Public Information Notice: IMF Concludes 2003 Article IV Consultation with Thailand
IMF News, September 17, 2003
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- Published: September 17, 2003
Background
- Executive Board concluded the Article IV consultation with Thailand on August 25, 2003.
- Thailand completed a 34-month, SDR 2.9 billion (268 percent of quota, equivalent to US$4 billion) Stand-By Arrangement on June 19, 2000.
- The arrangement was part of a $17.2 billion official financing package from multilateral institutions and bilateral contributors, $14.3 billion of which was drawn.
- Thailand completed repayment of this package on July 31, 2003, some two years ahead of schedule.
Economic performance and recent developments
- Real GDP growth:
- 2002: Real GDP increased by 5.3 percent.
- Q1 2003: 6.7 percent (year-on-year).
- Inflation:
- Core inflation has hovered around 0.2 percent since the second half of 2002 (BOT target range: 0-3½ percent).
- Headline inflation trended down after cresting at about 2 percent in January 2003.
- Monetary policy:
- Bank of Thailand (BOT) cut its policy rate in January and November 2002, and again in June 2003.
- Deposit and lending rates have declined recently and could fall further.
- Fiscal policy:
- Fiscal year ended September 2002 (FY 2001/02): fiscal policy provided timely countercyclical support.
- Current fiscal year: general government balance expected to improve by 2.1 percent of GDP, due mostly to stronger-than-expected revenues.
- Quasi-fiscal initiatives: expanded operations of state-owned specialized financial institutions (SFIs) aimed at boosting credit and home ownership.
- External sector:
- Export performance was very strong in 2002; current account projected to remain in surplus in 2003.
- Official gross reserves stood at over US$39 billion at end-June 2003.
- SET index: increased about 17 percent in 2002, and over 30 percent more through June 2003.
- Bond yields are low and major credit rating agencies share a positive outlook for the sovereign rating.
- Financial sector and corporate sector:
- Corporate balance sheets improved somewhat through de-leveraging but remain fragile.
- Banks' financial positions improving but need further strengthening.
- Lending activity has gathered steam, mostly at state-owned institutions.
- Resolution of nonperforming loans (NPLs) at private banks continues to be slow.
- Thai Asset Management Corporation (TAMC) met targets for resolving NPLs in 2002, but many approved restructurings or foreclosures remain incomplete.
Executive Board assessment — findings and recommendations
- Commendations and outlook:
- Directors commended authorities for sound policies contributing to strong growth in 2002 and early 2003.
- Directors welcomed the early repayment of the 1997 financing package and reduced vulnerability to external shocks.
- Directors considered growth in the remainder of 2003 is likely to be strong.
- Structural reforms and financial sector:
- Stronger medium-term growth prospects depend on intensifying structural reforms, especially in corporate and banking sectors.
- Directors welcomed efforts to restructure the banking sector and encouraged accelerating the pace of restructuring.
- Encouraged Bank of Thailand to use regulatory powers to resolve weak banks (mandated capital increases or consolidation).
- Directors noted TAMC progress but urged improved disclosure on restructuring cases, cash recovery, and asset disposal.
- Fiscal policy and public finances:
- Directors agreed fiscal policy played an appropriate counter-cyclical role in 2002 and supported a shift to a more contractionary stance for the current fiscal year.
- Noted fiscal consolidation in the first half of the fiscal year proceeded faster than intended due to strong revenue growth and lower-than-targeted spending from temporary disruptions.
- Welcomed move to bring spending toward budgeted levels, particularly to offset SARS effects.
- Emphasized medium-term fiscal adjustment to reduce the debt-to-GDP ratio and minimize potential impacts of financial sector restructuring, contingent liabilities, and fiscal decentralization plans.
- Recommended reassessing the timeline for decentralization and target rate for related revenue transfers to local authorities, stressing the need for adequate administrative capacity at the local level.
- Welcomed medium-term plans for broad tax reform to enhance efficiency and support revenues.
- Recommended making the fiscal framework more responsive, transparent, and flexible; reduce incentives to place activities outside the budget.
- Specialized financial institutions (SFIs) and quasi-fiscal activities:
- Noted potential impact of quasi-fiscal activities on medium-term fiscal consolidation objectives.
- Welcomed authorities' intention to better record policy-related activities of SFIs through improved accounting procedures.
- Stressed importance of keeping SFIs' operations within narrowly defined mandates and bringing policy-related activities within the official budget to improve transparency and accountability.
- Recommended speedy implementation of plans to enhance supervisory and regulatory oversight of commercially-oriented SFI operations.
- Inflation, exchange rate, and monetary policy stance:
- Noted limited deflation risks but vulnerability due to very low inflation.
- Welcomed BOT's decision to cut the policy interest rate as insurance against deflation risks and to reinforce credibility of inflation targeting framework.
- Considered an easing bias would remain appropriate.
- Most Directors suggested BOT consider raising the floor of its inflation target range above zero to anchor inflation expectations at a positive level.
- Supported a largely market-determined exchange rate in current circumstances; interventions should be limited to smoothening short-term volatility.
- State-owned banks and privatization:
- Observed rapid lending growth by state-owned banks could reflect either need for level playing field or unwarranted risk-taking.
- Urged vigilant monitoring of state banks to ensure commercial operations with appropriate risk-management.
- Privatization of state banks would be welcome to help ensure financial sector competitiveness.
- Legal and institutional reforms:
- Encouraged authorities to press forward with legal reforms, including improved bankruptcy procedures and a predictable debt restructuring framework balancing interests of debtors and creditors.
- Urged enactment of pending financial sector legislation as quickly as possible.
- Welcomed intention to assess compliance with international standards and codes, especially data and corporate governance.
- Noted that a Report on the Observance of Standards and Codes on fiscal transparency and a Financial Sector Assessment Program would help identify measures to improve fiscal flexibility and the legislative/regulatory financial framework.
- Anti–money laundering:
- Welcomed adoption of the Emergency Decree stipulating terrorism as a predicated offense under the Thai Anti-Money Laundering Act.
Thailand: Selected Economic Indicators, 1998-2003 (key figures)
- Real GDP growth (percent):
- 1998: -10.5
- 1999: 4.4
- 2000: 4.6
- 2001: 1.9
- 2002: 5.3
- 2003 Proj.: 5.0
- Consumption (percent):
- 1998: -9.5
- 1999: 4.1
- 2000: 4.5
- 2001: 3.6
- 2002: 4.3
- 2003: (no figure given)
- CPI inflation (period average, percent):
- 1998: 8.1
- 1999: 0.3
- 2000: 1.6
- 2001: 1.7
- 2002: 0.6
- 2003: 1.3
- Saving and investment (percent of GDP):
- Gross domestic investment:
- 1998: 20.4
- 1999: 20.5
- 2000: 22.7
- 2001: 23.9
- 2002: 23.8
- 2003: 25.8
- Gross national saving:
- 1998: 33.2
- 1999: 30.7
- 2000: 30.3
- 2001: 29.3
- 2002: 29.9
- 2003: 31.0
- Fiscal accounts (percent of GDP) 1/:
- Budgetary central government balance:
- 1998: -2.4
- 1999: -3.5
- 2000: -2.9
- 2001: -2.8
- 2002: -0.8
- 2003: (no figure given)
- Revenue and grants:
- 1998: 16.2
- 1999: 15.5
- 2000: 15.0
- 2001: 15.8
- 2002: 16.3
- 2003: (no figure given)
- Expenditure and net lending:
- 1998: 18.7
- 1999: 18.9
- 2000: 18.4
- 2001: 17.9
- 2002: 18.6
- 2003: 17.0
- General government balance 2/:
- 1998: -2.5
- 1999: -3.1
- 2000: -1.3
- 2001: -1.7
- 2002: 0.4
- 2003: (no figure given)
- Nonfinancial public enterprise balance:
- 1998: -1.4
- 1999: -2.0
- 2000: -0.9
- 2001: 0.8
- 2002: 0.1
- 2003: (no figure given)
- Comprehensive public sector balance:
- 1998: -6.4
- 1999: -6.0
- 2000: -4.1
- 2001: -3.0
- 2002: -0.5
- 2003: (no figure given)
- Monetary accounts (end period, percent):
- M2A growth 3/:
- 1998: 7.1
- 1999: 2.2
- 2000: -0.1
- 2001: ... (no figure given)
- Balance of payments (billions of US$):
- Current account balance:
- 1998: 14.3
- 1999: 12.5
- 2000: 9.3
- 2001: 6.2
- 2002: 7.6
- 2003: 6.9
- Current account (Percent of GDP):
- 1998: 12.8
- 1999: 10.2
- 2000: 5.4
- 2001: 6.0
- Exports, f.o.b.:
- 1998: 52.9
- 1999: 56.8
- 2000: 67.9
- 2001: 63.2
- 2002: 66.8
- 2003: 76.3
- Imports, c.i.f.:
- 1998: 40.6
- 1999: 47.5
- 2000: 62.4
- 2001: 60.7
- 2002: 63.4
- 2003: 73.2
- Services account, net:
- 1998: 2.8
- 1999: 3.3
- 2000: 3.1
- Capital account balance 4/:
- 1998: -13.2
- 1999: -8.2
- 2000: -10.8
- 2001: -3.6
- 2002: -2.1
- 2003: -8.5
- Overall balance:
- 1998: 1.1
- 1999: 2.6
- 2000: 5.6
- 2001: -1.6
- Gross official reserves (end year, US$ billions):
- 1998: 29.5
- 1999: 34.8
- 2000: 32.7
- 2001: 33.0
- 2002: 38.9
- 2003: 36.9
- (end-June 2003 official gross reserves noted as over US$39 billion in text)
- Gross official reserves (Percent of maturing external debt):
- 1998: 77.6
- 1999: 122.7
- 2000: 119.1
- 2001: 127.0
- 2002: 150.8
- 2003: 177.8
- External debt (billions of US$):
- 1998: 105.1
- 1999: 95.1
- 2000: 79.7
- 2001: 67.5
- 2002: 59.5
- 2003: 49.4
- Public sector / Private sector external debt (percent of external debt):
- Public sector:
- 1998: 31.6
- 1999: 36.2
- 2000: 33.9
- 2001: 28.3
- 2002: 23.3
- 2003: (no figure given)
- Private sector:
- 1998: 73.5
- 1999: 58.8
- 2000: 45.8
- 2001: 39.2
- 2002: (no figure given)
- Debt service ratio 5/:
- 1998: 21.8
- 1999: 19.8
- 2000: 21.1
Sources: Information provided by the Thai authorities; and IMF staff estimates. Historical data may not be identical to that on the BOT website due to different rounding conventions.
Public Information Notice: IMF Concludes 2003 Article IV Consultation with Thailand — September 17, 2003; IMF EXTERNAL RELATIONS DEPARTMENT, Public Affairs, Media Relations.