflation continued to decline. - Unemployment rate remained low. ### Fiscal sector developments - Thailand accumulated significant debt during the pandemic, reflecting the strong fiscal response. - The fiscal balance has improved following the end of pandemic support measures. - Public debt remains at elevated levels, close to the authorities’ debt ceiling. - Gross financing needs have increased because of the large COVID-19 related borrowing. - Thailand’s public debt remains on par with other ASEAN-5 countries despite a broader coverage; Thailand’s sovereign spreads are also among the lowest in Asia. Key indicators (from Table 1 and Table 3): - Per capita GDP (2023): US$7,338 - Exchange Rate (2023): 34.8 Baht/USD - Unemployment rate (2023): 1 percent - Poverty headcount ratio at national poverty line (2021): 6.3 percent - Net FDI (2023): US$ -7.16 billion - Population (2023): 70.18 million - Public sector debt (end of period) projections (percent of GDP): 63.3 (2024), 64.7 (2025), 65.4 (2026), 66.0 (2027), 66.1 (2028), 66.4 (2029), 66.4 (2030) - General government balance (percent of GDP): -2.0 (2023), -2.2 (2024), -3.6 (2025), -3.2 (2026), -2.9 (2027), -2.8 (2028), -2.8 (2029), -2.8 (2030) - Overall fiscal balance (in billions of baht): -352.0 (FY2023), -396.1 (FY2024), -691.3 (FY2025), -633.7 (FY2026), -607.7 (FY2027), -614.8 (FY2028), -644.0 (FY2029), -678.1 (FY2030) ### Financial sector and banking developments - Credit growth decelerated further in 2024 across corporate and household sectors. - Household debt to GDP has continued to decline from its pandemic peak but remains elevated; growth mainly driven by credit card and personal loans. - Corporate leverage shows a declining trend due to slower growth in loans, debt securities’ issuance and external debt. - Commercial banks are well capitalized. - Banks are relatively more reliant on short-term liabilities than peers. - Loans-to-Deposits Ratio (LDR) remained high. - Nonperforming loans (NPLs) remain relatively low, although rising. - Profitability has remained sound but consistently low in regional comparisons. ### External sector developments - The current account balance remained in surplus in 2024, contributing to a strengthening of reserves. - Tourist arrivals are gradually recovering to pre-pandemic levels, albeit at a slower pace for tourists from China. - Export growth has been stronger than peers more recently, while following regional trends. - Net foreign direct investment turned positive in 2024, largely owing to a contraction in outward direct investment. - Nonresident portfolio inflows turned positive in 2024Q3 and, together with current account increases, contributed to an appreciation of the REER rate in recent months. Selected external statistics (Table 1, Table 6, Table 7): - Current account balance (billions of U.S. dollars): 7.4 (2023), 9.5 (2024), 11.9 (2025), 13.2 (2026), 14.6 (2027), 16.5 (2028), 18.2 (2029), 19.4 (2030) - Current account balance (percent of GDP): 1.4 (2023), 1.8 (2024), 2.2 (2025), 2.3 (2026), 2.4 (2027), 2.6 (2028), 2.7 (2029), 2.8 (2030) - NIIP: 4.7 (% GDP) projected for 2024 (from 2.5 percent in 2023) - Gross Assets: 120.9 (% GDP) projected for 2024 (from 118.6 percent in 2023) - Gross Liabilities: 116.2 (% GDP) projected for 2024 (from 116.1 percent in 2023) - External debt (percent of GDP): 38.4 (2024) from 38.2 (2023); short-term debt about 16.1 percent of GDP - Gross official reserves (including net forward position, end of period) (billions of U.S. dollars): 262.5 (2024) and constant at 262.5 in subsequent projection years in Table 1 and Table 6 - Gross official reserves (Percent of GDP): 49.8 (2024) ### Socio-economic developments - Thailand’s income inequality remains relatively high with large income disparities across regions. - Income inequality is closely associated with education gaps and the types and industries of household heads’ occupation. - Wage differentials between agricultural and non-agricultural sector jobs have widened. - Persistently large informal sector employment, concentrated in the agricultural sector. - Overall gender wage gap has largely dissipated, but disparities remain for jobs requiring higher education. ### Structural challenges and competitiveness - Thailand’s population continues to age rapidly. - Large share of low-skilled workers in the labor force, many employed in tourism-related services sectors. - Thailand lags behind peers in export sophistication, highlighting the need to improve competitiveness. - Need to bridge structural gaps on multiple fronts to support sustainable and inclusive growth. ### External sector assessment (preliminary staff estimates for 2024) Findings: - Overall Assessment: Preliminary staff estimates for 2024 suggest that the external position is moderately stronger than the level implied by medium-term fundamentals and desirable policies, although CA and REER gaps are narrowing. - The CA balance is expected to improve to 1.8 percent of GDP in 2024 from 1.4 percent of GDP in 2023, as tourism receipts recover further, and is projected to return to a surplus of around 2.8 percent of GDP in the medium term. - NIIP projected to increase to 4.7 percent of GDP in 2024 (from 2.5 percent in 2023). - Gross assets estimated to increase to 120.9 percent of GDP (from 118.6 percent of GDP). - Gross liabilities marginally increase to 116.2 percent of GDP (from 116.1 percent of GDP). - Gross assets composition: gross reserve assets (45.0 percent of GDP) and direct investment (39 percent of GDP). - Gross liabilities composition: direct investment (about half) and portfolio investment (about one-fourth). - Net direct and other investment assets expected to pick up by 0.4 and 0.2 percent of GDP, respectively; net portfolio investment projected to decline by 0.4 percent of GDP. - External debt expected to increase to 38.4 percent of GDP in 2024 from 38.2 percent of GDP in 2023; short-term debt about 16.1 percent of GDP. - External debt stability and liquidity risks are limited. Model results and staff judgment: - EBA CA model: cyclically adjusted CA of 1.9 percent of GDP and a CA norm of 0.8 percent of GDP for 2024; EBA CA gap of 1.1 percent of GDP. - Identified policy gaps: significant positive fiscal (1.2 percent of GDP) and negative credit (-1.2 percent of GDP) policy gaps offset each other. - Domestic policy gap of 0.2 percent in health expenditure suggests room to increase spending on social safety nets. - An adjustor of 0.7 percent of GDP is applied for COVID-19 travel-sector shocks not captured by standard EBA cyclical adjustment. - IMF staff assesses the CA gap to be in the 1.1 to 2.5 percent of GDP range, with a midpoint of 1.8 percent of GDP for 2024; results are subject to uncertainties regarding the adjustor. - Using an elasticity of 0.49 and based on the IMF staff CA gap, IMF staff assesses the 2024 REER to be undervalued in the 2.3 to 5.0 percent range, with a midpoint of 3.7 percent. ### Potential policy responses (as identified by IMF staff) - Promote investment and diminish precautionary savings. - Liberalize the services sector. - Minimize tax incentives and subsidies that distort competition to facilitate external rebalancing. - Focus public expenditures on targeted social transfers to support the most vulnerable and on infrastructure investment to support a green recovery and reorientation of affected sectors. - Continue reforms to expand and consolidate social safety nets, notably fragmented pension schemes. - Implement measures to address widespread informality to help reduce precautionary savings and support consumption. - Fiscal adjustment may increase external surpluses in the context of an already moderately stronger position; emphasis on structural reforms and other policies to attain desirable external adjustment. *International Monetary Fund staff estimates and projections as presented in the source content.* ### 3.9 percent, and the EBA level REER gap is estimated at -5.4 percent. ### 1thaea2025001-print-pdf - 3.9 percent, and the EBA level REER gap is estimated at -5.4 percent. ### Key statistics - 3.9 percent - The EBA level REER gap is estimated at -5.4 percent. ### Capital and Financial Accounts: Flows and Policy Measures — Background - In 2024, the capital and financial account balance (excluding change in reserves) are expected to increase to - *Source: 1thaea2025001-print-pdf - 3.9 percent, and the EBA level REER gap is estimated at -5.4 percent.* ### 1.8 percent of GDP from –1.9 percent of GDP in 2023, driven by the increases in portfolio investment (from -2.7 percent ### 1thaea2025001-print-pdf ### External accounts and capital flows - Current account and capital flow shifts: - Portfolio investment: from -2.7 percent of GDP in 2023 to -1.3 percent of GDP in 2024. - Inward FDI: from -1.4 percent of GDP in 2023 to -1.3 percent of GDP in 2024. - Other net investments: from 1.8 percent of GDP in 2023 to 0.7 percent of GDP in 2024. - Overall change noted: 1.8 percent of GDP from –1.9 percent of GDP in 2023 (driven by the increases in portfolio investment and inward FDI). - Assessment and policy guidance: - Thailand maintains strong external buffers and fundamentals that have helped weather volatility from external financial conditions, political uncertainty, COVID-19, and the war in Ukraine. - IMF staff welcome expansion of the Non-resident Qualified Company scheme to allow qualified investors better access to Thai baht liquidity without restrictions on Thai baht accounts. - IMF staff recommend reversing the 2021 reduction in the limit on Thai baht lending from domestic financial institutions to non-residents without underlying document submission, noting that the surge in portfolio inflows observed in 2021 has abated. - In line with past advice, the IMF team recommends phasing out CFM measures on nonresident baht accounts. - Recommendation: 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 - Exchange rate regime and reserves: - Exchange rate regime: classified as (de jure and de facto) floating. - International reserves (including the net forward position): expected to increase to 49.8 percent of GDP in 2024 from 49.4 percent of GDP in 2023. - Reserves metrics: around 2.4 times the short-term debt, 11 months of imports, and 231.8 percent of the IMF’s standard ARA metric. - Assessment and operational guidance: - Reserves are higher than the range of the IMF’s reserve adequacy metrics; there is no need to build up reserves for precautionary purposes. - Exchange rate policy: should move flexibly to act as a shock absorber. - FX intervention: could be used to address disorderly market conditions and mitigate policy trade-offs when the FX market becomes dysfunctional and deviations in hedging and financing premia become excessive due to large non-fundamental shocks. - FX interventions undertaken: some two-sided FX interventions in periods of large volatility; exchange rate has been allowed to adjust. - Tourism adjustor methodology (for Thailand): - Tourism adjustor of 0.7 percent of GDP calculated in four steps: 1. Subtract IMF staff pre-pandemic projection of the travel balance for 2024 from the currently projected 2024 travel balance to yield the overall impact of transitory and structural factors. 2. Subtract IMF staff pre-pandemic projection of the travel balance for 2025 from the currently projected 2025 travel balance to estimate structural change. 3. Net out the structural change (step 2) from the overall effect (step 1) to measure the transient effect on the travel services balance. 4. Apply coefficient of 0.75 (the estimated impact of changes in the travel services balance on the CA) on the transient effect from step 3 to yield the tourism adjustor applied by IMF staff. ### Risk Assessment Matrix — External risks (summary) - Trade disruptions and geoeconomic fragmentation - Likelihood: High - Impact: Escalation would disrupt export recovery and dampen FDI; long-term lower exports and output losses. - Policy response: Diversify trading partners; accelerate structural reforms and infrastructure; streamline regulatory barriers; liberalize markets; facilitate innovation through strengthened R&D. - Intensification of regional conflicts - Likelihood: High - Impact: Disrupt trade, travel, remittances, FDI, financial flows; reduce foreign tourist arrivals; supply chain disruptions and price surges. - Policy response: Integrated policy use (monetary tightening, FXI, fiscal support); diversify trade networks; accelerate structural reforms and infrastructure development. - Commodity price volatility - Likelihood: High - Impact: Higher fuel prices could slow growth and raise inflation; prolong fuel subsidies; worsen fiscal stance. - Policy response: Accommodate first-round cost-push effects; prepare monetary policy for second-round effects; avoid costly and regressive fuel subsidies; replace with targeted support. - Global growth surprises - Slowdown likelihood: Medium; Acceleration likelihood: Low - Impact (slowdown): Reduced external demand and weaker inflows; possible sudden stops in some EMDEs. - Impact (acceleration): Stronger growth and higher inflation. - Policy response: Allow flexible exchange rate adjustment with judicious intervention; prepare monetary policy for second-round effects; consider counter-cyclical fiscal policies while maintaining fiscal prudence. - Climate change - Likelihood: Medium - Impact: Extreme events could disrupt tourism and economic activity; regulatory uncertainty could strand assets. - Policy response: Adopt effective emission trading system; scale up climate-resilient infrastructure and R&D; incorporate climate risks in prudential policies; encourage sustainable higher value-added tourism. ### Risk Assessment Matrix — Domestic risks (summary) - Increased social discontent and political uncertainty - Likelihood: High - Impact: Undermine consumer and business confidence; market volatility; hinder reform implementation. - Policy response: Maintain macro stability; strengthen social support; phase out regressive energy subsidies and replace with targeted support; scale up education and health spending; strengthen governance and anti-corruption. - Weakening fiscal discipline - Likelihood: High - Impact: Higher public debt, erosion of fiscal space, weaker investor confidence, higher borrowing costs. - Policy response: Implement growth-friendly, revenue-based fiscal consolidation; strengthen fiscal rules; improve fiscal transparency and public financial management. - Further buildup of private sector debt - Likelihood: High - Impact: Household over-indebtedness and SME loan deterioration could lower consumption and investment; higher NPLs could impair bank balance sheets. - Policy response: Implement stronger lending standards informed by comprehensive credit information systems; provide legal and financial advice to indebted consumers; adopt broad-based DSTI ratio; expand macroprudential coverage to saving cooperatives and NBFIs. ### Implementation of the Main Recommendations of the 2023 Article IV Consultation - Fiscal policy actions - DW program implementation: - First tranche implemented in late September 2024 as a cash transfer of THB 145 billion (0.8 percent of GDP) to SWC holders and persons with disabilities; expenditure within MTFF planned budget; no new borrowing necessary. - FY25 budget envisages additional transfers with an overall envelope of THB 188 billion (1 percent of GDP), including a second tranche transfer of THB 40 billion (0.2 percent of GDP) for elderly people. - Tax and subsidy measures: - In FY24, Ministry of Finance phased out excise tax cuts on fuel products and terminated it in April 2024. - Authorities introduced a revenue-neutral carbon tax and indicated adoption of the global corporate minimum tax in 2025. - SOE and extra-budgetary fund monitoring: - SOEs monitored by the State Enterprise Policy Office (SEPO) and BOT for financial institutions; extra-budgetary funds monitored by the Extra-Budgetary Funds Management Committee chaired by the Finance Minister. - Under the Fiscal Risk Statement, performance and financial position of key SOEs and extra-budgetary funds are closely monitored and published with risk assessment. - Monetary and exchange rate policy actions - Monetary stance: - Monetary policy stayed on hold until mid-October 2024; BOT cut the policy rate by 25 bps in October 2024 to alleviate debt-servicing burden as risks to financial imbalance buildup declined. - FX intervention and transparency: - FXI has been largely two-sided in line with capital flow movements to deal with excessive exchange rate movements and provide private sector adjustment time. - Capital flow management: - Phasing out of remaining CFM measures on non-resident baht account recommended. - Financial policy actions - Risk monitoring and DSR measures: - BOT developed a financial stability dashboard to monitor NBFIs and SFIs solvency, credit, profitability, and liquidity. - BOT prepared a DSR consultation paper, standardized data preparation, and is expanding supervision over unregulated hire-purchase and leasing companies. - Government implemented DSR ceiling of 70 percent on government employees (including loans granted by cooperatives). - Insolvency and cooperative sector measures: - Amendment of the Bankruptcy Act approved by cabinet to assist SMEs and individual debtors; proceeding to the House of Representatives. - BOT collaborated with Cooperative Promotion Department to mitigate credit risk and strengthen cooperatives' financial positions. - Climate finance and taxonomy: - Authorities developing Thailand Taxonomy Phase II (expected to be published by 2025) covering manufacturing, agriculture, real estate and construction, and waste management. - BOT and 8 Thai commercial banks launched the Financing the Transition project to support business adaptation to environmental sustainability. - Structural policy actions - Trade and integration: - In June 2024 Thailand became the second OECD Accession Country from the region. - On August 29, 2024, authorities approved the “Thailand-EU Comprehensive Partnership and Cooperation Agreement” to expedite Thailand-EU FTA negotiations. - Authorities pursuing new FTAs with countries including Peru, Chile, and India. - Labor and education reforms: - Promotion of Learning Act of 2023 implemented to support economic restructuring toward a knowledge-based economy. - National science, research and innovation plan being implemented to use higher education and innovation to become a high-income country; tax incentives provided to private companies sending workers to approved training centers. - Climate policy: - Authorities introduced a revenue-neutral carbon tax and are proceeding with Climate Change Act legislation to introduce a mandatory ETS, carbon tax, and carbon credits. ### Implementation of 2019 FSAP key recommendations (highlights) - Regulatory and supervisory coordination: - Coordination mechanisms in place: FIPC Meetings with BOT, SEC, OIC and MOF; cross-directorship between regulatory agencies; 3-regulators steering committee; bi-annual joint MPC-FIPC Meeting for financial stability issues. - BOT reviewing additional alternatives for Thai context, including inviting other regulators where appropriate. - Banking sector risk management: - Liquidity risk management for cooperatives: - BOT engaged with Cooperatives Promotion Department (CPD) and regulatory bodies to ensure Thrift and Credit Cooperatives (TCC) and Credit Unions (CU) maintain robust liquidity risk management and to issue regulations on liquidity adequacy requirements. - Expanded risk analysis: - BOT enhancing financial stability dashboards by integrating insurance and non-bank retail lending metrics and established MFiSS (macro-financial stability secretariat) high-level and working-level bodies to oversee alignment between macroeconomic and financial conditions. _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1thaea2025001-print-pdf.pdf_ ### introduction of a Composite Indicator of Systemic Stress (CISS) which aims at ### Introduction of a Composite Indicator of Systemic Stress (CISS) ### Purpose and immediate actions - Introduce a Composite Indicator of Systemic Stress (CISS) to provide a more thorough assessment of overall financial system instability and interconnectedness among financial nodes. - Continuously monitor the degree of concentration of the loan portfolio through the annual bank examination; this serves as an input to assess concentration risk in Pillar II. - Collect more granular data on SFIs to refine the stress tests on solvency and liquidity. - SFIs in Thailand have conducted solvency and liquidity stress tests which are currently under review by the BOT. BOT will continue to give advice to SFIs on how to improve the models and stress test processes. ### Macroprudential and financial stability governance - Clarify the financial stability mandate of the FIPC and the MPC: - The MPC doesn’t have an explicit mandate on financial stability, but monetary policy discussions and decisions have taken financial stability into account as one of three objectives for monetary policy. - FIPC has the commitment to ensure financial institution stability, contributing to strategic decision-making and effectiveness of supervisory and regulatory framework. - Macroprudential policy decisions should not be the sole responsibility of the FIPC but also involve MPC to ensure a holistic macroeconomic view and coordination between MPC and FIPIC. - Address potential leakages by extending BOT’s macroprudential authority, including extending DTIs to personal loans granted by SFIs, TCCs, and CUs. - Introduce a broad-based DSTI/DSR ratio: - BOT has initiated discussions with commercial banks, SFIs, and non-banks under BOT’s supervision concerning implementation of the debt service ratio (DSR) measure. - The Consultation Paper (CP) for DSR implementation is to be released when timing is fast approaching. - BOT plans for this measure to take effect in 2025 at the earliest, pending favorable economic conditions. - Amend internal guidelines on preventive and corrective actions to reflect flexibility granted under FIBA: - BOT amended the PPA/PCA internal guideline, enhancing BOT’s flexibility in taking PPA actions before a bank’s supervisory rating of 4 (weak bank) is reached. - Implement new definitions of loan restructuring/rescheduling and NPL identification to meet international standards: - IFRS 9 became effective in Thailand since January 2020. BOT revised relevant regulations and coordinated with the Federation of Accounting Profession in Thailand to support adoption of IFRS9. ### Banking and SFIs oversight — phased supervisory upgrades - Continue reforms to supervise the three largest retail deposit-taking SFIs under same standards as commercial banks. - BOT enhances regulation to supervise SFIs using a phased approach: - Phase 1-2: Issued rules/regulations and guidelines aiming at stability and prudence, including standards on governance, capital requirements, liquidity reserve requirements, credit processes, single lending limits, accounting, branch services, outsourcing, KYC, IT risk management, mortgage loans, and market conduct. - Phase 3: Issued Regulation on Telebanking and Digital Banking Channel, Guidelines on Operational Risk Management, and Guidelines on Internal Control to enhance efficiency, security, and sustainability of SFIs. ### Thrift and Credit Cooperatives and Credit Unions (TCCs and CUs) - Define and initiate regulatory and supervisory regime proportionally equivalent to banking system: - BOT supported CPD in promulgation of more stringent regulations on corporate governance, disclosure, and capital requirements. - Regulations addressing loan underwriting standards, asset classification and loan provisioning, and liquidity requirements are in progress. - Affordability and residual income recommendations: - BOT collaborated with CPD to advocate adoption of affordability indicators akin to DSR policy for cooperative lending. - BOT recommended consideration of a residual income criterion of 30 percent for cooperative debtors who are government employees. - Address potential over-indebtedness by defining maximum DTI ratios and requiring TCCs and CUs to report to the NCB. ### AML/CFT, crisis management, and resolution - AML/CFT enhancements: - Anti-Money Laundering Act is being amended to expand coverage of reporting entities and to incorporate beneficial ownership requirements to improve transparency of legal persons, trusts, cooperatives, and NPOs. - Counterterrorism and Proliferation of Weapons of Mass Destruction Financing Act is being amended to provide mechanisms for delisting requests and procedures relating to false positives. - Draft Operation of Non-Profit Organizations Act is being prepared to enhance transparency of NPOs. - National Money Laundering and Counter Terrorism Financing Risk Assessment was updated. - Crisis management and resolution: - Banks: BOT Act amended in July 2018 to set out current resolution framework broadly aligned with Key Attributes; focus on preparation for operationalization. - BOT developed a resolution toolkit in 2020, a playbook in 2021, and sample resolution plan applicable to D-SIBs. Bank-specific resolution planning for D-SIBs is ongoing. - SFIs: Financial Institutions Business Act provides basis for Minister of Finance to assign BOT as regulator of SFIs, with powers to propose resolution actions when SFI conditions may damage state interest. - Strengthen ELA and deposit insurance arrangements: - Principles and guidelines for accepting loan portfolio collaterals were approved in 2020. - Key progress in assessment and pricing of loan portfolio collaterals, review of financial haircuts, finalizing the process to set-off loans in case of default, developing loan review system and drafting of loan documentations for Section 42 ELA. *Source: Thai authorities and IMF 2019 FSAP.* ### Annex I. Inflation Dynamics in ASEAN — summary of empirical findings - Objective: - Examine primary drivers of inflation in Thailand and ASEAN-5 using an open economy Phillips curve distinguishing global and domestic determinants. - Decompose Thailand’s inflation into supply and demand factors using sectoral PCE data. ### Key empirical results (ASEAN-5 Phillips curve) - Model specification: - Dependent variable: 휋휋_{i,t} = annualized year-on-year growth rate of headline inflation. - Key regressors: lagged inflation 휋휋_{i,t−1}; three-year-ahead inflation expectations 휋휋^e_{i,t}; output gap y_{i,t}; growth in global energy and food prices expressed in domestic currency and weighted by CPI shares; Chinese export price growth; country fixed effects; error term ε_{i,t}. - Main quantitative estimates: - Persistence of inflation: point estimate close to 0.8. - Global energy price shock: for every percentage point increase in global energy prices (expressed in local currency), headline inflation in ASEAN-5 increases by about 0.2 percentage points. - Global food price shock: for every percentage point increase in global food prices, headline inflation increases by about 0.1 percentage point. - Chinese export prices: for each percentage point reduction (increase) in Chinese export price inflation, headline inflation declines (increases) by about 0.03 percentage points for an average ASEAN-5 country. - Phillips curve slope: - The coefficient of the output gap is positive for the region. ### China disinflation spillovers and trade links - China as trade partner: - China accounts for about 30 percent of the region’s imports. - Quantified spillovers: - BIS (2024) shows China’s deflation translated to an average reduction of 5 percentage points in import prices for its trading partners over 2023. - Literature reference: a 5.8 percent decrease in import prices would eventually translate into a 1.5 percent reduction in CPI inflation (Goldberg and Campa, 2010). - Empirical implication from model: - Estimated effect of Chinese export prices on headline inflation is positive but small: about 0.03 percentage points per 1 percentage point change. ### Drivers of ASEAN-5 inflation over recent years - External factors (energy, food, Chinese export prices) significantly influenced inflation, especially during the pandemic and post-pandemic periods. - Inflation expectations have been an important contributor over the past 20 years. - Output gap: - Negative output gaps during pandemic 2020-21 exerted downward price pressures; positive output gaps prior to 2020 exerted upward pressures. - Policy measures: - Direct measures such as subsidies, excise tax cuts, and administered prices mitigated higher energy price effects; these measures peaked in 2022 and have since been scaled down. ### Thailand-specific decomposition and drivers - Co-movement and recent behavior: - Thailand’s inflation fell below the central bank’s target range since 2023Q3. - 2024 estimates suggest a positive output gap for Malaysia and negative output gaps for most ASEAN countries, most of which are small with the exception of Thailand. - Main contributors to Thailand’s recent low inflation: - Decelerating external price pressures, including lower Chinese export prices since mid-2023. - Extensive price controls, subsidies, and tax reductions on energy and other products in the consumer basket. - Larger negative output gap relative to peers. - Quantified country-specific points: - Raw food and energy account for 33 percent of the CPI basket. - Bank of Thailand (BoT) estimates suggest headline inflation would be about 1.1 percent higher in 2024Q1 without the energy subsidies. - Price controls apply to about 26.4 percent of the goods’ prices in the CPI basket. - Exchange rate pass-through: - Oil Fund price adjustment mechanisms have buffered retail oil prices’ sensitivity to exchange rate changes, contributing to low exchange rate pass-through for Thailand. - Example: price cap on diesel fuel exerted additional downward pressure on energy inflation. ### Demand vs supply decomposition for Thailand (methodology and interpretation) - Method: - Follow Shapiro (2022) and Firat and Hao (2023) to classify inflation in 32 personal consumption expenditure categories as demand- or supply-driven. - Assumption: demand shocks move prices and quantities in same direction; supply shocks move them in opposite directions. - Estimate a VAR in first differences with four lags for each expenditure item using quarterly sectoral price deflators from 1995Q1 to 2024Q2. - Aggregate demand and supply contributions are weighted sums of sectoral inflation rates classified as demand- or supply-driven. - Finding: - A decomposition suggests supply factors have been more prevalent in driving the recent inflation deceleration in Thailand. *Source: Prepared by Ying Xu and Emmanouil Kitsios (APD) with contributions from Melih Firat (SPR); Source: Haver Analytics, IMF Staff calculations, Thai authorities and IMF 2019 FSAP.* ### 8. Supply factors contributing to lower growth combined more recently with demand ### 8. Supply factors contributing to lower growth combined more recently with demand ### Drivers of Thailand’s inflation deceleration (2020–2024) - At the outset of the pandemic, 2020Q1, lockdown measures exerted downward pressure on prices primarily through the demand channel. - Demand-driven factors had a negative contribution to aggregate inflation throughout 2020 until 2021Q1. - As the economy gradually reopened in November 2021, demand-driven inflation reversed its trend reflecting the lifting of pandemic restrictions and implementation of supportive fiscal and monetary policies. - The relative contribution of supply-driven inflation to PCE inflation was relatively muted during the initial pick-up of inflation in 2021 and began rising after 2022Q1 when commodity prices started surging following Russia’s invasion in Ukraine. - A decline in inflation began towards the end of 2022, accompanied by a decreasing contribution from supply factors. - Supply factors that partly manifested themselves in lower manufacturing production and exports leading to lower growth than peers, exerted a negative contribution on inflation throughout 2023Q3-2024Q1. - Declines in energy prices due to government subsidies over this period also contributed to deflationary pressures. - Demand factors were stronger as tourism continued to recover before normalizing their contribution to pre-pandemic levels. - Lower growth rates across ASEAN peers strongly correlate with lower inflation, consistent with empirical finding that negative output gaps have an explanatory role (Figure 6). - As of 2024Q2, supply factors reversed their negative contribution, while demand factors declined likely reflecting the decline observed in private consumption and private investment. ### Policy-relevant interpretation - The relative importance of demand and supply factors in driving inflation provides guidance for tailoring policy responses. - Misidentifying the source of inflation can lead to inappropriate policy measures (for example, tightening monetary policy in response to transitory supply shocks could exacerbate economic downturns without addressing the root cause). - If supply shocks linked to intensification of conflicts, geoeconomic fragmentation or climate change become more frequent/persistent, policymakers will face difficult trade-offs that increase the value of an integrated policy mix supported by adequate buffers. - Clear communication about the nature of inflation can help clarify the monetary policy stance, enhance central bank credibility, and manage market expectations. ### Key empirical and conceptual links - Negative output gaps have explanatory power for lower inflation across ASEAN peers (Figure 6). - Supply factors played a major role in the 2023Q3-2024Q1 negative contribution to inflation, while demand normalization and later decline shaped inflation dynamics through 2024Q2. ### Recommendations (implied by text) - Adopt an integrated policy mix supported by adequate buffers when supply shocks are persistent. - Ensure inflation expectations remain anchored regardless of the inflation shock’s source. - Communicate clearly about the nature of inflation to enhance central bank credibility and manage expectations. --- ### 9–10. Monetary policy frameworks, credibility, and inflation expectations ### Empirical findings on frameworks and expectations - Thailand has enhanced its monetary policy framework over time across the three pillars captured by the IAPOC index (Independence and Accountability, Policy and Operational Strategy, and Communications) (Figure 7, panel 1). - An empirical exercise regressing 3-years-ahead inflation expectations on the growth of the IAPOC index over 2010-2021 for a sample of 50 countries suggests that stronger overall monetary policy frameworks are associated with lower inflation expectations (Figure 7, panel 2). - Improvements in monetary policy credibility are also found to be negatively and significantly correlated with actual inflation when actual inflation is used as the dependent variable. - The IAPOC index construction note: scores are normalized to 100 for each country in their initial assessment years; the estimated change is in 3-years-ahead inflation expectations in 2021 from growth in the IAPOC index over 2018-2021 and its 90 percent confidence interval. ### Policy implications - Well-designed monetary policy frameworks with clear policy and operational strategies and robust independence and accountability measures strengthen central bank credibility. - Safeguarding central bank independence is crucial for achieving and maintaining monetary policy credibility and price stability. - Credible frameworks reduce the likelihood of politically-motivated economic cycles and enhance the overall predictability of monetary policy. --- ### Annex II. Thailand’s exports in a fragmented world — summary findings ### Background and context - The annex examines the impact of China-U.S. trade tensions (which escalated in 2018-2019) and rising geoeconomic fragmentation on Thailand and other ASEAN peers. - By January 2021, the U.S. raised its average tariff on China to over 19 percent, up from 3 percent before the trade tensions. China increased its average tariff on U.S. exporters (from 8 percent to more than 20 percent) and reduced the average duty applied to imports from the rest of the world (from 8 percent to about 6 percent) by the end of 2020 (Figure 5). ### Effects of China-U.S. tariffs on Thailand’s trade - Thailand captured export opportunities presented by Chinese and U.S. tariffs: exports of products targeted by Chinese or U.S. tariffs grew faster than exports of untargeted products by about 29 percent on average in 2022/23 relative to 2016/17 (Figure 6). - Positive tariff elasticities of exports to both the United States and China, and to the rest of the world, indicate Thailand’s exports substituted those from China and the United States and also expanded to third countries. - Thailand appears to have operated along a downward supply curve, exploiting trade diversion opportunities and realizing economies of scale (Figure 7). ### Limits to gains in aggregate trade performance - Trade reallocation gains from the China-U.S. tariffs did not translate into stronger overall exports or trade balances for Thailand. - Thailand’s export growth has slowed further after 2018, following a declining path that started before the rise in trade tensions (Figure 8). - Heterogeneity across ASEAN: relative export growth rose for some (Vietnam/Indonesia) and remained stagnant for others (Philippines/Singapore). ### Structural features and resilience - Despite eroding export growth performance, Thailand increased the domestic value added embedded in its exports and enhanced regional participation (Figures 9–11). - Thailand has strengthened intra-regional trade and global value chain participation over time, even as the share of foreign value-added contributions to its exports increased (i.e., rising backward GVC participation). ### Policy implications and vulnerabilities - Thailand’s integration with the global economy remains strong, and exporters captured trade diversion opportunities from U.S.-China tensions. - Countries more integrated into GVCs and with less restrictive FDI regimes were especially successful in gaining from such trade opportunities (Figure 12). - A further intensification of geopolitical pressures could harm Thailand’s export-driven growth by reducing activity in major trading partners and lowering external demand. - Recommendations to improve resilience and export performance: - Ease FDI restrictions and simplify screening/approval procedures. - Further integrate in GVCs and pursue opportunities for enhanced intra-ASEAN trade. --- ### Annex III. Macroeconomic framework under alternative scenarios — Scenario 1: Productivity-Boosting Fiscal Stimulus ### Scenario and key assumptions - Scenario considers reallocation of government spending for FY25: part of planned cash transfers (0.8 percent of GDP among the budgeted 1.0 percent of GDP) is redirected towards digital and physical capital (infrastructure investment) and/or human capital (education spending). - These redirected spendings are assumed to take longer to implement—spanning the full year of FY25 rather than frontloaded disbursements—but are expected to have a larger multiplier effect compared to the less-targeted cash transfers. - Rationale: given Thailand’s persistent infrastructure gaps and skills mismatches, such spendings are likely to raise productivity of labor and private capital through positive spillovers. ### Quantitative assumptions and impacts - The alternative spending yields a multiplier of around 1.7 in the near term. - The alternative spending generates an increase in productivity of around 0.5 percent during the medium term. - The cash transfers spending shows a multiplier of 0.5 without any sustained impact afterwards. ### Policy message - Redirecting part of less-targeted cash transfers into investment in digital and physical capital and/or education can produce larger near-term multipliers and sustained productivity gains. - Such composition shifts can be especially valuable when fiscal space is narrowing and the government seeks to maximize growth and productivity impacts from limited resources. *Italic: Source — 1thaea2025001-print-pdf - 8. Supply factors contributing to lower growth combined more recently with demand (IMF).* ### 2. Projections and policy implications. The simulation results using the QIPF show that, ### 2. Projections and policy implications. ### Overview of simulation framework and baseline vs alternative spending - Simulation uses the QIPF with a fixed spending envelope of 0.8 percent of GDP. - Under the alternative spending scenario (productivity-boosting public investment): - Larger multiplier and positive impact on productivity generate output that is persistently larger than in the baseline. - Cash transfer has only a limited and short-lived impact. - Private consumption and real wages are persistently higher under the alternative scenario. - Positive productivity shock leads to lower inflation, prompting an endogenous central bank response to lower interest rates. - Lower interest rates depreciate the real exchange rate and strengthen the external balance. - Public debt-to-GDP ratio is lower given larger output and lower interest rates. - Notes and contextual points from preparers and supporting analysis: - Building human capital and improving connectivity through better digital and physical infrastructure are key determinants of service imports and FDI flows, which in turn facilitate technology diffusion. - If additional infrastructure investment is not feasible (for example due to investment bottlenecks), reprioritized resources can be channeled to education or to finance permanent social protection reforms, which would have a similar effect, albeit with a somewhat smaller productivity spillover. - The first tranche of the cash transfers in FY24 was THB 145 billion, 0.8 percent of GDP, directed to the most vulnerable groups; subsequent disbursements will likely be directed toward relatively better-off segments. - The October 2024 Fiscal Monitor estimates that a 1 percent of GDP increase in education spending can boost GDP by 1.9 percent over the medium term through increased services imports and real FDI. ### Scenario 2: Increased policy uncertainty — scenario description and channels - Adverse scenario: spike in policy uncertainty that transmits via: - Difficulty implementing reforms due to political fragmentation. - Rising social discontent undermining consumer and business confidence. - Triggering capital outflows and disruptions to trade, investment, and tourism. - Sharp depreciation of the Thai baht exerting upward pressure on import prices and inflation, complicating monetary policy. - Two policy options considered to complement monetary responses: - i) Foreign exchange intervention (FXI). - ii) Fiscal stimulus to support the economy. ### Foreign exchange intervention (FXI) findings - FX markets become shallow as large capital outflows reduce liquidity. - Simulation of FX intervention: - An FX intervention of about 2 percent of annual GDP that cumulatively reaches 3.4 percent of GDP by the fifth quarter would reduce the UIP premium and limit currency depreciation. - Limiting depreciation helps moderate inflationary pressures and allows monetary policy to be countercyclical, supporting economic activity and helping contain public debt. - Output improves in the near term despite lower trade gains because domestic demand drops by less relative to the case where only interest rate policy is used. - However, limited depreciation in the real exchange rate due to FXI reduces trade gains and eventually weighs on output over the medium term. - Methodological caveats: - Due to methodological constraints, simulation results do not consider other tools effective in addressing UIP deviations such as swaps and other forwards. - Onshore financial institutions are not allowed to undertake NDF transactions against the Thai Baht with nonresidents. ### Fiscal stimulus findings and fiscal risks - Simulation assumption: - A 2 percent of GDP fiscal stimulus in the form of transfers. - Short-term effects: - Stabilizes demand and helps mitigate the sharp decline in output by stimulating aggregate demand. - Comes at the cost of higher inflation and reduced trade balances as some transfers finance imported goods consumption. - Transmission to external and monetary variables: - Worsening trade balance reduces net foreign assets, contributing to a higher UIP premium and stronger depreciation pressures. - Policy rate rises by more than in the previous two cases to counter stronger inflationary pressures. - Medium-term dynamics: - Higher inflation gradually erodes real wages and consumption. - Trade balance eventually improves owing to stronger competitiveness from a more depreciated real exchange rate and from lower consumption of imported goods. - Fiscal balance and public debt: - Public debt increases by 2.4 percent of GDP in the year the fiscal stimulus is implemented relative to the adverse scenario without the stimulus. - Public debt increases by 3.2 percent of GDP the next year relative to the adverse scenario without the stimulus. - Public debt gets closer to the authorities’ ceiling of 70 percent of GDP. - Highlights the importance of rebuilding sufficient fiscal buffers. ### Debt dynamics, baseline projections, and medium-term risks - Public debt path (selected projected values, percent of GDP): - Public debt: 2024 actual 63.3; 2025 64.7; 2026 65.4; 2027 66.0; 2028 66.1; 2029 66.4; 2030 66.4; 2031 63.6; 2032 62.6; 2033 61.6; 2034 61.0. - Change in public debt (percent of GDP) in projections: - 2024: 0.9; 2025: 1.3; 2026: 0.8; 2027: 0.5; 2028: 0.1; 2029: 0.3; 2030: 0.0; 2031: -0.1; 2032: -0.1; 2033: -0.1; 2034: -0.2. - Primary deficit (percent of GDP): - 2024 actual 1.0; projections: 2025 2.4; 2026 1.9; 2027 1.6; 2028 1.4; 2029 1.4; 2030 1.3; 2031 1.3; 2032 1.3; 2033 1.3; 2034 1.3. - Gross financing needs (GFN, percent of GDP): - Projected values: 2024 17.5; 2025 12.2; 2026 11.6; 2027 14.0; 2028 14.7; 2029 14.3; 2030 13.2; 2031 13.1; 2032 14.7; 2033 13.9; 2034 14.2. - Memo indicators: - Real GDP growth (percent): 2024 2.1; 2025 3.2; 2026 2.7; 2027 2.7; 2028 2.7; 2029 2.7; 2030 2.7; 2031 2.7; 2032 2.7; 2033 2.7; 2034 2.7. - Inflation (GDP deflator; percent): 2024 0.9; 2025 1.2; 2026 1.8; 2027 1.7; 2028 2.1; 2029 1.7; 2030 2.0; 2031 2.0; 2032 1.9; 2033 1.9; 2034 1.9. - Nominal GDP growth (percent): 2024 3.0; 2025 4.4; 2026 4.6; 2027 4.4; 2028 4.9; 2029 4.5; 2030 4.8; 2031 4.8; 2032 4.7; 2033 4.7; 2034 4.7. - Effective interest rate (percent): 2024 2.8; 2025 2.7; 2026 2.7; 2027 2.6; 2028 2.6; 2029 2.6; 2030 2.5; 2031 2.5; 2032 2.5; 2033 2.4; 2034 2.4. - Debt sustainability assessment and risk signals: - Overall risk of sovereign stress: moderate. - Medium-term risks: moderate, reflecting increased GFN and debt levels driven by large borrowing during the pandemic and fiscal expansion. - Mechanical indicators and indices (selected): - Debt fanchart width: 48.8 (percent of GDP). - Probability of debt non-stabilization: 43.0 (percent). - Terminal debt-to-GDP: x36.9. - Debt fanchart index (DFI): 1.9 — Risk signal: 3/Moderate. - Average baseline GFN: 13.3 (percent of GDP); GFN financeability index (GFI): 8.4 — Risk signal: 4/Moderate. - Medium-term index final assessment: Prob. of missed crisis, 2025-2030, if stress not predicted: 18.2 pct; Prob. of false alarms, 2025-2030, if stress predicted: 31.8 pct. ### Realism and diagnostics of baseline assumptions - Realism assessments: - Do not raise major concerns, but relatively large stock-flow adjustments in the past warrant caution (possible lack of state-owned enterprises’ operations data or other unidentified quasi-fiscal operations). - Projections for debt-creating flows show some signs of optimism given exceptional pandemic outcomes in historical data. - Change in interest rates appears reasonable given bond issuance size and maturity profile. - Projected 3-year fiscal adjustment and 3-year debt reduction are within norms; real GDP growth path aligns with assumed fiscal adjustment and potential growth. ### Long-term risks: demographics, pensions, health, and climate - Demographics and pensions: - Thailand’s aging population is expected to widen the gap between pension benefits and contributions, increasing financing needs once pension assets are depleted. - Pension financing needs (pp of GDP per year under different horizons): - 30 years: 0.5% - 50 years: 1.7% - Until 2100: 2.4% - Projections cover Old-Age Allowance, Civil Service Pension, and Social Security Office (SSO) pensions; estimates use parameters from ILO actuarial valuation and IMF CR 19/309. - Permanent adjustment needed in the pension system to keep pension assets positive for projected horizons. - Health: - Demographic pressures imply rising health-related financing needs (presented in long-term projections). - Climate change—adaptation and mitigation: - Climate adaptation costs can be sizeable (climate-resilient infrastructure, water scarcity, soil degradation, and R&D); these investments could also unlock innovation and new growth drivers (not incorporated in debt impact analysis). - Climate mitigation requires significant upfront investments; phasing out broad-based energy subsidies and implementing effective carbon pricing are essential to finance transition and mitigation costs. - The analysis does not account for potential growth effects of investments in climate mitigation. ### Policy implications and priorities - Favor productivity-enhancing public investment (or, if constrained, reprioritize to education or permanent social protection reforms) over temporary cash transfers to achieve more persistent output and welfare gains. - Rebuild fiscal buffers to maintain space for countercyclical fiscal policy: - Fiscal stimulus stabilizes demand in the short term but materially raises public debt and fiscal risks; public debt can move closer to the authorities’ ceiling of 70 percent of GDP under large stimulus. - Use FX interventions sparingly and be mindful of medium-term trade-offs: - FXI can ease near-term inflation-output tradeoffs and support countercyclical monetary policy but reduces medium-term trade competitiveness and growth gains from external adjustment. - Address medium- and long-term structural risks: - Implement credible medium-term fiscal consolidation to bring down public debt levels and restore low sovereign risk assessment. - Pursue structural reforms to boost growth potential, address population aging, and manage climate risks. - Improve data transparency and coverage, including state-owned enterprises’ operations, to reduce uncertainty from large historical stock-flow adjustments. _Italic: Source: IMF staff (Thailand country report, section 2: Projections and policy implications)._ ### Annex V. A Stock-Take on Social Protection in Thailand ### Annex V. A Stock-Take on Social Protection in Thailand ### A. Overview of Current Provision - The Social Protection (SP) system in Thailand consists of nearly 50 different SP schemes providing benefits and services on various eligibility criteria. - According to ILO estimates, around 70 percent of the population is covered by at least one social protection benefit. - Schemes are categorized along contributory vs. non-contributory and universal vs. targeted dimensions. Key non-contributory schemes and coverage: - Universal Health Coverage: provides health coverage to around 70 percent of the population (the remaining 30 percent are covered by the Civil Service health scheme, local Government, and coverage provided to members of the Thailand Social Security Office (SSO)). - Child Support Grant: means-tested flat rate benefit of THB 600 per month to children in households earning less than THB 100,000 per month. In 2023, some 2.3 million children were covered but one third are estimated to be excluded. - State Welfare Card (SWC): means-tested benefit to 13.5 million people, including a consumer goods allowance (THB 200 to THB 300 a month) and allowances for transport and utilities. - Disability Grant: benefit of THB 800 per month (THB 1000 for children and those eligible for the SWC) to those with severe disability (some 2 million recipients). - Old-Age Allowance (OAA): universal benefits to over 80 percent of those aged over 60. Amount is age-related and ranges from THB 600 to THB 1000 per month. Contributory provision (SSO): - The SSO covers all nine branches of social security, with about 35-40 percent of the working age population actively contributing to the schemes. - Three schemes within the SSO: Sections 33, 39, and 40. Section 33 is mandatory; Sections 39 and 40 are voluntary. - Section 39 provides the same benefits (except Unemployment Benefits) as Section 33 while the member pays both employee and employer contributions on a notional contributory and benefit salary of THB 4,800 per month. - Section 40 provides nominal benefits and the member pays a flat rate contribution (of THB 70, THB 150 or THB 300) augmented by a government subsidy. - Contribution rates for Sections 33 and 39: Employer contribution 5 percent of earnings (capped at THB 15,000 per month), worker contribution 5 percent of earnings (capped at THB 15,000 per month), government contribution 2.75 percent of earnings (capped at THB 15,000 per month). - Benefits under Section 33 broadly meet the minimum requirements of ILO Social Security (Minimum Standards) Convention, 1952 (No. 102). Civil service schemes: - Civil servants receive benefits through a tax-financed non-contributory scheme (lifetime pensions after 25 years, lump-sum benefits from 10 years of service) and a contributory defined-contribution scheme (Government Pension Fund, GPF) established in 1996. - GPF contributions: Members contribute 3 to 30 percent of their salary, government pays an additional 5 percent. Impact of SP: - SP reduces poverty by 7.3 percent, with most significant impact on the old aged, people with severe disabilities, widows, and those in rural areas. - During COVID-19, spending on social assistance measures tripled in 2020, reaching 2.3 percent of GDP and over 80 percent of the Thai population received benefits. The SSO’s unemployment insurance scheme extended benefits and increased payout amounts, fully financed from the social security fund. ### B. Key Challenges - System fragmentation and lack of cohesion: - A large number of diverse and fragmented schemes complicates coherent SP vision, producing misaligned incentives, duplication, and adverse employment impacts (e.g., low retirement age incentivizing exit at age 55). - Coverage gaps and exclusions: - High coverage for persons with severe disabilities (98 percent) and those in old age (83 percent), but significantly lower coverage for children aged 0 to 15, mothers of newborns, and the unemployed. - Legal exclusions (e.g., domestic workers) and effective exclusions from poor compliance and lack of awareness for contributory schemes. - Around half of those with a registered disability are excluded from the Disability Grant due to the narrow definition of severe disability. - Box 1 findings — who are not covered: - Less than 1/3 of those aged 0-14 received SP support compared to more than 80 percent of the elderly. - Almost all informal sector workers are not covered for SSO benefits. Nearly half of those in the formal sector — and 60 percent of wage earners — are also not members of the SSO. - Coverage by sector: agriculture 1.6 percent; less than 1/3 of workers in retail/wholesale, construction and the food industry were covered. - Enterprise size: only 12 percent of workers employed in enterprises of 5 or fewer workers are covered under SSO schemes. - Around 50 percent of regular migrant workers are covered — the rate for Myanmar nationals is double that of Laotian nationals. - Adequacy problems: - OAA provides THB 600 to THB 1000, equivalent of US$18 and US$32 a month, which on average represents only 21.7 percent of the national poverty line. - Most other social assistance transfers range from THB 600 to THB 800 per month, representing between 11 percent and 20 percent of average per capita consumption expenditure in target populations. - SSO benefit levels impacted by low earnings cap (unchanged since inception), short contributory histories, and early retirement at age 55 to take lump-sum payments. Women’s retirement pensions are 16 percent lower than men’s. - Financing and sustainability: - Thailand spent 8.5 percent of GDP on social protection in 2022 — 3.6 percent of GDP on health expenditure and 4.9 percent of GDP on other SP benefits — compared to the Asia-Pacific average of 11.8 percent. - Disproportionately large resources focused on the Civil Service scheme. Civil Service scheme costs estimated around 1.7 percent of GDP in 2020 (around 50 percent of all social insurance spending in Thailand). - Long-term financing pressures from rapid population ageing likely to widen gaps between pension benefits and contributions. - Contributory schemes managed by SSO (Social Security Fund and Workers’ Compensation Fund) providing short- and medium-term benefits are sustainable, but the contribution rate for the pension scheme needs increasing and the benefit structure reforming. - Equity and public support: - Civil service scheme much more generous: a civil servant working 35 years and earning THB 30,000 a month gets over 2 ½ times the retirement benefit than a SSO retiree with same earnings and service. - Need for SP to align with labor market objectives, formalize the labor market, strengthen human capital, and address skill gaps. - COVID-19 one-off measures (e.g., THB 5,000 per month for three months reaching 16 million informal workers) had few effective follow-on efforts to improve employment and SP status of recipients. ### C. Policy Implications and Recommendations - Overarching approach: - Multi-pronged reform efforts required to ensure a comprehensive SP system providing adequate benefits to all residents on a financially sustainable and equitable basis. - Establish a National Social Protection Strategy (NSPS) to anchor the SP system, improve consistency and coordination, provide mechanisms for universal guarantees for children, persons in old age, persons with severe disabilities and essential health care, and support formalization of the large informal sector. - Move to an effective multi-tier system: - Strengthen basic social assistance (“Tier 0”): - Increase existing benefit amounts and expand coverage. - ILO suggests increasing the OAA to THB 2000 per month for all those aged over 60. - Suggested pension means-testing rule: for each THB 3 of pension from SSO retirement benefits, the recipient would lose THB 1 of the OAA. - Child benefit should cover all children, become universal and the maximum age for benefits gradually increased to age 14. - Expand Disability Grant coverage to people with registered disabilities impacting employment and health status, with differing benefit levels based on severity. - Introduce new universal benefits such as maternity benefits and unemployment coverage. - Move to universal and mandatory social insurance (“Tier 1”): - Broaden coverage of Section 33 of the SSO, phase out Sections 39 and 40. - Require legal changes, strengthen compliance (where employer/employee relationship exists), targeted financing support, flexibility, streamlined affiliation, and better communication. - Target coverage extension for groups such as women from aged 40, workers in smaller enterprises, and domestic workers. - Improve adequacy of SSO benefits. - Possible reforms include: - Increasing the SSO earnings cap to THB 17,500 in 2026 and then index in line with earnings; - Reducing the number of years required for right to a pension benefit from 15 years to 5 years; - Considering introduction of a minimum pension amount. - ILO estimate: a minimum monthly pension of THB 4000 (after 35 years of contribution) would cost an additional 1.2% of pensionable earnings (Increase in General Average Premium (GAP) from 20.2% to 21.4%). - Encourage supplementary provision (“Tier 2 and 3”): - Employer and individual provision (e.g., Defined Contribution pension savings vehicles) with possible tax incentives. - Reform State Welfare Card (SWC) and targeting: - Strengthen assessment criteria for means testing and regularly monitor to reduce exclusion errors. - Integrate and harmonize targeting standards with the Childcare Support Grant scheme. - Reform benefit structure by converting multiple SWC monthly credits into a basic cash payment to reduce nominal costs and enhance recipient utility. - Ensure financial sustainability: - Reforms will require increases in tax financing of non-contributory provision and increases of contributions for contributory social security provision. - ILO estimate: to guarantee at least a basic level of social protection for all children, persons with severe disabilities, mothers of newborns, older persons and the unemployed through a social protection floor, Thailand would need to increase social protection expenditure by 0.8 percent of GDP in 2024. - Potential fiscal measures: reprioritise tax revenues currently spent on Civil Service Pension commitments through appropriate reforms; fiscal reforms such as reducing energy subsidies, increasing property taxes, improving compliance; more efficient social protection spending (e.g., reform SWC and Disability Grant); reform contributory basis and benefit design of the civil service pension scheme over an appropriate transition period. *Prepared by the International Labour Organization, Bangkok (ILO); source material summarized from Annex V of the IMF content unit.* ### 16. Several reforms can strengthen the financial sustainability of the SSO. The ILO made the ### 16. Several reforms can strengthen the financial sustainability of the SSO. The ILO made the following recommendations in the SSF Actuarial Valuation report: ### Key recommendations to strengthen SSO financial sustainability - Gradually increase retirement age. - Rationale: This will improve adequacy through longer contributory histories, support labor market aims and improve sustainability. - Quantified effect: Even a gradual increase over 50 years of the normal retirement age (from 60 to age 65 for men and women) will reduce the recommended contribution rate by nearly 3%. - Immediate policy action: It is important to rapidly increase retirement age to a minimum of age 60 (i.e., no longer allow unreduced early retirement benefits from age 55 on loss of employment). - Implementation considerations: This will reduce labor shortages, remove selection against the system but requires complementary active ageing employment policies. - Increase the maximum earnings cap. - Specific proposal: The earnings cap can be raised to THB 17,500 immediately (from the existing THB 15,000) and then link future increases to national average wages. - Expected effects: This will improve sustainability of benefits and improve adequacy for many beneficiaries. - Gradually increase the contribution rate. - Specific proposal: Increasing the contribution rate paid to the SSO (e.g., an increase of total contribution rate by 3% in 2026, 2031 and in 2036 will ensure the SSF remains in surplus for the next 50 years). ### Supporting policies and review processes - Labor market policies: - Active ageing and return-to-work measures will be essential for increasing labor force participation rates. - Care and household structure policies: - Strengthening support for informal caregivers and investment in formal care mechanisms are crucial, particularly given the gendered nature of care responsibilities and the anticipated increase in single-person households.26 - Health system focus: - While Thailand enjoys practically universal health coverage, there is a need for greater emphasis on managing scheme fragmentation and preventive measures and approach to non-communicable diseases (NCDs). - Continuous review and evaluation: - Reforms should be reviewed continually to ensure that they are financially sustainable, they have positive economic and social impacts, they lead to increases in coverage and that benefits are adequate. *Source: 1thaea2025001-print-pdf - 16. Several reforms can strengthen the financial sustainability of the SSO. The ILO made the* ### References ### References ### Fund Relations - Membership Status: Joined 05/03/1949; Article VIII. - Article VIII Status: Thailand has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the IMF’s Articles of Agreement and maintains an exchange system free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions. - General Resources Account (SDR Million / Percent Quota): - Quota 3,211.90 100.00 - Fund holdings of currency 2399.4474.70 - Reserve position in Fund 813.89 25.34 - Lending to the Fund: - New Arrangements to Borrow 0 - SDR Department (SDR Million / Percent Allocation): - Net cumulative allocation 4,048.73 100.00 - Holdings 4149.32 102.48 - Outstanding Purchases and Loans: None - Latest Financial Arrangements (In millions of SDR): - Stand-by: Approval Date 8/20/97 Expiration Date 6/19/00 Amount Approved 2,900.00 Amount Drawn 2,500.00 - Stand-by: Approval Date 6/14/85 Expiration Date 12/31/86 Amount Approved 400.00 Amount Drawn 260.00 - Stand-by: Approval Date 11/17/82 Expiration Date 12/31/83 Amount Approved 271.50 Amount Drawn 271.50 - Projected Obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs): - 2025 Principal Charges/interest 0.03 Total 0.03 - 2026 Principal Charges/interest 0.03 Total 0.03 - 2027 Principal Charges/interest 0.03 Total 0.03 - 2028 Principal Charges/interest 0.03 Total 0.03 - 2029 Principal Charges/interest 0.03 Total 0.03 - Exchange Rate Arrangement: - De jure and de facto arrangements are classified as floating. Under the inflation-targeting monetary policy framework, the value of the baht is allowed to be determined by market forces. The Bank of Thailand (BOT) may intervene when movements in Thai baht (THB) are deemed excessive and unjustified by fundamentals. - During 2023, the REER appreciated by 1.21 percent, while the NEER appreciated by 3.88 percent. - Last Article IV Consultation: - Thailand is on the standard 12-month Article IV consultation cycle. The previous Article IV consultation was concluded on January 17, 2024. - FSAP Participation: - FSAP missions took place in November 2018 and February 2019. Main findings in IMF Country Report No. 19/308. - Recent Technical Assistance: - ICD: TA project on developing a customized DSGE model; scoping mission in November 2024. - MCM: Ongoing TA on monetary policy modeling commenced spring 2020; follow-up missions in July and December 2022; hybrid TA mission July 2022 on Bank Resolution and Financial Crisis Management; TA mission November 2024 reviewed Thai version of estimated QIPF model and provided training focusing on (i) banking and macroprudential extension of the QIPF model; and (ii) practical application, especially to study scenarios involving multiple policy tools. - STA: Hosted regional workshop in Bangkok on compiling supply and use tables (SUTs) and input-output tables (IOTs) during November 6-15, 2023. Participants from Indonesia, Philippines, Vietnam, and Thailand. - Resident Representative: None ### Relations with Other International Financial Institutions - World Bank: https://www.worldbank.org/en/country/thailand - Asian Development Bank: https://www.adb.org/countries/thailand/main ### Recent Developments, Outlook, and Risks - Growth projections and drivers: - Projected expansion of the Thai economy: 2.7 percent in 2024. - Projected growth for 2025: 2.9 percent. - Growth drivers: domestic consumption, recovery in tourism-related activities, acceleration of government budget disbursements, rebound of goods exports. - Inflation: - Inflation has gradually increased over recent months, returning to the Bank of Thailand’s (BOT) target range in December 2024. - Medium-term inflation expectations remain consistent with the target. - Risks: - External: increasing geoeconomic fragmentation through industrial and trade policies could hamper global and regional growth, reduce investment inflows, and impede the rebound in exports. - Domestic: uneven economic recovery post-Covid-19 and tightening credit conditions in some pockets could impact vulnerable households and SMEs more than expected. ### Fiscal Policy - Authorities’ stance: - Commitment to medium- and long-term fiscal sustainability while supporting post-pandemic economic recovery for vulnerable groups. - Medium-term fiscal framework (MTFF) approved December 2024: - Government budget deficit expected to decrease from 4.5 percent to GDP in FY2025 to 3.1 percent in FY2029. - Public debt expected to remain below the 70 percent ceiling. - Capital expenditures constitute 24.8 percent of the FY2025 budget, focused on labor force reskilling and upskilling, and digital and physical infrastructure investments. - Social policy and targeting: - Review of criteria for a new round of state welfare card registration implemented to strengthen social protection and tackle poverty and inequality. - Tax policy: - Authorities committed to implementing a robust and comprehensive set of tax reforms to increase revenue collection, broaden the tax base, reduce taxation inequality, and enhance competitiveness. - Adoption of the global minimum tax (GMT) under the OECD’s Pillar II framework effective from 2025. - Authorities acknowledge staff’s recommendation to raise the value-added tax (VAT) rate and note challenges in social buy-in and timing. ### Monetary Policy and Exchange Rate Policy - Monetary stance: - Authorities consider the current monetary policy stance appropriate for supporting long-term growth close to potential and for ensuring inflation remains within the target range. - A recent 25 basis point rate cut in October 2024 was described as a policy recalibration to sustain growth momentum, facilitate orderly deleveraging, and prevent long-term financial imbalances. - Future decisions will remain outlook-dependent and focus on incoming data. - Authorities emphasize central bank independence and clear communication. - Exchange rate: - Authorities remain committed to exchange rate flexibility. - They welcome the Fund’s Integrated Policy Framework (IPF), which acknowledges foreign exchange intervention (FXI) and capital flow management measures (CFMs) as complementary tools. - Authorities welcome the results of the External Balance Assessment (EBA) while stressing careful communication to avoid misuse or misinterpretation. ### Financial Sector Policy - Assessment and objectives: - Authorities concur that the Thai financial system remains resilient and that financial stability risks are contained despite a recent slowdown in credit growth. - Commitment to ensuring an orderly debt deleveraging process and addressing household debt overhang sustainably. - Targeted measures: - “Khun Soo, Rao Chuay” (You Fight, We Help) program launched in December 2024 to help vulnerable groups refinance debts and alleviate debt burden. - Responsible Lending (RL) Guidelines aim to (1) gradually unwind existing high debt levels, (2) deter accumulation of new potentially bad debts, and (3) prevent moral hazard. - Financial literacy enhancement initiatives to prevent over-indebtedness. - Financial infrastructure: - “Your Data” Initiative aims to enable secure data transfer between service providers to improve access to financial services. - National Credit Guarantee Agency (NaCGA) being established to mitigate financing challenges for SMEs. ### Structural Policy - Strategic priorities: - Scale up investments in human, physical and digital capital to enhance productivity, competitiveness, and resilience. - Restructure production and service sectors toward an innovation-based economy under the 13th National Development Plan (2023-2027). - Regulatory and competition reforms underway as part of the OECD accession process initiated in June 2024. - Major reform areas: 1. Enhancing labor productivity and preparing the workforce for an innovation-based economy through transformation of higher education and vocational training; fostering partnerships with universities and private industries to align curricula with market demands. 2. Addressing social protection gaps to support the most vulnerable, reduce poverty and inequality, strengthen social safety nets for informal sector households, better-target assistance to ensure long-term fiscal sustainability, and improve data linkages among government agencies to integrate fragmented social protection systems. 3. Stepping up climate efforts and building resilience to climate risks by promoting transition to renewable energy, supporting electric vehicles (EVs) production and use, investing in large-scale public transportation projects (railways and metro systems), accelerating institutional and legislative reforms (Climate Change Act and Department of Climate Change and Environment (DCCE)), approving a carbon tax plan in January 2025, and advancing a mandatory emission trading scheme. *Prepared By Asia and Pacific Department; January 27, 2025.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1thaea2025001-print-pdf.pdf_