## _cr12124

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### Economic context — shocks and near-term recovery
- Consecutive adverse shocks in 2011: March 2011 Japanese earthquake and tsunami (supply-chain disruptions) and massive domestic floods beginning in August and worsening in October–November.
- Flood-related damages estimated at about 3 percent of GDP.
- Annual GDP growth fell from 7.8 percent in 2010 to 0.1 percent in 2011.
- Output contracted by 10.75 percent (quarter-on-quarter) in 2011:Q4.
- Sectoral impacts: manufacturing (automobile and electronics), agriculture, and tourism particularly affected.
- Labor market: tightness kept unemployment subdued despite drop in capacity utilization; output gap closed earlier in 2011 then turned negative in 2011:Q4.
- External and reserves:
  - Current account surplus declined to 3.4 percent of GDP (from 4.1 percent in 2010).
  - Financial account moved to a deficit of 2 percent of GDP from a surplus of 7.5 percent of GDP.
  - International reserves increased modestly to 206 billion as of end-2011.
- Inflation in 2011:
  - Headline inflation above 4 percent y/y from April through November 2011, falling to 3.5 percent in December 2011.
  - Core inflation rose to almost 3 percent y/y, falling to 2.75 percent in December 2011.
- Monetary policy: Bank of Thailand (BOT) halted gradual normalization and lowered policy rate twice for a cumulative 50 basis points (November 2011 and January 2012).
- By December 2011: sharp improvements in high-frequency indicators; manufacturing surged in December; confidence indicators rebounded.

### Outlook — V-shaped recovery and risks
- Staff projections:
  - GDP: 5.5 percent in 2012; 7.5 percent in 2013 (large carryover from H2 2012 recovery).
  - Domestic demand drivers in 2012: investment +7 percent (y/y); consumption +5 percent (y/y).
- Trade and inflation:
  - Trade balance expected to show a deficit in 2012:H1 due to strong investment imports and soft world demand.
  - Inflation expected to remain within BOT’s target band; upside risks from nominal wage increases, rice price support, and higher oil prices.
- Medium-term: potential output projected to rise from around 3.5 percent in 2011 to 5 percent over the medium term if infrastructure is improved and lagging regions are tapped.
- Downside risks highlighted:
  - Contagion from euro-area turmoil; weak trading-partner growth; sharp slowdown in China.
  - Global risk aversion causing sharp stock market declines.
  - Domestic risks: political tensions; underperformance of public spending (notably water management); minimum wage hikes outpacing productivity and eroding competitiveness.
- Authorities: broadly agreed with staff outlook; more optimistic about domestic investment and confidence effects from flood-related investment.

### Fiscal outlook, measures, and projected deficits
- Off-budget water management projects: B 350 billion (about 3 percent of GDP) over FY2012–14.
- Rice price guarantee scheme could increase public debt by 1 percent of GDP per year through government guarantees of SOE borrowing.
- Staff expects after rationalization:
  - General government deficit to widen from 1.6 percent of GDP in FY2011 to 3 percent of GDP in FY2012.
  - Public sector deficit (reflecting rice scheme costs) to widen from 2.4 percent to 4.4 percent of GDP over the same period.
- Public debt reported at 40 percent of GDP; cabinet-approved budget deficit for FY2013: B 300 billion (2.7 percent of GDP), down from B 400 billion in FY2012.
- Staff projects general government deficit would decrease only in FY2015 as water projects finish.
- Debt Sustainability Analysis (DSA): public debt reaching 51 percent of GDP in 2017 under current policies.
- Fiscal measures and estimated costs (IMF staff estimates):
  - Lower corporate tax rate (CIT) from 30 percent to 23 percent in 2012: revenue loss about 1.2 percent of GDP in 2012 and 1.8 percent of GDP in 2013 and thereafter (at current compliance levels).
  - If tax cut phased out in coming months, FY12 impact would be 0.7 percent of GDP (footnote).
  - Diesel fuel excise tax cut: if kept for a full year, revenue loss about 1.0 percent of GDP.
  - Tax refund for first-time home and car buyers: erode income tax revenue by 0.2 percent of GDP beginning in FY2013.
  - Budgeted public investment projected to increase in FY2012 to 3 percent of GDP.
- Staff advice:
  - Expansionary fiscal policies appropriate near term to offset weak world demand.
  - Beyond FY2012, gradually unwind supportive fiscal measures and move to medium-term consolidation path consistent with fiscal sustainability.
  - Formalize operational medium-term fiscal guidelines and monitor income-redistribution policies (including rice interventions).
  - Increase labor productivity to maintain competitiveness with higher minimum wages.
  - BOT accommodative stance appropriate now; resume monetary normalization once recovery is underway.

### Rice price guarantee scheme — mechanics, fiscal cost, and distributional concerns
- Mechanics:
  - Government guarantees purchase of rice at a set (pledge) price.
  - Farmers pre-register with Ministry of Commerce; deliver to certified millers and public warehouses.
  - Farmers obtain warehouse receipts used as collateral to obtain BAAC loans; if selling to government, government repays BAAC loans.
- Fiscal cost:
  - 2011–12 pledge price: B 15,000 per metric ton, 20 percent above current international market price.
  - If pledge remains 20 percent above market and production comparable to previous years: cost ~1 percent of GDP per year.
  - Costs higher if gap widens or pledged amount increases; additional costs likely for storage and program management; costs lower if market price rises.
- Structural issues:
  - Administrative complexity and delays may deter smallest farmers, potentially benefiting large-scale producers and middlemen.
  - Scheme complexity can open arbitrage opportunities and governance issues.

### Diesel subsidy and excise tax cut
- Background:
  - Oil Fund created after 1973 to stabilize domestic oil prices; when reserves depleted in April 2011 government replaced Oil Fund subsidy with temporary excise tax reduction to keep retail prices under B 30/liter.
  - Excise tax reduction extended multiple times; most recent extension to end-April 2012.
- Fiscal impact:
  - If excise cut maintained for entire year, revenue loss ~1 percent of GDP.
- Policy view:
  - Staff advises allowing such tax incentives to expire as they are not fiscally sustainable or distributionally efficient.
  - Minimum wage increases present opportunity to fully restore diesel excise tax.

### Fiscal management priorities and recommendations
- Secure fiscal space by:
  - Containing current expenditures and enhancing revenue rather than reducing public investment.
  - Implementing revenue-enhancing measures: restoring fuel taxes, eliminating income tax credits, reviewing excise and VAT rate structure.
- Monitor cost, effectiveness, and composition of public expenditures:
  - Rice price guarantee scheme for income-redistribution effectiveness and fiscal costs.
  - Focus spending on growth-enhancing areas and expedite priority public investment.
  - Ensure successful implementation of water management projects to avoid future large-scale flooding.
- Institutional framework:
  - Strengthen fiscal credibility via a fiscal rule comprising a public debt ceiling and a medium-term fiscal balance path (as in draft Public Finance Act).
  - Fiscal rule should include an escape clause for exceptional shocks and cover more than the central government budget to avoid extra-budgetary expenditures.
  - Implement ROSC recommendations: compare budget figures to actual outturns; comprehensive coverage of extra-budgetary funds and public enterprises; include a statement of fiscal risks.
  - Avoid recourse to the central bank for financing quasi-fiscal operations that could impair central bank independence and inflation objectives.
- Gradual unwinding:
  - Phase out demand-promoting policies as output gap closes to avoid inflationary pressures.
  - If global economy deteriorates further, consider automatic stabilizers and additional stimulus provided a well-defined medium-term consolidation path is in place.

### Public and external debt dynamics and stress tests
- Baseline primary balance assumption: average deficit of 1.5 percent of GDP over forecast horizon.
- Shocks and impacts:
  - Primary balance averaging a 3 percent deficit (vs. 1.5 percent): debt/GDP ratio 7 percentage points higher by 2017 than baseline.
  - Combination shock (real interest, growth, primary balance worse by one-quarter standard deviation): debt/GDP +6 percentage points relative to baseline.
  - Contingent liabilities shock: if 10 percent of GDP in contingent liabilities brought on budget in 2013, debt/GDP +9 percentage points by 2017.
  - Growth slowdown risk: if growth averages 3.5 percent (one-half standard deviation below baseline), debt/GDP +10 percentage points by 2017.
- Public debt trajectory:
  - Public debt expected to increase to 44 percent in FY2012.
  - Under current assumptions, public debt ratio projected to reach 51 percent at end of projection period (2017).
  - Change in public sector debt (selected projection years): 2012 = 2.4; 2013 = 1.8; 2014 = 2.6; 2015 = 1.2; 2016 = 0.9; 2017 = 0.5 (percent of GDP).
  - Primary deficit (percent of GDP, selected years): 2012 = 1.9; 2013 = 2.7; 2014 = 3.0; 2015 = 1.3; 2016 = 1.0; 2017 = 0.6.
- External debt:
  - End-2011 external debt: $107 billion (28 percent of GDP).
  - External debt expected to rise in 2012 to 32 percent of GDP; projected to decline back to 28 percent by 2017.
  - Stress-tests:
    - Permanent 0.5 standard deviation shock to non-interest current account: external debt +9 percentage points by 2017 (37 percent of GDP).
    - Combination shock (external interest rate, current account, growth each deviate by 0.25 sd): external debt +6 percentage points to 37 percent of GDP.
    - Large real depreciation of 30 percent in 2012 would raise debt ratio by about 20 percentage points (excludes subsequent trade-flow adjustments).
  - Conclusion: external debt projected to remain low and stable under reasonable stress scenarios.

### Monetary stance, inflation risks, and policy guidance
- Monetary stance:
  - Policy rate had been raised cumulatively 225 bps since July 2010, then paused and lowered cumulatively 50 bps in November 2011 and January 2012.
  - Real rates currently negative and among the lowest in the region.
- Inflation outlook:
  - Inflations muted due to low demand during floods, declining global commodity prices, and base effects.
  - Rice price guarantee scheme not yet pushing up local rice prices.
  - Planned infrastructure spending large but likely spread over two–three years and not expected to add much to domestic demand pressures immediately.
- If upside risks materialize (drivers and staff guidance):
  - Upside drivers: rising oil price; minimum wage effects on consumption and potential wage-price spiral; rice price policy boosting food prices; stronger-than-expected global economy.
  - Staff: BOT’s accommodative stance appropriate now; resume normalization once recovery takes hold and output gap closes in second half of year to keep inflationary pressures in check.
  - Monetary policy may need to adjust to inflationary pressures stemming from fiscal policy while gauging downside global risks.
  - If downside risks materialize, BOT could support the economy by further reducing the policy rate and letting the exchange rate adjust.
- Authorities: BOT agreed to resume normalization once recovery takes hold and will remain vigilant to offset excessive demand pressures or rising inflation expectations.

### Managing capital flows and exchange rate flexibility
- Capital flows: markedly more volatile; equity inflows mostly flat in 2011; bond inflows very large and volatile.
- Drivers: relatively better outlook vs. advanced countries and attractive yield differentials channel global liquidity to emerging markets.
- BOT actions: smoothing exchange rate movements; baht largely unchanged against the dollar over 2011 as BOT managed flows.
- Reserves and valuation:
  - Staff point estimates: valuation range from 9 percent undervaluation to 7 percent overvaluation; average estimate 3 percent undervaluation.
  - Reserves at $210 billion (including net forward position) as of end-March 2012 cover over 400 percent of short-term external debt, 11 months of future imports, 50 percent of broad money supply, and are above IMF’s new risk-weighted approach suggested level.
  - Monetary cost of intervention and sterilization ~0.1 percent of GDP in 2011; costs would accumulate over time.
- Policy implications:
  - With reserves above benchmarks and exchange rate not overvalued, room exists for greater two-way flexibility of the baht.
  - Medium-term pressures (declining terms of trade, higher imports for infrastructure, increasing outward investment) expected to diminish BOP and current account surplus over time; balance expected to remain positive, exerting appreciation pressures.
- Authorities’ plans:
  - Continue to allow exchange rate flexibility.
  - Capital account liberalization steps: liberalize portfolio flows, amend regulations to facilitate portfolio investments abroad to encourage outward investment and balance inflow pressures; support ASEAN Economic Community integration.

### Financial sector resilience, SFIs, and safety nets
- Banking sector:
  - Relatively unaffected by 2011 stress events; remains sound.
  - BOT issued guidelines for flood-affected customers (grace periods).
  - Asset performance and capitalization steadily improving; banks expected to easily meet Basel III capital and liquidity requirements.
  - Initiatives: financial sector and capital markets development; introduction of hedging instruments; BOT guidelines for microfinance; gradual increase in foreign bank presence.
  - Thailand downgraded in February 2012 by FATF for AML/CFT deficiencies.
- Specialized Financial Institutions (SFIs):
  - Eight SFIs in Thailand; three largest (GSB, BAAC, GHB) are deposit-taking and account for >90 percent of SFI assets.
  - SFIs’ share of financial sector assets rose from 18 percent in 2008 to 22 percent in 2010.
  - SFIs regulated under separate SFI laws; MOF retains overall supervision; BOT delegated to examine annually but has no enforcement powers.
  - SFIs exhibit higher NPLs, lower liquidity, and significantly lower capital compared with commercial banks.
  - World Bank FSAP module estimates recapitalization needs about 2 percent of GDP, mostly due to BAAC capital requirements.
  - Some government plans (rice scheme, debt moratorium) implemented through SFIs could deteriorate their balance sheets further.
- Recommendations for SFIs:
  - Decisive progress in reforming SFIs: refocus activity on core mandate; apply bank supervision standards to deposit-taking SFIs; require external audit in line with international accounting practices; pay implicit/explicit subsidies out of government budget to increase transparency.
  - Subject SFIs to levy equivalent to commercial banks (authorities to apply same fee).
- Financial safety nets and deposit protection:
  - From July 2012, DPA fees collected by BOT and allocated to servicing FIDF debt; fee increases and reallocation details:
    - Banks will pay levy on deposits and non-deposit liabilities (bills of exchange).
    - Fee raised from 0.4 percent to 0.47 percent for deposits and 0.46 percent for non-deposit liabilities.
    - DPA will receive 0.01 percent in contributions (vs. 0.4 percent previously); remaining 0.46 allocated to repaying FIDF debt.
  - Staff recommends ensuring DPA has adequate resources in line with best practice.
- Financial sector indicators (selected, latest observation 2011:Q4):
  - Regulatory capital/RWA: 14.7 (2011:Q4).
  - Tier 1 capital/RWA: 10.9 (2011:Q4).
  - NPLs to total loans: 2.9 (2011:Q4).
  - Loan loss reserves to NPLs: 141.2 (2011:Q4).
  - Return on average assets (before tax): 2.1 (2011:Q4).
  - Liquidity to deposits and borrowings ratio: 27.2 (2011:Q4).

### Regional disparities, inclusive growth, and structural policies
- Regional disparities:
  - Three richest regions account for 70 percent of total output and 30 percent of population.
  - Northeastern region: one-third of population but <10 percent of income.
  - Ratio of per capita GDP between Bangkok and Northeastern region: 9.6 (2000–09 average).
- Poverty:
  - National poverty declined from 33.8 percent in 1988 to 9.0 percent in 2008.
  - Poor overrepresented in agriculture; almost 90 percent of the poor reside in rural areas.
- Convergence evidence:
  - National-level divergence: richer regions grew almost three times faster than poorest regions over past three decades.
  - Some convergence among central regions (central and eastern catching up with Bangkok since early 1990s).
- Growth factors inequality:
  - Labor utilization similar across regions; stark labor productivity differences with hourly manufacturing output almost 12 times higher in Bangkok vs. northeast (2001–2010).
  - Skilled-worker share higher in richer regions; since 2002 faster recruitment of skilled workers in Northern and Northeastern regions.
  - Private investment strongly concentrated in Bangkok; Northeastern region received ~10 times less private investment than Bangkok (1995–2010).
- Staff policy recommendations:
  - Tap underdeveloped regions to increase potential growth: deepen capital via technology transfers; improve labor quality; enhance public infrastructure to attract private investment; focus public expenditure on developing labor skills.
  - Ensure labor productivity rises with wages to preserve competitiveness; adopt gradual minimum wage implementation to allow firm adjustment.

### Health care, demographics, and long-term fiscal pressures
- Aging and projected spending increases:
  - Thailand’s old-age dependency ratio high among ASEAN–5 and expected to age rapidly.
  - Projected increases over next two decades:
    - Health care spending expected to rise by 1.1 percent of GDP.
    - Public pension spending projected to increase by 0.7 percent of GDP.
  - Public health spending estimated to increase from 2.8 percent of GDP in 2010 to 3.9 percent of GDP in 2030.
- Public health spending projections to 2030 (IMF staff estimates):
  - Baseline PHE(2010) = 2.8 percent of GDP.
  - Demographic-only projection: PHE(2030) = 3.2 (demographic changes +0.4 percentage points).
  - ECG (excess cost growth) baseline = 1.0 percent per year → ECG-only PHE(2030) = 3.4.
  - Combined demographic and ECG projection: PHE(2030) = 3.9 (net change +1.1 percentage points from 2.8).
    - Breakdown of +1.1: 0.4 (38 percent) pure demographic; 0.6 (54 percent) excess cost growth; residual 8 percent interaction.
- Sensitivity and scenarios:
  - Fertility 0.5 children below baseline: increase in health spending in 2030 higher by 0.1 percentage points of GDP.
  - ECG = 1.5 → PHE(2030) = 4.3 percent of GDP; ECG = 0.5 → PHE(2030) = 3.5 percent of GDP.
  - If initial 2010 health spending higher by 0.5 percent of GDP (scaling up programs) → PHE(2030) = 4.7 percent of GDP.
- Policy options to mitigate health spending increase:
  - Greater control over range of publicly funded services; emphasize affordability when setting benefit packages.
  - More involvement of local governments in policy decisions.
  - Use market mechanisms: allow insurers greater freedom; increase user choice over insurers; negotiate with providers.
  - Budget caps for entire health sector or specific services.
- Financing options:
  - Broad-based consumption taxes (including VAT) and property taxes less harmful to growth than income taxes; VAT and property taxes are potential sources.
  - Excise taxes and social contributions noted as alternatives; relying more on income taxes could burden working-age population.

### Statistical issues, data adequacy, and transparency
- Data provision broadly adequate for surveillance; improvements desirable particularly in fiscal sector timeliness and extra-budgetary coverage.
- National accounts: broadly in line with 1968 SNA; updating to 1993 SNA in progress.
- Government finance statistics: GFSM 2001 consistent data provided, but general government fiscal data only annual; GFSM 2001-based data not available for state enterprises.
- Balance of payments: BPM6 publication started Feb 2012 with historical data back to 2005; large errors and omissions suggest incomplete coverage of nonbank services trade; long lag in IIP dissemination (last observation 2010).
- SDDS subscriber since 1996; Data ROSC published April 2006.
- Executive Board Public Information Notice highlights (May 10, 2012):
  - 2011: last quarter output contracted by 10¾ percent qoq; annual growth 0.1 percent.
  - Flood losses ~3 percent of GDP.
  - Recovery expected: GDP growth of 5½ percent in 2012 and 7½ percent in 2013.
  - Policy guidance: continue expansionary fiscal and monetary stance in short term; unwind support as recovery takes hold; formalize fiscal framework; monitor income-redistribution policies; accompany wage increases with productivity measures; liberalize capital outflows gradually; reform SFIs; address FATF AML/CFT deficiencies.

### Authorities’ views and policy stance (as stated)
- Fiscal:
  - 2012 budget approved in February; water resource management decree passed in March (no time constraint for spending; disbursement per approved projects).
  - Diesel tax reduction may be extended subject to monthly oil price assessments.
  - Draft Public Finance Act in progress; intend to strengthen fiscal credibility and consider legally binding fiscal rules; establish infrastructure fund and continue PPP scheme.
- Monetary and external:
  - Monetary stance appropriate to support recovery; core inflation expected to remain within 0.5 to 3 percent target band.
  - BOT to adjust policy rate gradually once output gap closes; decisions flexible and vigilant.
  - Capital Account Liberalization Master Plan to relax restrictions gradually with safeguards; reserves at $179.3 billion at end-March 2012 deemed adequate.
- Financial sector:
  - Banking sector well-capitalized and profitable; Financial Sector Master Plan II to continue.
  - SFIs to refocus on core mandate; subjected to same levy as commercial banks; monitoring to prevent fiscal risks.
  - Progress on AML/CFT; draft legislation undergoing parliamentary approval; monitoring FATF downgrade impact.
- Structural policies:
  - Continue mega water management and infrastructure PPP projects; streamline PPP process and set up one-stop agency.
  - Income redistribution policies include minimum wage increases and rice price guarantee scheme; authorities expect these to support domestic demand and inclusive growth but will monitor implementation and fiscal effects.
- Final emphasis:
  - Authorities committed to normalizing economic activity post-floods, mindful of domestic and external risks, and to pursuing inclusive medium- and long-term growth.

*Italicized source: IMF staff estimates and analysis as presented in THAILAND 2012 ARTICLE IV REPORT (selected excerpts provided in _cr12124).*

### INTRODUCTION __________________________________________________________________________________  4

### INTRODUCTION

### Economic context — shocks and near-term recovery
- Thailand experienced consecutive adverse shocks in 2011: the March 2011 Japanese earthquake and tsunami (supply-chain disruptions) and massive domestic floods beginning in August and worsening in October–November.
- Flood-related damages are estimated at about 3 percent of GDP.
- Annual GDP growth fell from 7.8 percent in 2010 to 0.1 percent in 2011.
- Output contracted by 10.75 percent (quarter-on-quarter) in 2011:Q4.
- Manufacturing, especially automobile and electronics sectors, were particularly badly affected; agriculture and tourism also suffered.
- Labor market: tightness kept unemployment subdued despite a drop in capacity utilization; output gap closed earlier in 2011 then turned negative in 2011:Q4.
- Balance of payments and reserves:
  - Current account surplus declined to 3.4 percent of GDP (from 4.1 percent in 2010).
  - Financial account moved to a deficit of 2 percent of GDP from a surplus of 7.5 percent of GDP.
  - International reserves increased modestly to 206 billion as of end-2011.
- Inflation dynamics in 2011:
  - Headline inflation was above 4 percent y/y from April through November 2011, falling to 3.5 percent in December 2011.
  - Core inflation rose to almost 3 percent y/y over the same period, falling to 2.75 percent in December 2011.
- Monetary policy response: the Bank of Thailand (BOT) halted gradual normalization and lowered the policy rate twice for a cumulative 50 basis points (November 2011 and January 2012).
- Recovery signals by December 2011: sharp improvements in high-frequency indicators; manufacturing output surged in December; confidence indicators rebounded though rain-season flood risk (June) weighed on sentiment.

### Outlook — V-shaped recovery and risks
- Staff projection: a V-shaped recovery with full recovery of pre-flood production levels in manufacturing and exports in the second half of 2012.
- GDP projections:
  - 5.5 percent in 2012.
  - 7.5 percent in 2013 (driven by a large carryover effect from strong recovery in H2 2012).
- Domestic-demand drivers in 2012:
  - Investment projected to increase by 7 percent (y/y), partly due to reconstruction and flood-prevention efforts.
  - Consumption projected to increase by 5 percent, fuelled by minimum wage increases.
- Trade and inflation outlook:
  - Trade balance expected to show a deficit in 2012:H1, reflecting strong investment imports and soft world demand.
  - Inflation expected to remain within the BOT’s target band, but upside risks exist from nominal wage increases, rice price support, and higher oil prices.
- Medium-term potential growth:
  - Potential output projected to rise from around 3.5 percent in 2011 to 5 percent over the medium term if infrastructure is improved and development potential in lagging regions is tapped.
- Downside risks emphasized:
  - Contagion from the euro-area turmoil and weak growth in trading partners, including a sharp slowdown in China, could lower exports.
  - Global risk aversion could cause sharp stock market declines.
  - Domestic risks include political tensions, underperformance of public spending (notably water management), and the possibility that minimum wage hikes may outpace labor productivity and erode competitiveness.
- Authorities’ view: broadly agreed with staff outlook but more optimistic about domestic investment and confidence effects from flood-related investment.

### Policy challenges and near-term fiscal stance
- Authorities’ near-term fiscal measures include tax reductions and expenditure increases:
  - Corporate income tax (CIT) rate cuts: from 30 percent to 23 percent in 2012, then to 20 percent in 2013.
  - Tax break for first-time home and car buyers.
  - Temporary reduction of the fuel excise tax extended multiple times.
  - Increased starting wage for civil servants.
  - Debt moratorium for some low-income households.
  - Flood-prevention investments: an off-budget package of B 350 billion (3 percent of GDP) to be implemented over three years.
- Estimated fiscal costs (staff estimates and projections):
  - CIT reduction would reduce revenue by about 1.2 percent of GDP in 2012 and 1.8 percent of GDP in 2013 and thereafter (at current compliance levels).
  - Fuel excise tax cut, if kept for a full year, would reduce revenue by 1 percent of GDP.
  - Tax refund for first-time home and car buyers will erode income tax revenue by 0.2 percent of GDP beginning in FY2013.
  - Budgeted public investment projected to increase in FY2012 to 3 percent of GDP (from prior level noted earlier in the text).
- Staff policy advice and considerations:
  - Expansionary fiscal policies are appropriate in the near term to offset weak world demand.
  - Beyond FY2012, authorities should gradually unwind supportive fiscal measures and move to a medium-term consolidation path consistent with fiscal sustainability.
  - The commitment to sound public finances could be reinforced by formalizing operational medium-term fiscal guidelines.
  - The effectiveness and fiscal cost of income redistribution policies—including rice price interventions—need careful monitoring.
  - Increases in labor productivity are necessary to maintain competitiveness as minimum wages rise.
  - The BOT’s accommodative stance is appropriate to support the recovery, but monetary normalization should resume once the recovery is underway.

*Source: INTRODUCTION, 2012 ARTICLE IV REPORT — THAILAND (International Monetary Fund).*

### 2.4 in the previous years) and is expected to be

### _cr12124 - 2.4 in the previous years) and is expected to be

### Fiscal outlook and projected deficits
- Off-budget water management projects of B 350 billion (about 3 percent of GDP) to be carried out over FY2012–14.
- The rice price guarantee scheme could increase the public debt by 1 percent of GDP per year through government guarantees of state-owned enterprise (SOE) borrowing.
- After expected efforts to rationalize spending, staff expects:
  - General government deficit to widen from 1.6 percent of GDP in FY2011 to 3 percent of GDP in FY2012.
  - Public sector deficit (reflecting costs of the rice price guarantee scheme) to widen from 2.4 percent to 4.4 percent of GDP over the same period.
- Public debt level reported at a manageable 40 percent of GDP; authorities not expected to face financing difficulties under these assumptions.
- Cabinet-approved budget deficit for FY2013 of B 300 billion (2.7 percent of GDP), down from B 400 billion in FY2012; details yet to be worked out.
- Staff projects the general government deficit would decrease only in FY2015 as water management projects would be finished.
- Debt sustainability analysis (DSA) projects public debt reaching 51 percent of GDP in 2017 under current policies.

### Fiscal measures and estimated costs (as presented)
- PolicyEstimated Cost
  - Diesel fuel excise tax cut 1/1.0
  - Rice price guarantee scheme1.0
  - Tax refund for first time car buyer (beginning FY13)
- Fiscal Measures and Estimated Costs (% of GDP)
  - Lower corporate tax rate (from 30 percent to 23 percent) 1.2 0.2
- Source note: IMF staff estimates.  
- Footnote: If the tax cut is phased out in the coming months, the impact in FY12 would be 0.7 percent of GDP.

### Rice price guarantee scheme — mechanics, fiscal cost, and distributional concerns
- Mechanics:
  - Government guarantees purchase of rice at a set price.
  - Farmers pre-register with the Ministry of Commerce to deliver rice to certified millers and public warehouses.
  - Farmers obtain warehouse receipts specifying rice quality and quantity; use receipts as collateral to obtain a loan from the BAAC.
  - If farmers sell to the government, the repayment of the loan becomes the responsibility of the government.
- Fiscal cost:
  - For the 2011–12 rice season, pledge price of B 15,000 per metric ton, which is 20 percent above the current international market price.
  - If pledge remains 20 percent above market and production comparable to previous years, cost estimated at about 1 percent of GDP per year.
  - Costs could be higher if the gap widens or pledged amount is larger; additional costs likely for storage and program management.
  - Costs could be lower if market price rises relative to the pledge, but world rice price has not increased as India and Vietnam increase supply and exports.
- Structural issues and incentives:
  - Administrative complexity and delays may deter smallest farmers, potentially benefiting large-scale producers and middlemen.
  - Scheme complexity can open arbitrage opportunities and create governance issues.

### Diesel subsidy and excise tax cut
- Background:
  - Oil Fund created after 1973 to stabilize domestic oil prices; when reserves depleted in April 2011, government replaced Oil Fund subsidy with temporary excise tax reduction to keep retail prices under B 30/liter.
  - Excise tax reduction intended to expire after a few months but prolonged multiple times; most recent extension to end-April 2012.
- Fiscal impact:
  - If excise cut maintained for an entire year, revenue loss would be around 1 percent of GDP.
- Policy view:
  - Staff advises allowing such tax incentives to expire as they are not fiscally sustainable or distributionally efficient.
  - Increase in minimum wages provides an opportunity to fully restore the diesel excise tax.

### Policy recommendations and fiscal management priorities
- Secure fiscal space by:
  - Containing current expenditures and enhancing revenue rather than reducing public investment.
  - Implementing revenue-enhancing measures such as restoring fuel taxes, eliminating income tax credits, and reviewing the rate structure of excises and the VAT.
- Monitor cost, effectiveness, and composition of public expenditures, especially:
  - Rice price guarantee scheme for income-redistribution effectiveness and fiscal costs.
  - Focus spending on growth-enhancing areas such as public investment, and expedite priority public investment to restore market confidence and attract private investment.
  - Ensure successful implementation of water management projects to avoid future large-scale flooding.
- Institutional framework:
  - Strengthen fiscal credibility via a fiscal rule comprising a public debt ceiling and a medium-term fiscal balance path (as in the draft Public Finance Act).
  - Fiscal rule should include an escape clause for exceptional shocks and cover more than the narrowly defined central government budget to avoid extra-budgetary expenditures.
  - Implement ROSC recommendations: compare budget figures to actual outturns, comprehensive coverage of extra-budgetary funds and public enterprises, and include a statement of fiscal risks in budget documents.
  - Avoid recourse to the central bank for financing quasi-fiscal operations that could impair central bank independence and inflation objectives.
- Gradual unwinding of supportive policy stance:
  - Phase out demand-promoting policies as the output gap closes to avoid inflationary pressures.
  - If global economy deteriorates further, consider automatic stabilizers and additional stimulus provided a well-defined medium-term consolidation path is in place.

### Demographic pressures and long-term fiscal challenges
- Rapid aging:
  - Thailand’s old-age dependency ratio high among ASEAN–5 and expected to age rapidly relative to regional peers.
- Projected spending increases over next two decades:
  - Health care spending expected to rise by 1.1 percent of GDP.
  - Public pension spending projected to increase by 0.7 percent of GDP.
- Public health spending projection:
  - Public health spending estimated to increase from 2.8 percent of GDP in 2010 to 3.9 percent of GDP in 2030.
- Mitigation options:
  - Greater control over range of publicly funded health services, more involvement of local governments, and greater use of market mechanisms.
  - If savings insufficient, consider deeper cuts in other spending areas or additional revenue sources such as consumption taxes (VAT), property taxes, and excise taxes.

### Authorities’ views
- Authorities more optimistic about fiscal costs and expect to adopt countervailing measures if needed.
  - Expect international rice price to increase, minimizing fiscal costs of the rice scheme.
  - Expect lower CIT rate to boost tax compliance and offset revenue loss; willing to reconsider cut to 20 percent in FY2013 if revenue underperforms.
  - Desire to keep corporate tax rates competitive for an open economy and to align energy prices with international market prices over the medium term.
- Reiterated commitment to fiscal discipline within existing medium-term framework of ceilings on public debt and debt service.
- Agreed on need to enhance fiscal discipline and transparency; draft Public Finance Act under preparation to include medium-term fiscal framework and fiscal transparency provisions.

### Monetary stance and near-term inflation outlook
- Current monetary policy stance described as accommodative.
  - Policy rate had been raised by a cumulative 225 bps since July 2010, then paused and lowered by a cumulative 50 bps in November 2011 and January 2012 due to weakening external environment and floods.
  - Real rates currently still negative and among the lowest in the region.
- Inflationary pressures muted due to:
  - Low demand during the floods, declining global commodity prices, and base effects that will keep inflation relatively low in the next year.
  - Rice price guarantee scheme does not appear to be pushing up local rice prices yet.
  - Planned infrastructure spending large but likely spread over the next two–three years and thus not expected to add much to domestic demand pressures.

*International Monetary Fund staff summary based on the Thailand 2012 Article IV Report content provided.*

### 27.      If upside risks materialize,

### _cr12124 - 27.      If upside risks materialize,

### Inflationary pressures and policy stance
- If upside risks materialize, inflationary pressures could return.
- Drivers and risks:
  - "Many commodity prices are subdued, the oil price has been rising and may rise further in the future."
  - "Minimum wages may have limited direct pass through to prices as the impact on companies would be offset by lower income tax rates, but could still boost consumption and lead to a stronger-than-anticipated wage-price spiral."
  - "The change in the rice price policy could also boost food prices and farm income more than in the baseline."
  - "A stronger-than-expected global economy would also add to inflationary pressures, both through higher export demand and through higher commodity prices."
- Staff assessment and guidance:
  - "BOT’s accommodative monetary stance is appropriate at this juncture but... once the recovery takes hold, resuming policy normalization would be warranted."
  - With "the output gap projected to close in the second half of the year, resuming normalizing policies will be needed to keep inflationary pressures in check."
  - "Monetary policy may need to adjust to inflationary pressures that could stem from fiscal policy, while continually gauging downside risks from a weaker global economy."
  - If energy prices adjust to market levels, "it will be crucial to maintain policy coordination to keep inflationary expectations well-anchored and contain second-round effects."
  - If downside risks materialize, "the BOT could still support the economy by further reducing the policy rate and letting the exchange rate adjust."
- Authorities’ views:
  - "The BOT agreed with staff’s recommendation to resume the normalization once recovery takes hold."
  - BOT will "remain vigilant in setting its policy interest rate, aiming to offset excessive demand pressures if the government’s deficit increases further or inflation expectations begin to rise."
  - BOT is "ready to keep supporting the economy if domestic or global conditions warrant it."

### Managing capital flows and exchange rate flexibility
- Recent behavior and outlook:
  - "Capital flows became markedly more volatile and are likely to remain so in the near future."
  - "Equity inflows were mostly flat over 2011... Bond inflows... have been very large and volatile, reaching historic peaks at times and reversing during periods of heightened domestic or external uncertainty."
  - "Relatively better outlook compared to advanced countries and attractive yield differentials are likely to keep channeling global liquidity toward emerging markets."
  - "Heightened global uncertainty is adding to the volatility in risk perceptions and is expected to cause intermittent stops in capital flows."
- BOT actions and challenges:
  - "The BOT has been smoothing the exchange rate movements but the main challenge is to prepare economic agents to deal with higher volatility."
  - "The baht exchange rate remained largely unchanged against the dollar over 2011 as the BOT managed external flows..."
  - With inward capital flows in 2012, "reserve accumulation also resumed, growing by $3 billion in the first two months."
  - Staff: "A sustainable strategy would include keeping a flexible exchange rate while encouraging wider use of hedging instruments and preventing large exchange rate risks from building up."
- Valuation and reserves:
  - Staff estimates: "point estimates range from a 9 percent undervaluation to a 7 percent overvaluation, ... the average of the estimates is a 3 percent undervaluation."
  - "At $210 billion (including the net forward position) as of end-March 2012, foreign currency reserves cover over 400 percent of short-term external debt, 11 months of future imports, 50 percent of broad money supply, and are above the level suggested by the IMF’s new risk-weighted approach."
  - "Monetary cost of the intervention and sterilization operations... amounting to about 0.1 percent of GDP in 2011 but these costs would accumulate over time."
- Policy implications:
  - "With official reserves above all standard benchmarks and the exchange rate not overvalued, there is room for greater two-way flexibility of the baht."
  - Expected medium-term pressures: "Declining terms of trade, higher imports needed for building infrastructure and increasing outward investment by Thai residents are expected to diminish the balance of payments and current account surplus over time."
  - "The balance is expected to remain positive, which will continue to exert appreciation pressures on the baht."
- Authorities’ views and plans:
  - "The BOT intends to continue to allow flexibility in the exchange rate."
  - Authorities plan capital account liberalization steps: "move on to liberalizing portfolio flows, including by amending regulations to facilitate portfolio investments abroad."
  - Objectives: "encourage investment by Thai residents abroad... balance the pressure on the baht from capital inflows" and support "ASEAN Economic Community (AEC) integration agenda."

### Financial sector resilience and Specialized Financial Institutions (SFIs)
- Banking sector overall:
  - "The banking sector was relatively unaffected by the stress events of 2011 and remains sound."
  - BOT issued guidelines for flood-affected customers (allowing "grace periods" and other measures).
  - Asset performance and capitalization "have been steadily improving" and "banks are expected to easily meet Basel III’s capital and liquidity requirements."
  - Recent initiatives: progress on financial sector and capital markets development, introduction of hedging instruments, BOT guidelines for microfinance lending, gradual increase of foreign bank presence.
  - Thailand was "downgraded in February 2012 by the Financial Action Task Force (FATF) for not taking enough action to address deficiencies in its AML/CFT regime."
- Specialized Financial Institutions (SFIs) concerns:
  - SFIs "are involved in government lending operations and enjoy preferential treatment in terms of tax, accounting, auditing and regulatory requirements."
  - SFIs are "both owned and supervised by the Ministry of Finance (MOF)."
  - Comparatively, SFIs "have higher levels of NPLs; they are less liquid and have significantly lower levels of capital."
  - World Bank FSAP module estimate: recapitalization needs "at about 2 percent of GDP, mostly due to capital requirements for the BAAC."
  - Additional fiscal risks: "Some government plans, such as the rice price guarantee scheme and the debt moratorium for farmers, are to be implemented through SFIs and could deteriorate their balance sheets further."
- Recommendations for SFIs:
  - "Decisive progress should be made in reforming the SFIs."
  - Key reform steps:
    - "Refocusing the SFIs’ activity on their core mandate."
    - "Applying bank supervision standards to those that are deposit-taking institutions."
    - "An external audit in line with best international accounting practices is an essential step to be able to assess and curtail potential fiscal contingent liabilities as well as financial risks."
    - "Payment of implicit or explicit subsidies out of the government’s budget would also increase the transparency of public expenditures."
  - The World Bank FSAP modular update provides "a comprehensive set of recommendations for improving their operations."

*Source: Excerpts from the Thailand 2012 Article IV Report (IMF)._

### 41.      Continuing to develop strong

### _cr12124 - 41.      Continuing to develop strong

### Financial safety nets and deposit protection
- Starting July 2012, the fees banks used to pay to the Deposit Protection Agency (DPA) will be collected by the BOT and allocated to servicing the Financial Institutions Development Fund (FIDF) debt (public debt deriving from the settlement of the financial crisis in 1990s).
- Reallocating banks’ contributions from the deposit guarantee system to servicing FIDF debt:
  - frees fiscal space in the near term, even though this does not reduce the overall interest burden for the public sector;
  - curtails the DPA’s funding.
- Staff recommendation:
  - Ensure that the DPA has adequate resources, in line with best international practice.
- Footnote on the new levy system (preserve exact figures):
  - Under the new system, banks will start paying a levy both on their deposits and on their non-deposit liabilities such as bills of exchange (B/E).
  - The fee will also be raised from 0.4 percent to 0.47 percent for deposits and 0.46 percent for non-deposit liabilities.
  - The DPA will receive 0.01 percent in contributions (as opposed to 0.4 percent previously); the remaining 0.46 will be allocated to repaying FIDF debt.

### Specialized Financial Institutions (SFIs) — key characteristics and risks
- Thailand has eight specialized financial institutions (SFIs).
- Role and market share:
  - SFIs are government-owned, in most cases deposit-taking, and intended to implement government social and economic projects across sectors including agriculture, housing, SMEs, and trade financing.
  - The three largest SFIs (Government Saving Bank (GSB), BAAC, and Government Housing Bank (GHB)) are deposit-taking and account for more than 90 percent of the total assets of the SFI sector.
  - Their share of financial sector assets rose from 18 percent in 2008 to 22 percent in 2010.
- Regulation and supervision:
  - SFIs are regulated under separate SFI specific laws.
  - The Ministry of Finance (MOF) retains overall supervision; the BOT is delegated authority to examine SFIs annually, performs on- and off-site inspections, reports findings to SFIs’ boards and the MOF, but does not act as legal supervisor or regulator and has no enforcement powers.
- Asset quality and operational capacity:
  - Loan performance at SFIs is weak, but their portfolio is growing.
  - Nonperforming loans are already significantly larger than for the average commercial bank and likely to rise.
  - SFIs lack experience to manage and resolve bad loan portfolios and are restricted in their ability to negotiate settlements.
- Authorities’ measures and views related to SFIs:
  - Authorities acknowledged the need to reform governance of SFIs and to refocus them on core mandates.
  - Quasi-fiscal liabilities remain relatively small, but authorities will study the possibility to enhance supervision of deposit-taking SFIs.
  - SFIs, which used to be exempt from the DPA levy, will now be subject to the same fee as commercial banks.

### Authorities’ views on financial stability and AML/CFT
- Authorities’ assessment:
  - Satisfied with the stability of the financial system.
  - Pledged to move forward with the financial and capital market development master plans.
  - BOT expressed confidence that Thai banks are sufficiently capitalized and will overall not face difficulties complying with Basel III capital and liquidity requirements.
- Concerns and actions:
  - Some concern about the impact of the FATF’s downgrade on financial or trade flows.
  - Concurred with the need to expedite work on the existing draft AML/CFT legislation.
- Views on deposit protection resources:
  - Authorities emphasized ample resources in the DPA, built rapidly since establishment in 2008.
  - Consider current DPA size sufficient, especially since deposit insurance coverage will be reduced from B 50 million to B 1 million (per institution per depositor) in August 2012.
  - Underlined that full government support would be available, if necessary, to underpin credibility of the deposit insurance system.

### Structural issues: regional income disparities and inclusive growth
- Magnitude and trends:
  - Discrepancies in regional income are large and growing.
  - One-third of the population (located in Bangkok and in the Central and Eastern regions) contributes to two-thirds of national GDP.
  - Poorer regions are staying behind: per capita GDP is lower and growing slower than in core regions.
  - Lagging per capita output levels are associated with lower productivity, lower human capital, and less investment in physical capital.
- Government policy objectives:
  - Alleviating income inequality is a core objective.
  - Measures include increases in the minimum wage and support for rice price to boost income among poorer population segments.
- Staff recommendations:
  - Tap underdeveloped regions to increase potential growth through deepening capital via technology transfers and improving labor quality.
  - Enhance public infrastructure and create better conditions for private sector investment; public expenditure should focus on developing labor skills.
  - Ensure labor productivity rises in tandem with wage increases to maintain competitiveness; large increases in minimum wages, if not matched by productivity increases, could worsen competitiveness of periphery regions and hamper private investment.
- Authorities’ stance on wages and rice price:
  - Government argued higher minimum wage and rice price can start a virtuous growth cycle boosting domestic demand and reducing inequalities.
  - Authorities expect firms to boost productivity through capital investments if labor is more expensive and do not expect these policies to cause unemployment given overall labor shortages.
  - Indicated adoption of a gradual approach to implementing minimum wage policy to allow firm adjustment and reduce inflation surge risk.
  - Noted that the rice price guarantee scheme may not benefit the farmers most in need and may impose potentially sizable explicit and implicit costs to the budget.

### Staff appraisal: macro outlook, risks, and policy recommendations
- Short-term and medium-term growth projections and potential:
  - Staff expects GDP growth to rise from 0.1 percent in 2011 to 5.5 percent in 2012 and 7.5 percent in 2013 driven by a recovery in domestic demand and helped by supportive monetary conditions.
  - Over the medium term, the estimated potential growth rate could increase from 3.5 to 5 percent if policies successfully reduce supply-side constraints.
  - Inflation is expected to remain within the target bands of the BOT.
- Risks to the outlook:
  - Risks are significantly tilted to the downside from both global economy and domestic conditions.
  - Vulnerabilities include sluggish world economy, exposure to partner-country shocks, potential renewed political tensions, and underperformance of water management projects affecting private investment and recovery.
- Policy mix and timing:
  - Monetary easing and fiscal stimulus are appropriate near term given the anemic global outlook, but gradual unwinding is called for over the medium term.
  - BOT’s accommodative stance is appropriate now; normalization should resume once recovery is achieved to keep inflation expectations anchored and contain credit growth.
  - Fiscal stimulus is timely but beyond FY 2012 authorities should gradually unwind support and move to a medium-term consolidation path consistent with fiscal sustainability.
- Fiscal policy recommendations:
  - Secure fiscal space for infrastructure by containing current expenditures and enhancing revenue rather than reducing public investment.
  - Strengthen revenue administration through better use of information technology to improve collection and compliance.
  - Consider revenue-enhancing measures such as eliminating income tax credits and reviewing excise tax and VAT rate structures.
  - Augment commitment to fiscal prudence with concrete measures, including a fiscal rule based on a public debt ceiling and a medium-term fiscal path as envisaged in the authorities’ draft Public Finance Act.
  - Improve transparency and accountability of fiscal operations in line with the 2009 fiscal ROSC recommendations, including comparing budget figures to actual outturns and more comprehensive coverage of extra-budgetary funds and public enterprises.
- Financial sector resilience and reforms:
  - Banking sector remains sound; measures to strengthen resilience are commendable.
  - BOT’s guidelines for commercial banks to deal with flood-affected borrowers are appropriate; new enhanced provisioning requirements will further boost resilience.
  - Authorities should ensure the deposit guarantee scheme has adequate resources, in line with best international practice.
  - Reforms to nonbank SFIs need to be pursued to limit fiscal risks:
    - Subjecting SFIs to a levy equivalent to commercial banks is welcome.
    - Continue reform efforts to refocus SFIs on core mandates and apply more comprehensive bank supervision standards to deposit-taking SFIs.
    - An external audit in line with best international accounting practices would help assess and curtail potential fiscal contingent liabilities and financial risks.
  - Financial sector, capital markets, and capital account liberalization reforms are encouraging; further liberalization will help regional integration and broaden investment opportunities for Thai investors.
- AML/CFT:
  - Addressing FATF-identified deficiencies is urgent; authorities need to amend legislation to address financing of terrorism issues identified in the action plan and improve AML/CFT supervision of regulated entities as early as possible.
- Longer-term growth strategy:
  - With trend growth expected to stay around 5 percent over the medium term, strong efforts to increase productivity are needed to boost growth.
  - Tapping underdeveloped regions and investing in human and physical capital, particularly in regions without direct access to trade routes, is recommended.
- Consultation cycle recommendation:
  - It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

*THAILAND 2012 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND*

### 1. Revenue 18.117.018.219.018.3

### _cr12124 - 1. Revenue 18.117.018.219.018.3

### Central government: Revenue and Expenditure (percent of fiscal year GDP)
- Revenue (2008/09–2016/17 series, selected years shown in source header): 18.1 17.0 18.2 19.0 18.3
- Tax revenue: 16.0 14.9 15.8 16.9 15.9
  - Taxes on income and profits: 7.8 7.2 6.9 8.0 7.0
  - Taxes on goods and services: 7.0 6.7 7.9 7.8 7.8
  - Taxes on international trade and transactions: 1.1 0.9 0.9 0.9 1.0
  - Taxes not elsewhere classified: 0.1 0.1 0.1 0.1 0.1
- Grants: 0.0 0.0 0.0 0.0 0.0
- Other revenue: 2.1 2.0 2.4 2.1 2.3

- Total expenditure: 18.7 21.2 20.8 20.9 21.1
  - Expense: 17.3 19.2 18.4 18.5 18.1
    - Compensation of employees: 6.4 7.2 7.6 6.7 7.6
    - Purchase/use of goods and services: 3.7 5.1 4.9 5.1 4.4
    - Interest: 1.2 1.1 1.3 1.9 0.8
    - Social benefits: 0.9 1.3 0.4 0.1 0.9
    - Expense not elsewhere classified: 5.1 4.5 4.3 4.7 4.4
  - Net acquisition of nonfinancial assets: 1.4 2.0 2.4 2.4 3.0

- Net lending/borrowing (budgetary) [=1-2]: -0.6 -4.2 -2.6 -1.9 -2.8
  - Net acquisition of financial assets: 0.6 0.6 0.6 0.6 0.6
  - Net incurrence of liabilities: 1.2 4.8 3.2 2.5 3.4

- Nonbudgetary/loan expenditure 1/: 0.0 0.2 2.4 0.5 0.8
- Extrabudgetary balance: 0.5 0.8 0.5 0.1 0.1
- Social security balance: 0.4 0.3 1.4 0.3 0.3
- Net lending/borrowing (consolidated) [=3-4+5+6]: 0.3 -3.4 -3.1 -2.0 -3.2

### Local governments (percent of fiscal year GDP)
- Revenue: 3.7 3.8 3.5 3.3 3.3
- Total expenditure: 3.9 3.8 3.7 3.2 3.3
- Net lending/borrowing: -0.2 -0.1 -0.2 0.1 0.0

### General government (percent of fiscal year GDP)
- Revenue: 21.4 20.8 22.4 22.7 21.1
  - Taxes: 17.3 16.7 17.5 18.6 17.4
    - Taxes on income, profits and capital gains: 7.8 7.2 6.9 8.0 7.0
    - Taxes on goods and services: 8.2 8.2 9.3 9.3 8.7
    - Taxes on international trade and transactions: 1.1 0.9 0.9 0.9 1.0
    - Taxes not elsewhere classified: 0.3 0.5 0.4 0.3 0.7
  - Social contributions: 0.9 0.9 1.3 0.9 0.9
  - Grants: 0.0 0.0 0.0 0.0 0.0
  - Other revenue: 3.1 3.1 3.5 3.1 2.7

- Total expenditure: 21.2 24.0 23.2 24.2 24.1
  - Expense: 18.7 20.8 19.8 20.8 20.2
  - Net acquisition of nonfinancial assets: 2.5 3.2 3.5 3.4 3.9

- Net lending/borrowing (consolidated): 0.1 -3.2 -0.8 -1.6 -3.0
  - Net acquisition of financial assets: 0.8 2.2 1.7 1.6 0.6
  - Net incurrence of liabilities: 0.7 5.4 2.5 3.1 3.6

### Fiscal aggregates and public sector balances
- Central government net lending/borrowing (budgetary): -0.6 -4.2 -2.6 -1.9 -2.8
- Central government net lending/borrowing (consolidated): 0.3 -3.4 -3.1 -2.0 -3.2
- General government net lending/borrowing (consolidated): 0.1 -3.2 -0.8 -1.6 -3.0
- Public enterprises balance: -0.7 -0.5 -0.8 -0.8 -1.4
- Public sector balance: -0.6 -3.6 -1.6 -2.4 -4.4

- Memorandum items:
  - GDP (in billions of baht): 9,146 8,851 9,921 10,669 11,224
  - General government debt: 23.6 29.2 29.3 29.4 31.3
  - General government debt and SOE guaranteed debt: 29.9 35.5 34.7 34.4 36.6
  - Public debt 2/: 37.3 45.2 42.6 41.7 44.1

### Balance of Payments (2009–17, selected series and projections)
- Current account balance (billions of U.S. dollars, 2009–17 header): 21.9 13.2 11.9 3.8 5.8 8.7 7.2 6.2 5.0
  - (In percent of GDP): 8.3 4.1 3.4 1.0 1.4 2.0 1.5 1.3 1.0
- Trade balance: 32.6 31.8 23.5 18.9 22.1 25.9 25.0 24.3 23.7
  - Exports, f.o.b. (billions): 150.8 193.7 225.4 246.0 264.5 282.7 299.7 318.3 338.2
    - (In percent of GDP): 57.2 60.7 65.2 65.2 63.6 64.0 64.0 64.3 64.7
  - Imports, f.o.b. (billions): 118.2 161.9 201.9 227.1 242.4 256.7 274.7 294.0 314.5
    - (In percent of GDP): 44.8 50.8 58.4 60.2 58.3 58.1 58.6 59.4 60.1
  - Of which oil and oil products (percent of GDP): 24.8 31.9 43.0 50.1 51.6 50.4 49.8 50.2 51.4
- Services: -6.4 -10.6 -9.9 -10.9 -11.5 -11.7 -12.1 -12.3 -12.4
- Income and transfers: -4.3 -8.0 -1.7 -4.2 -4.8 -5.5 -5.7 -5.8 -6.2
- Capital and financial account balance: 2.5 -24.2 7.2 3.5 3.4 3.3 4.7 5.8 5.6
  - Foreign direct investment, net: -0.7 -4.2 2.4 2.7 3.5 4.0 4.7 5.2 5.1
  - Portfolio investment, net: 5.5 -9.2 -3.4 -5.3 -5.4 -5.5 -5.0 -4.6 -4.7
  - Other investment, net: -1.1 -10.8 7.8 6.1 5.3 4.8 5.0 5.2 5.2
- Errors and omissions: 4.8 -6.1 -3.5 3.8 4.2 4.4 4.7 4.9 5.2
  - (In percent of GDP): 1.8 -1.9 -1.0 1.0 1.0 1.0 1.0 1.0 1.0
- Overall balance: -24.1 -31.3 -1.2 -4.1 -6.6 -9.8 -7.2 -5.4 -4.6
- Changes in official reserves (increase +): 24.1 31.3 1.2 4.1 6.6 9.8 7.2 5.4 4.6

- Memorandum items:
  - Gross official reserves (US$ billion): 154.1 191.7 206.3 212.7 222.4 236.5 249.8 262.8 275.6
  - (In months of following year's imports): 11.4 11.4 10.9 10.2 9.7 9.4 9.0 8.6 8.2
  - Export growth (percent): -13.9 28.4 16.4 9.2 7.5 6.9 6.0 6.2 6.3
  - Import growth (percent): -25.1 37.0 24.7 12.5 6.7 5.9 7.0 7.0 7.0
  - External debt/GDP (percent): 28.6 31.5 30.7 29.0 27.1 26.5 26.1 26.0 25.8
  - External debt (US$ billions): 75.3 100.6 105.9 109.3 112.6 117.2 122.5 128.4 134.8
  - Debt service ratio (percent of exports of goods and services): 7.6 4.7 3.4 3.4 3.3 3.0 2.7 2.5 2.7
  - GDP (US$ billion): 263.7 318.9 345.6 377.3 415.3 441.8 468.4 494.7 523.1

### Monetary survey (December, in billions of baht; 2007–11)
- Bank of Thailand:
  - Net foreign assets: 2,951 3,872 4,525 5,082 5,441
  - Net domestic assets: -2,017 -2,833 -3,422 -3,839 -4,075
  - Narrow money: 1,000 1,041 1,175 1,302 1,414
  - Currency in circulation: 720 752 844 937 1,036
  - Deposits at Depository Corporations: 280 289 331 365 378
  - Reserve money: 934 1,040 1,103 1,243 1,365

- Monetary survey:
  - Net foreign assets: 3,594 4,132 4,570 4,884 5,421
  - Net domestic assets: 5,515 5,812 6,047 6,895 8,145
  - Domestic credit: 8,884 9,566 10,014 11,015 12,753
    - Net credit to central government: 132 203 292 155 203
    - Credit to nonfinancial public enterprises: 348 325 366 372 392
    - Credit to financial corporations: 574 519 625 668 699
    - Total credit to private sector: 7,826 8,513 8,726 9,801 11,441
      - Credit to other nonfinancial corporations: 3,775 4,135 3,847 4,132 4,838
      - Credit to other resident sector: 4,051 4,378 4,879 5,669 6,603
  - Other items (net): -3,369 -3,754 -3,967 -4,120 -4,609
  - Broad money: 9,109 9,944 10,617 11,779 13,566
    - Currency: 720 752 844 937 1,036
    - Transferable Deposits: 280 289 331 365 378
    - Quasi money: 8,110 8,903 9,442 10,476 12,152

- Memorandum items (growth rates):
  - Broad money growth (y/y percent change): 6.3 9.2 6.8 10.9 15.2
  - Narrow money growth (y/y percent change): 9.7 4.1 12.8 10.9 8.6
  - Credit to private sector growth (y/y percent change): 4.8 8.8 2.5 12.3 16.7
  - Contribution to broad money growth: NFA 7.5 5.9 4.4 3.0 4.6; NDA -1.3 3.3 2.4 8.0 10.6; Domestic credit 3.9 7.5 4.5 9.4 14.8

### Financial sector indicators (2005–11; latest observation 2011:Q4)
- Capital adequacy:
  - Regulatory capital to risk-weighted assets: 13.2 13.6 14.8 13.9 15.8 16.0 14.7 (2011:Q4)
  - Tier 1 capital to risk-weighted assets: 9.9 10.7 11.9 10.7 11.7 11.8 10.9 (2011:Q4)
- Asset quality:
  - Nonperforming loans to total loans: 9.1 8.1 7.9 5.7 5.3 3.9 2.9 (2011:Q4)
  - Loan loss reserves to nonperforming loans: 83.7 82.7 86.5 97.9 99.4 117.0 141.2 (2011:Q4)
- Earnings and profitability:
  - Return on average assets (before tax and provisioning): 1.9 1.9 1.7 2.0 1.9 2.1 2.1 (2011:Q4)
  - Return on average assets (after tax): 1.4 0.8 0.1 1.0 1.0 1.2 1.2 (2011:Q4)
  - Return on equity (after tax): 14.2 8.5 1.2 10.3 9.5 10.9 12.0 (2011:Q4)
- Liquidity:
  - Ratio of loans to deposits plus bills of exchange 2/: 88.1 86.4 88.0 88.5 87.6 90.3 91.2 (2011:Q4)
  - Liquidity to deposits and borrowings ratio: 18.2 16.7 19.6 24.2 27.4 27.4 27.2 (2011:Q4)
- Sensitivity to market risk:
  - FX deposits (percent of total deposits): 2.5 2.6 2.6 2.8 2.8 3.0 2.5 (2011:Q4)
  - FX loans to residents (percent of total loans): 3.2 2.5 2.3 2.6 2.5 3.5 4.2 (2011:Q4)
  - Net open forex position (percent of total capital): 2.5 1.6 3.0 1.9 4.1 2.7 2.1 (2011:Q4)

- Memorandum:
  - Credit to private sector (percent change) 3/: 8.0 4.5 4.8 8.8 2.5 12.3 16.7 (2011:Q4)
  - Nominal GDP (US$ billion): 176.4 207.1 247.0 272.6 263.7 318.9 345.6 (2011)

### Macroeconomic framework (2009–17 projections, selected rows)
- Real GDP growth (percent): -2.3 7.8 0.1 5.5 7.5 4.5 4.6 4.8 5.0 (2009–17 row)
- Consumption (percent contribution): 0.1 5.1 1.3 4.3 6.0 5.4 5.3 5.3 5.0
- Gross fixed investment: -9.2 -9.4 3.3 5.1 11.1 1.8 3.1 4.4 4.0
- Headline CPI inflation (period average, percent): -0.8 3.3 3.8 3.9 3.3 3.0 3.0 3.0 3.0
- Core CPI inflation (period average, percent): 0.3 0.9 2.4 2.2 2.3 2.5 2.5 2.5 2.5
- Saving and investment (percent of GDP):
  - Gross domestic investment (excluding stocks): 24.1 24.7 26.2 27.7 28.8 28.1 27.7 27.7 27.6
  - Gross national saving: 32.4 28.9 29.7 28.7 30.2 30.1 29.3 29.0 28.5
  - Foreign saving (- = current account surplus): -8.3 -4.1 -3.4 -1.0 -1.4 -2.0 -1.5 -1.3 -1.0

- Fiscal accounts (percent of GDP, fiscal year basis):
  - Central government budgetary balance: -4.2 -2.6 -1.9 -2.8 -3.5 -3.1 -3.1 -2.7 -2.4
  - General government balance: -3.2 -0.8 -1.6 -3.0 -3.8 -4.2 -2.7 -2.4 -2.1
  - Revenue and grants: 20.8 22.4 22.7 21.1 20.3 20.1 20.2 20.5 20.8
  - Expense and net acquisition of nonfinancial assets: 24.0 23.2 24.2 24.1 24.2 24.3 22.9 22.9 22.9
  - Public sector balance: -3.6 -1.6 -2.4 -4.4 -5.6 -6.0 -4.5 -4.2 -3.9
  - Total public sector debt (end-period): 45.2 42.6 41.7 44.1 45.9 48.5 49.7 50.6 51.0

- Balance of payments (billions of U.S. dollars, reiteration):
  - Exports, f.o.b.: 150.8 193.7 225.4 246.0 264.5 282.7 299.7 318.3 338.2
  - Imports, f.o.b.: 118.2 161.9 201.9 227.1 242.4 256.7 274.7 294.0 314.5
  - Trade balance: 32.6 31.8 23.5 18.9 22.1 25.9 25.0 24.3 23.7
  - Current account balance (percent of GDP): 8.3 4.1 3.4 1.0 1.4 2.0 1.5 1.3 1.0
  - Overall balance: -24.1 -31.3 -1.2 -4.1 -6.6 -9.8 -7.2 -5.4 -4.6
  - Gross official reserves (US$ billions): 154.1 191.7 206.3 212.7 222.4 236.5 249.8 262.8 275.6

### Medium-Term Fiscal Scenario (2008/09–2016/17, IMF projection; percent of fiscal year GDP)
- Central government (selected rows):
  - Revenue (est./proj.): 17.0 18.2 19.0 18.3 17.5 17.3 17.4 17.7 18.0
  - Tax revenue: 14.9 15.8 16.9 15.9 15.4 15.3 15.3 15.6 15.9
    - Taxes on income and profits: 7.2 6.9 8.0 7.0 6.0 6.0 6.0 6.0 6.3 6.6
    - Taxes on goods and services: 6.7 7.9 7.8 7.8 8.3 8.3 8.3 8.4 8.4 8.5
  - Total expenditure: 21.2 20.8 20.9 21.1 21.0 20.4 20.5 20.4 20.4
  - Expense: 19.2 18.4 18.5 18.1 18.0 18.0 18.0 18.0 17.9
  - Net lending/borrowing (budgetary): -4.2 -2.6 -1.9 -2.8 -3.5 -3.1 -3.1 -2.7 -2.4
  - Net lending/borrowing (consolidated): -3.4 -3.1 -2.0 -3.2 -4.0 -4.3 -2.8 -2.4 -2.1

- General government (selected rows):
  - Revenue: 20.8 22.4 22.7 21.1 20.3 20.1 20.2 20.5 20.8
  - Tax revenue: 16.7 17.5 18.6 17.4 16.9 16.7 16.8 17.1 17.4
    - Taxes on goods and services: 8.2 9.3 9.3 8.7 9.2 9.3 9.3 9.3 9.4
  - Total expenditure: 24.0 23.2 24.2 24.1 24.2 24.3 22.9 22.9 22.9
  - Expense: 20.8 19.8 20.8 20.2 20.1 20.2 20.3 20.3 20.3
  - Net acquisition of nonfinancial assets: 3.2 3.5 3.4 3.9 4.0 4.1 2.6 2.6 2.6
  - Net lending/borrowing (consolidated): -3.2 -0.8 -1.6 -3.0 -3.8 -4.2 -2.7 -2.4 -2.1

- Memorandum items:
  - Public enterprise balance: -0.5 -0.8 -0.8 -1.4 -1.8 -1.8 -1.8 -1.8 -1.8
  - Public sector balance: -3.6 -1.6 -2.4 -4.4 -5.6 -6.0 -4.5 -4.2 -3.9
  - Public sector debt 3/: 45.2 42.6 41.7 44.1 45.9 48.5 49.7 50.6 51.0
    - Central government: 29.2 29.3 29.4 31.3 32.3 34.0 34.4 34.4 34.1
    - NFPE: 12.5 10.9 10.1 11.0 11.8 12.6 13.5 14.4 15.1
    - SFIs guaranteed debt, VF and EFPO: 2.4 1.8 1.9 1.9 1.9 1.9 1.9 1.9 1.9
  - Public sector consumption: 15.0 15.1 14.0 14.3 14.1 14.0 14.0 13.9 13.8
  - Public sector investment 4/: 5.4 7.1 6.3 7.2 7.2 7.4 5.8 5.8 5.8
    - General government: 3.3 4.6 3.8 4.7 4.8 4.9 3.4 3.4 3.4
    - Public enterprises: 2.1 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4

### Risk Assessment Matrix (selected threats, overall level of concern, likelihood, expected impact)
- 1. Intensification of the euro-zone crisis and global double-dip.
  - Overall Level of Concern: Medium
  - Likelihood of Severe Realization in Next 1-3 Years: Medium
  - Expected Impact if Realized: Medium
  - Notes: Thai banks mostly domestically funded so direct impact relatively limited; global aversion to risk could lead to sharp decline in stock markets; global downturn would hurt Thailand via lower export prospects.

- 2. Underperformance of public spending
  - Overall Level of Concern: Medium/High
  - Likelihood: Medium/High
  - Expected Impact: Medium/High
  - Notes: Ambitious investment and recovery expenditures plan could face implementation issues; underperformance would adversely affect short- and medium-term growth as public investment key to raising potential output.

- 3. Domestic political tensions
  - Overall Level of Concern: Low/Medium
  - Likelihood: High
  - Expected Impact: High
  - Notes: Political unrest would worsen investment climate and damage consumer and business confidence.

- 4. Slower growth in China by 2 percentage points
  - Overall Level of Concern: Low
  - Likelihood: Low
  - Expected Impact: Medium
  - Notes: Slower China growth would have significant knock-on effect on Thailand.

- 5. Substantial and prolonged increase in oil prices
  - Overall Level of Concern: Medium
  - Likelihood: Medium
  - Expected Impact: Medium
  - Notes: International boycott of Iranian oil could raise oil prices; sustained large increase would have significant fiscal cost.

- 6. Resumption of capital inflows
  - Overall Level of Concern: Medium
  - Likelihood: Medium
  - Expected Impact: Low
  - Notes: Higher inflows put appreciation pressure on currency; depending on policy response, exchange rate appreciation could hurt exports; large inflows imply costly sterilization for central bank.

### Public and External Debt Sustainability — Key assessment (Appendix II: Public Debt Sustainability)
- Current trajectory:
  - Public debt is at a turning point from a downward trend to an upward one.
  - Public debt is expected to increase to 44 percent in FY2012.
- Drivers of deterioration:
  - Increase pushed up by 2 percentage points due to low GDP growth, lower government revenue from corporate income tax rate reduction and a fuel excise tax cut, additional borrowing for water management projects, and government guarantees for SOE borrowing to implement the rice price guarantee scheme.
  - Announced revenue policy will further reduce government revenue until FY2014, and current expenditure will stay around FY2012 levels.
  - Public investment expected to fall as water management projects complete in FY2014, but savings insufficient to offset revenue loss.
- Projection:
  - Under these assumptions, public debt ratio would follow an upward trend, reaching 51 percent at the end of the projection period.
  - Within overall public debt, direct government debt would increase by 3 percentage points from FY2012 to FY2017.
  - Public enterprise debt would increase by 4 percentage points over the same period.

*Sources: Data provided by the Thai authorities; and IMF staff estimates.*

### 2.      This profile is relatively resilient to

### _cr12124 - 2.      This profile is relatively resilient to

### Public debt: baseline and shock scenarios
- Baseline assumption for the primary balance: average deficit of 1.5 percent of GDP over the forecast horizon.
- Interest rate and exchange rate shocks:
  - With stable interest rates historically and very little external debt, shocks to interest rates and exchange rates make only modest differences to the medium-term forecast.
- Primary balance shock:
  - If the primary balance records an average deficit of 3 percent of GDP over the forecast horizon (instead of averaging 1.5 percent), then by 2017 the debt/GDP ratio would be 7 percentage points higher than in the baseline.
- Combination shock (real interest rate, growth rate, and primary balance permanently worse than baseline by one-quarter standard deviation):
  - Debt/GDP ratio increases by 6 percentage points relative to the baseline.
- Contingent liabilities shock:
  - If 10 percent of GDP in contingent liabilities are brought on budget in 2013, then by 2017 the debt/GDP ratio would remain 9 percentage points higher than in the baseline.
- Growth slowdown risk (most significant risk):
  - Baseline growth forecast: average around 5.5 percent over the medium term (1 percentage point above the historical average).
  - If growth is lower than assumed by one-half a standard deviation, then growth would average just 3.5 percent, which would push up the debt/GDP ratio by 10 percentage points.

- Policy implication:
  - Although public debt levels are still modest and generally contained, these scenarios indicate proactive actions are needed for Thailand’s public debt path to remain sustainable and resilient to shocks.

### External debt: levels, projections, and stress tests
- End-2011 external debt:
  - External debt amounted to $107 billion at the end of 2011 (28 percent of GDP), up by $6 billion (3.5 percent of GDP) from the previous year.
  - The 2011 increase reflected long-term general government borrowing and nonbank corporate and financial sector borrowing; it also represented a lengthening of maturities (short-term debt fell marginally and long-term debt rose).
- Projections:
  - External debt expected to rise in 2012 to 32 percent of GDP reflecting government financing needs for large scale infrastructure projects.
  - Beyond 2012, external debt is projected to continue to rise but at a slower pace than national income, declining from 32 percent back to 28 percent by 2017.
- Stress-test results (shock magnitudes based on 10-year historical standard deviations):
  - Permanent one-half standard deviation shock to the non-interest current account balance:
    - External debt would be 9 percentage points above the baseline by 2017, reaching 37 percent of GDP.
  - Combination shock (external interest rate, non-interest current account balance, and economic growth each deviate by one-quarter standard deviation permanently):
    - External debt would rise by 6 percentage points from the baseline by the end of the medium term to 37 percent of GDP.
  - Large real depreciation:
    - A real depreciation of 30 percent in 2012 (equivalent to about a 34 percent nominal depreciation) would raise the debt ratio by about 20 percentage points.
    - Note: this analysis excludes subsequent trade-flow adjustments that could improve the current account and reduce the debt ratio over the medium term.
- Overall conclusion:
  - Thailand’s external debt is projected to remain low and stable over the medium term and remains stable under all reasonable stress scenarios.

### Key fiscal and debt-accounting figures presented (selected)
- Public sector debt (baseline): 2007 actual 38.3 (percent of fiscal year GDP) rising to 51.0 by 2017 (table context).
- Change in public sector debt (selected projection years): 2012 = 2.4; 2013 = 1.8; 2014 = 2.6; 2015 = 1.2; 2016 = 0.9; 2017 = 0.5 (percent of GDP).
- Primary deficit (percent of GDP, selected years): 2012 = 1.9; 2013 = 2.7; 2014 = 3.0; 2015 = 1.3; 2016 = 1.0; 2017 = 0.6.
- Revenue and grants (percent of GDP, selected years): 2012 = 22.7; 2013 = 22.0; 2014 = 21.8; 2015 = 21.8; 2016 = 22.1; 2017 = 22.4.
- Gross financing need (percent of GDP, under baseline): 2012 = 10.0; 2013 = 10.9; 2014 = 10.8; 2015 = 8.8; 2016 = 8.2; 2017 = 7.5.
- Key macro assumptions underlying baseline (selected):
  - Real GDP growth (in percent): 2012 = 1.8; 2013 = 7.0; 2014 = 5.2; 2015 = 4.6; 2016 = 4.8; 2017 = 5.0.
  - Average nominal interest rate on public debt (in percent): 2012 = 4.8; 2013 = 4.8; 2014 = 4.8; 2015 = 4.8; 2016 = 4.8; 2017 = 4.7.
  - Inflation rate (GDP deflator, in percent): 2012 = 3.3; 2013 = 3.3; 2014 = 3.2; 2015 = 3.0; 2016 = 2.7; 2017 = 2.5.

### Health care and demographic change (Appendix III: summary of findings and projection approach)
- Demographics and policy importance:
  - Thailand is rapidly aging; among ASEAN–5 countries, its old-age dependency ratio is the second highest only after Singapore, and will remain so in 2050.
  - An aging population implies a higher fiscal burden to support the elderly with revenues from less dynamic economic activities; preparation for future increases in age-related spending is highly advisable.
- Why focus on health care spending:
  - Two major age-related spending items: pension benefits and health care spending.
  - Pensions in Thailand cover only 10 million members in the formal sector and 2 million civil servants, out of 60 million people.
  - Allowances for old-age people are low (B 500 per month).
  - Health care spending is subject to cost increases due to upgrades in available health services and lower productivity growth of services relative to other sectors (Baumol effect).
- Public health care system overview:
  - Four main health care options: Universal Coverage Scheme (UCS); Civil Servants Medical Benefits Scheme (CSMBS); Social Security Scheme (SSS); and private insurance.
  - UCS and CSMBS mainly financed by tax; SSS financed through compulsory 1.5 percent payroll contributions respectively by employers, employees, and the government; private insurance voluntary and entirely privately financed.
  - By 2007, 98 percent of the population is estimated to be covered by formal insurance.
  - Catastrophic health expenditures decreased from 5.4 percent in 2000 to 2.0 percent in 2006, estimated to have brought at least 1 million Thais out of poverty.
  - Public health spending increased from 1.9 percent of GDP in 2000 to 2.7 percent in 2007.
- Projection methodology for public health spending:
  - Projections incorporate spending profiles by age group and expected changes in the age structure of the population.
  - Projections use an excess cost growth (ECG) of 1.0 percent (consistent with the average ECG observed for emerging economies).
- Demographic projection cited:
  - Share of the population older than age 60 projected to increase from 12 percent in 2010 to 22 percent (projection horizon continuation in source).

*International Monetary Fund — 2012 Article IV Report: Thailand (selected sections as provided in the source content).*

### 2030. The age profile of per capita public

### _cr12124 - 2030. The age profile of per capita public health spending in 2010 is assumed to be the same as the average for OECD countries, and to shift to the right by half a year every 10 years to reflect gains in longevity being spent in good health.

### Projections of public health spending to 2030
- Baseline inputs and definitions:
  - P(i, t) = share of population of age i at time t.
  - W(i, t) = ratio of per capita health spending of age i to per capita spending of age 30–35.
  - Baseline PHE(2010) (implicit in calculations) = 2.8 (percent of GDP).
  - Age-profile shift assumption: age profile of per capita public health spending in 2010 = OECD average; shifts right by half a year every 10 years.

- Demographic-only projection:
  - PHE(2030) (demographic change only) computed as:
    - 2.8*(6*1.3 + 6.6*1.4 + ... + 0*4.5)/(7.1*1.3 + 6.7*1.5 + ... + 0*4.4) = 3.2
  - Result: demographic changes increase public health spending by 0.4 percentage points of GDP by 2030.

- Non-demographic (excess cost growth, ECG) projection:
  - Baseline ECG assumption = 1.0 percent per year (reflects average of emerging economies).
  - Applying ECG alone: PHE(2030) = PHE(2010)*((1+ECG)^(2030-2010)) = 3.4

- Combined demographic and nondemographic impact (accounting for interaction):
  - Demographic effect over 20 years = 0.6 percentage point of GDP increase (note: text also states 0.4 percentage points earlier as demographic-only; the 0.6 appears as demographic effect to be annualized for combined calculation).
  - Annualized demographic impact = 0.73 percent a year.
  - Combined projection formula:
    - PHE(2030) = 2.8*(1+0.0073+0.01)^20 = 3.9
  - Net change by 2030: increase of 1.1 percentage points of GDP (from 2.8 to 3.9).
  - Breakdown of the 1.1 percentage point increase:
    - 0.4 (38 percent) due to pure demographic changes.
    - 0.6 (54 percent) due to excess cost growth (nondemographic changes).
    - Residual 8 percent due to interaction between the two factors.

### Calibration and scenario sensitivity
- Alternative fertility scenario:
  - If fertility rate is 0.5 children below the baseline (baseline converging to 1.85 children per woman), increase in health care spending in 2030 will be higher by 0.1 percentage points of GDP.

- Alternative ECG scenarios:
  - If ECG = 1.5 (instead of baseline 1.0), public health spending in 2030 = 4.3 percent of GDP.
  - If ECG = 0.5, public health spending in 2030 = 3.5 percent of GDP.

- Expansion of public health benefits:
  - If the initial level of health spending in 2010 is higher by 0.5 percent of GDP (e.g., due to scaling up social welfare programs), projected public health spending in 2030 = 4.7 percent of GDP.

### Policy implications — measures to mitigate the increase in health spending
- Structural and policy measures to improve health system performance and contain costs:
  - Greater control over the range of publicly funded services:
    - Control physician numbers and hospital activities, or emphasize affordability when deciding publicly funded benefit packages.
  - More involvement of local governments in policy decisions:
    - Local governments to exert more down-to-the-earth scrutiny of health policy decisions.
  - Use of market mechanisms:
    - Allow greater freedom for insurers to vary scope, premium, etc., for basic insurance packages and in negotiating with health providers.
    - Increase degree of user choice over insurers.
  - Budget caps:
    - Introduce budget caps on spending for the entire health sector or specific health services.

### Policy implications — possible sources of financing for additional health spending
- General considerations:
  - Government revenue structure varies across countries; empirical studies suggest broad-based consumption taxes and property taxes are less harmful to growth than income taxes.
- Potential specific sources highlighted:
  - Consumption taxes (including VAT): important potential source, noting Thailand’s relatively low rate of VAT.
  - Property taxes: potential source, noting ongoing discussions over introduction of land taxes in Thailand.
  - Income taxes: relying on income taxes would further burden the working-age population as the old-age dependency ratio increases, potentially holding back growth potential.
  - Excise taxes and social contributions: noted as less distortionary to growth and could be explored as alternative sources of financing.

*Italicized source: IMF staff estimates and analysis as presented in THAILAND 2012 ARTICLE IV REPORT (pages excerpted).*

### 2.      Thailand’s economy has been

### _cr12124 - 2.      Thailand’s economy has been

### Economic growth: long-run performance
- Thailand expanded at a robust pace over the last three decades.
- Pre-1997 period: average annual rate of GDP per capita of 7.5 percent.
- Growth slowed in the aftermath of the crisis but "remained roughly in line with other fast-growing emerging market economies."

### Regional disparities in output, population, and income
- Thailand subdivided into seven administrative regions (including Bangkok) with large differences in economic activity, income, and population.
- The three richest regions account for 70 percent of total output but only 30 percent of the population.
- The most populous region (Northeastern) accounts for a third of the country’s population but its inhabitants share less than 10 percent of the country’s income.
- Ratio of per capita GDP between Bangkok and the Northeastern region: 9.6 (average over the 2000–09 period).
- Cross-country comparisons of highest-to-lowest regional per capita GDP:
  - China: 8.65
  - India: 4.5
  - United States: 1.3

### Poverty and its regional concentration
- National poverty declined from 33.8 percent in 1988 to 9.0 percent in 2008 (Household surveys conducted every two years since 1988).
- Aggregate poverty figures mask regional differences: poorer regions have the largest poverty incidence.
- Very low poverty rates in Bangkok and the Central region; highest rates in the Northeast, and to a lesser extent in the Northern and Southern regions.
- Household surveys show the poor are overrepresented in the agriculture sector; almost 90 percent of the poor reside in rural areas.

### Evidence on convergence (or divergence)
- Mixed evidence on economic convergence:
  - At the national level, the gap in per capita income between richer and poorer states has widened over the past three decades.
  - Except during the Asian crisis and the 2009 global financial crisis, the coefficient of variation of regional GDP is increasing.
  - Per capita income in richer regions has grown almost three times faster than in the poorest regions, indicating divergence nationally.
  - Convergence observed among relatively more central regions: the central and eastern regions have grown faster than Bangkok since the beginning of the 1990’s and are catching up.
  - The four poorest peripheral regions both have lower GDP per capita and growth rates lower than the national average, thereby widening the gap.

### Inequalities in growth factors
- Labor utilization:
  - Labor utilization rates almost identical across the kingdom with full employment in all regions.
- Labor productivity:
  - Stark differences in labor productivity across regions; markedly higher in Bangkok than in the rest of the country.
  - Hourly manufacturing output is almost 12 times higher in Bangkok than in the northeastern region (average 2001-2010, Baht per hour).
- Labor quality:
  - Share of skilled workers (education level of high school or higher) is larger in richer, faster-growing, more productive regions.
  - Trend reversal since 2002: faster recruitment of skilled workers in the Northern and Northeastern regions (2001=100, 12 months moving average).
- Investment allocation:
  - Private capital accumulation proxied by new investment permits shows strong preference for Bangkok.
  - Over the 1995–2010 period, the Northeastern region received about 10 times less private investment than Bangkok.
  - Allocation of public infrastructure expenditure mirrors private investment disparities (Bank of Thailand (BOT), 2011).
- Geography and infrastructure:
  - Central and eastern regions benefit from proximity to the capital and strategic location on trade and export routes.
  - Peripheral regions are more difficult to access and have less performing logistics and infrastructure.

### Policy implications and recommendations
- Economic growth alone has been insufficient to promote economic convergence across all regions.
- Peripheral regions lag in growth rates and income, human capital, and physical investment.
- Policies should supplement growth with targeted measures to raise living standards in peripheral regions:
  - Deepen capital through technology transfer.
  - Improve the quality of the labor force (skills development).
  - Enhance public infrastructure in lagging regions to improve access and logistics.
  - Improve conditions for private sector investment to attract private capital to peripheral regions.
  - Public expenditure could focus on developing labor skills and building capacity to reduce differences in human and physical capital across regions.

*Source: THAILAND 2012 ARTICLE IV REPORT (Informational Annex and main text excerpts).*

### ANNEX IV. THAILAND—STATISTICAL ISSUES

### ANNEX IV. THAILAND—STATISTICAL ISSUES

### I. Assessment of Data Adequacy for Surveillance
- General: Data provision is broadly adequate for surveillance. The authorities have continued to improve the quality and coverage of data, but dissemination of additional data would enhance the basis for macroeconomic policy analysis, particularly in the fiscal sector.
- National accounts:
  - Broadly in line with the 1968 SNA, in the process of being updated to the 1993 SNA.
  - Data coverage and methodology have improved, but statistical discrepancies can be reduced further.
- Price statistics:
  - The Bank of Thailand (BOT) publishes monthly price statistics and quarterly inflation reports with sufficient coverage for surveillance.
- Government finance statistics:
  - Authorities provide data to the Fund consistent with the Government Finance Statistics Manual, 2001 (GFSM 2001).
  - Data contributed to the Government Finance Statistics Yearbook and the International Financial Statistics.
  - General government fiscal data are only provided annually; more timely publication is desirable.
  - GFSM 2001-based data are not available for state enterprises, so the public sector balance is imperfectly calculated on a GFSM 2001 basis.
  - Given growing importance of state enterprises, timely data on their operations is desirable.
  - General government debt, including an amortization schedule, is not available and is desirable for more effective surveillance.
- Monetary statistics:
  - Authorities submit the Standardized Reporting Forms (SRFs) for monetary statistics on a timely basis.
- Balance of payments:
  - Authorities started publishing balance of payments statistics under BPM6 in February 2012; historical data goes back to 2005, and a longer historical time series is desirable.
  - Methodology remains adequate, but large errors and omissions (under both BPM5 and BPM6) point to weaknesses in data collection, including incomplete coverage of nonbank transactions in services trade.
  - Long lag in dissemination of IIP data; available only on an annual basis. The last observation available is 2010.
  - Data on external debt and debt service have significantly improved since introduction of a quarterly survey of private nonbank external debt.
  - A breakdown of debt service along the lines of external debt stocks and an amortization schedule of external debt would allow for more effective surveillance.

### II. Data Standards and Quality
- Subscriber to the Special Data Dissemination Standard (SDDS) since 1996.
- Data ROSC published in April 2006.
- Table of Common Indicators Required for Surveillance (As of March 27, 2012) — selected entries (latest observation / date received / frequency of data / frequency of reporting / frequency of publication / Data Quality – Methodological Soundness / Data Quality – Accuracy and Reliability):
  - Exchange Rates: 3/27/12 / 3/27/12 / D / D / D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities1: 3/20/12 / 3/20/12 / W / W / W
  - Reserve/Base Money: 3/20/12 / 3/20/12 / W / W / W / O, O, LO, O / O, O, O, O, O
  - Broad Money: 2/29/12 / 2/29/12 / M / M / M
  - Central Bank Balance Sheet: 2/29/12 / 2/29/12 / M / M / M
  - Consolidated Balance Sheet of the Banking System: 2/29/12 / 2/29/12 / M / M / M
  - Interest Rates2: 3/27/12 / 3/27/12 / D / D / D
  - Consumer Price Index: 2/29/12 / 2/29/12 / M / M / M
  - Revenue, Expenditure, Balance and Composition of Financing – General Government3–4: 3/31/11 / 3/31/11 / A / A / A / O,LO,O,LO / LO, O, O, O, O
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: 2/29/12 / 2/29/12 / M / M / M
  - Stocks of Central Government and Central Government-Guaranteed Debt5: 2/29/12 / 2/29/12 / M / M / M
  - External Current Account Balance: 2/29/12 / 2/29/12 / M / M / M / O, LO,LO,LO / LO, O, O, O, LO
  - Exports and Imports of Goods and Services: 2/29/12 / 2/29/12 / M / M / M
  - GDP/GNP: Q4 2011 / 2/23/12 / Q / Q / Q / LO, LO, O, LO / O, O, LO, O, O
  - Gross External Debt: Q4 2011 / 2/23/12 / Q / Q / Q
  - Footnotes in table clarify coverage and assessment codes (O, LO, LNO, NO, NA) and frequency codes (D, W, M, Q, A, I, NA).

### Executive Board Assessment and Policy Guidance (Public Information Notice No. 12/48, May 10, 2012)
- Background and recent developments:
  - 2011: natural disasters (earthquake in Japan; massive floods in Thailand) led to a sharp contraction. Last quarter 2011 output contracted by 10¾ percent (quarter-on-quarter), the largest quarterly contraction ever recorded; annual growth fell to 0.1 percent in 2011 from 7.8 percent in 2010.
  - Total losses from floods are estimated at about 3 percent of GDP.
  - Recovery expected in 2012: GDP should grow by 5½ percent in 2012 and a further 7½ percent in 2013 due to a large carryover effect from the strong recovery in the second half of 2012.
  - Domestic demand expected to drive growth in 2012, partly due to reconstruction and flood-prevention efforts.
  - Downside risks: turmoil in the euro area, weak growth in trading partners, domestic political tensions, and potential failure of water management projects.
- Policy response:
  - Government policy priorities: income redistribution and rebalancing growth toward domestic consumption; expansionary fiscal policies and a large fiscal package to support recovery and flood-prevention investment.
  - Bank of Thailand halted gradual normalization and lowered policy rate twice by a cumulative 50 basis points (November 2011 and January 2012).
- Executive Directors’ views:
  - Commended authorities for policy response and strong recovery underway.
  - Short-term outlook favorable but significant downside risks noted.
  - Main challenge: complete reconstruction while maintaining macroeconomic stability and promoting inclusive growth.
  - Supported continuation of current expansionary fiscal and monetary stances given weak world demand and muted inflationary pressures, but recommended unwinding support as recovery takes hold:
    - Stand ready to tighten monetary policy as the output gap closes.
    - Move to a medium-term consolidation path consistent with low inflation and fiscal sustainability.
  - Fiscal transparency and accountability:
    - Formalize current budgetary practices and targets; look forward to adoption of the Public Finance Act.
    - Improve transparency and accountability of fiscal operations in line with the 2009 review of fiscal standards and codes.
  - Structural and fiscal recommendations to promote inclusive growth:
    - Monitor income redistribution policies (including the rice price support mechanism) to contain fiscal costs and improve efficiency.
    - Accompany minimum wage increases with measures boosting labor productivity to preserve competitiveness.
    - Promote technology transfers and investment in human capital and infrastructure, particularly in less developed regions.
    - Create fiscal space by scaling back subsidies, eliminating income tax credits, reviewing excise and value added tax rate structure, and strengthening tax administration.
  - External sector and capital flows:
    - Capital inflows have continued to be volatile and likely remain so in the near term.
    - With high international reserves, more risk-aware agents, and increased availability of instruments to protect against volatility, there is room to increase exchange rate flexibility in both directions.
    - Support plans to further relax restrictions on capital outflow gradually while ensuring adequate safeguards against sudden reversals.
  - Financial sector:
    - Welcome progress in developing financial markets to facilitate private investment.
    - Call for swift action to mitigate risks from government-owned specialized financial institutions by refocusing them on core mandate, improving risk assessment standards, and strengthening supervision (as suggested in the latest module of the Financial Sector Assessment Program).
    - Recommend continuing development of strong financial safety nets and addressing remaining weaknesses in the regulatory framework to combat money laundering and the financing of terrorism.

### Thailand: Selected Economic Indicators, 2009–12 (selected figures)
- Real GDP growth (percent): 2009 -2.3; 2010 7.8; 2011 0.1; 2012 Proj. 5.5
- Inflation (period average, percent):
  - Headline CPI: 2009 -0.8; 2010 3.3; 2011 3.8; 2012 Proj. 3.9
  - Core CPI: 2009 0.3; 2010 0.9; 2011 2.4; 2012 Proj. 2.2
- Saving and investment (percent of GDP):
  - Gross domestic investment (excluding stocks): 2009 24.1; 2010 24.7; 2011 26.2; 2012 Proj. 27.7
    - Of which: private: 2009 17.6; 2010 18.8; 2011 20.7; 2012 Proj. 21.7
  - Gross national saving: 2009 32.4; 2010 28.9; 2011 29.7; 2012 Proj. 28.7
    - Of which: private, including statistical discrepancy: 2009 29.6; 2010 23.8; 2011 26.0; 2012 Proj. 25.9
- Fiscal accounts (percent of GDP)1/ (central government budgetary balance on fiscal year basis; fiscal year ends on September 30):
  - Central government budgetary balance: 2009 -4.2; 2010 -2.6; 2011 -1.9; 2012 Proj. -2.8
  - Revenue and grants: 2009 17.0; 2010 18.2; 2011 19.0; 2012 Proj. 18.3
  - Expenditure and net lending: 2009 21.2; 2010 20.8; 2011 20.9; 2012 Proj. 21.1
  - General government balance2/: 2009 -3.2; 2010 -0.8; 2011 -1.6; 2012 Proj. -3.0
  - Public sector balance3/: 2009 -3.6; 2010 -1.6; 2011 -2.4; 2012 Proj. -4.4
  - Public sector debt: 2009 45.2; 2010 42.6; 2011 41.7; 2012 Proj. 44.1
- Monetary accounts (end-period, percent change):
  - Broad money growth: 2009 6.8; 2010 10.9; 2011 15.2; 2012 Proj. ...
  - Private sector credit growth: 2009 2.5; 2010 12.3; 2011 16.7; 2012 Proj. ...
- Balance of payments (billions of U.S. dollars):
  - Current account balance: 2009 21.9; 2010 13.2; 2011 11.9; 2012 Proj. 3.8
    - (Percent of GDP) 2009 8.3; 2010 4.1; 2011 3.4; 2012 Proj. 1.0
  - Exports, f.o.b.: 2009 151; 2010 194; 2011 225; 2012 Proj. 246
    - Growth rate (in dollar terms): 2009 -13.9; 2010 28.4; 2011 16.4; 2012 Proj. 9.2
  - Imports, f.o.b.: 2009 118; 2010 162; 2011 202; 2012 Proj. 227
    - Growth rate (in dollar terms): 2009 -25.1; 2010 37.0; 2011 24.7; 2012 Proj. 12.5
  - Gross official reserves (end-year; incl. net forward position): 2009 154.1; 2010 191.7; 2011 206.3; 2012 Proj. 212.7
    - (Months of following year's imports) 2009 11.4; 2010 11.4; 2011 10.9; 2012 Proj. 10.2
  - Exchange rate (baht/U.S. dollar): 2009 34.3; 2010 31.7; 2011 30.5; 2012 Proj. ...
  - External debt (in percent of GDP): 2009 28.6; 2010 31.5; 2011 30.7; 2012 Proj. 29.0
  - Debt-service ratio4/: 2009 7.6; 2010 4.7; 2011 3.4; 2012 Proj. 3.4
- Sources for table: Data provided by the Thai authorities; and IMF staff estimates.
- Footnotes:
  - 1/ On a fiscal year basis. The fiscal year ends on September 30.
  - 2/ Includes budgetary central government, extrabudgetary funds, and local governments.
  - 3/ Includes general government and nonfinancial public enterprises.
  - 4/ Percent of exports of goods and services.

### Statement by Thai Authorities (Statement by Der Jiun Chia and Chaipat Poonpatpibul, April 27, 2012)
- Recovery updates and outlook:
  - Thai authorities reported Q1 2012 saw a sharp rebound; the economy is expected to grow by slightly above 8 percent qoq in Q1 2012.
  - Activity expected to normalize by Q3 2012 in all key areas of the economy.
  - Private consumption rebound driven by pent-up demand, favorable employment prospects, farm income, and conducive monetary conditions.
  - Private investment, led by reconstruction and replacement spending, expected to sustain growth momentum; growth projected to rebound to 5.7 percent in 2012 and resume a normal pace in 2013.
- Risks and caution:
  - Authorities remain cautious about pace and effectiveness of fiscal stimulus implementation and downside risks from weak demand in advanced economies and slowing demand from China.
- Inflation:
  - Headline inflation stood at 3.4 percent in 2012 Q1 compared to 4.0 percent in 2011 Q4.
  - Core inflation trended down slightly from 2.8 percent in the previous quarter to 2.7 percent in 2012 Q1.
  - For 2012 and 2013, inflationary pressure expected to pick up from improved global growth prospects, cost pass-through from rising oil prices, and the minimum wage increase; private demand expected to pick up as production returns to potential in the latter half of 2012.

*Source: _cr12124 - ANNEX IV. THAILAND—STATISTICAL ISSUES (As of March 2012); 2012 Article IV Report — Public Information Notice No. 12/48; Statement by Der Jiun Chia and Chaipat Poonpatpibul (April 27, 2012).*

### 2012. The Thai authorities will closely monitor any price development and will act to ensure

### _cr12124 - 2012. The Thai authorities will closely monitor any price development and will act to ensure

### Fiscal policy
- Authorities welcome staff assessments and policy recommendations stressing the importance of maintaining fiscal discipline.
- Several revenue and expenditure measures described in the Staff Report were employed to lift the economy from a deep contraction and helped enhance growth potential going forward.
- The 2012 fiscal year budget was approved in February, allowing for necessary spending plans to ensure on-track economic recovery.
- The water resource management decree was passed in March; the decree:
  - does not stipulate time constraint for spending, and
  - mandates disbursement in accordance with specific approved projects to ensure prudence.
- Given near-term acceleration in oil prices, the diesel tax reduction scheme may be extended, subject to monthly assessment of the global oil price, so as not to forestall the economic recovery.
- The draft Public Finance Act is in progress; notwithstanding projected lower revenues, the fiscal sustainability framework is expected to remain intact.
- Medium-term fiscal balance initiatives include establishment of an infrastructure fund and continuation of Public Private Partnership (PPP) investment scheme.
- Authorities recognize fiscal credibility could be strengthened by making fiscal rules legally binding and emphasize monitoring timeliness and effectiveness of spending.

### Monetary policy
- Current monetary policy stance is viewed as appropriate to support a firm recovery and ensure inflation expectation is well-anchored.
- Core inflation this year is expected to remain within the official target band of 0.5 to 3 percent, notwithstanding upward risks such as minimum wage increases and demand pressure from infrastructure spending.
- Once economic situation returns to normalcy and the output gap closes, the policy rate would need to be gradually adjusted to its normal path to anchor inflation expectation.
- Decisions on the policy rate will remain flexible and based on vigilant monitoring of risks to inflation.

### Capital flows and exchange rate
- Thailand has experienced volatile capital flows with periods of capital influx and bouts of rapid outflows during risk aversion periods, in line with other regional emerging economies.
- Authorities are implementing the Capital Account Liberalization Master Plan to gradually relax restrictions while maintaining flexibility and safeguards against excessive speculation, to encourage more balanced two-way flows.
- The Thai baht has been gradually strengthening since the beginning of 2012 on perceptions of a strong recovery.
- Under the current managed float, the baht is determined by economic fundamentals; intervention is used only to dampen excessive volatility.
- Need for intervention has lessened as the private sector is more prepared and capable of coping with exchange rate risks and better at using hedging instruments.
- The Bank of Thailand (BOT), in partnership with commercial banks, will continue to promote SME awareness of financial risk management.
- Foreign reserves stood at 179.3 billion US dollars at the end of March 2012 and are considered adequate to cushion against external shocks.
- Authorities view foreign reserves as not being a policy target and expect the pace of foreign reserve accumulation to likely ebb as capital flows become more balanced.

### Financial Sector
- The banking sector recorded strong capital and profitability despite significant domestic challenges and the global financial crisis.
- Implementation of the Financial Sector Master Plan II will continue to strengthen the financial system, emphasizing enhanced competition in response to changing financial and regulatory environments.
- Financial inclusion is pursued in significant part through Specialized Financial Institutions (SFIs), used as instruments for social and economic policies.
- Authorities are mindful that extensive recourse to SFIs could incur fiscal cost and will closely monitor SFIs to ensure prudence and transparency and prevent build-up of systemic risks.
- SFIs have been instructed to refocus on their core mandate and are subjected to the same levy as commercial banks to foster a more level playing field.
- Capital market investor base has grown under the Capital Market Development Master Plan due partly to increasing financial products; forthcoming measures (new products, liberalization for cross-border sales in ASEAN, and brokerage commission fee later this year) are expected to provide further investment alternatives and increase market depth.
- Progress has been made on AML/CFT compliance; necessary draft legislations are undergoing parliamentary approval, and AMLO is enhancing its efficiency and organizational structure to implement new legislation when passed.
- Authorities will closely monitor the impact of the FATF’s downgrade until completion of the legislative process.

### Structural policies
- Authorities are committed to strengthening medium- and long-term growth potentials while ensuring growth benefits are more widely and evenly distributed.
- Mega water management projects and large infrastructure projects funded by PPP (such as mass-transit system expansion and transportation linkages with neighboring countries) are proceeding on track.
- Authorities plan to streamline the PPP process and set up a one-stop service agency for PPP projects to foster progress.
- A study on regional income discrepancies underscores the need to alleviate income inequality in the next stages of economic development.
- Recent policies with income redistribution objectives include minimum wage increases across different regions and the rice price guarantee scheme.

### Final remarks
- Authorities are committed to ensuring normalization of economic activity following the severe flood period and are mindful of key domestic and external risks; they will closely monitor developments.
- A key priority for medium- and long-term social and economic development is to pursue inclusive growth.
- Authorities thank the IMF mission team for producing comprehensive analyses useful for near- and long-term policy making.

*IMF staff and Thai authorities statement as presented in the source content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12124.pdf_