IMF Staff Concludes Visit to Thailand

IMF News, July 22, 2019

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Real GDP growth: 4.1 percent in 2018; decelerated to 2.8 percent (y/y) in the first quarter of 2019.
Exports: declines through May 2019; global trade tensions have weighed heavily on exports.
Current account: narrowed to 6.4 percent of GDP in 2018.
Inflation: headline inflation averaged 0.9 percent (y/y) in the first half of 2019 and remained below the Bank of Thailand’s target range due to food and energy prices.
Tourism receipts: slowing and contributed to weaker external demand.
Outlook: growth in 2019–20 is expected to slow as uncertainty over trade tensions weighs on global demand.
Risks: tilted to the downside, most notably the escalation of protectionism threatening the global trade system.

Overall prescription: an expansionary policy mix to support domestic demand, combining judicious use of fiscal space, fiscal reforms, and monetary easing consistent with a data dependent approach.
Fiscal:
- Continue implementing the medium-term fiscal framework in support of the fiscal responsibility law.
- Increase the efficiency of the tax structure.
- Prepare and enact pension reform legislation.
- Frontloaded increase in public investment in FY 2020, including through PPPs (e.g., Eastern Economic Corridor projects), supported by stronger public investment management to catalyze private investment and raise productivity growth.
Monetary:
- Monetary easing recommended given the delay in enactment of the FY 2020 Budget (transition to new government) and lack of fiscal stimulus in the remaining months of 2019, as well as moderation of the financial cycle.
- Monetary policy should remain data dependent.
Exchange rate and foreign exchange intervention:
- Exchange rate should remain flexible to serve as a key shock absorber in response to volatile capital flows.
- Foreign exchange intervention should be limited to avoiding disorderly market conditions.
Macroprudential:
- Use macroprudential policies to address possible financial stability risks.

Financial Sector Assessment Program (FSAP) findings:
- Financial vulnerabilities appear to be contained.
- Household indebtedness is relatively high.
- Signs of weaknesses in some corporates and small and medium sized enterprises.
- Stress test results suggest the banking sector is resilient to severe shocks and that systemic and contagion risks from interlinkages are limited.
Recommendations to safeguard financial stability:
- Continue implementing FSAP recommendations, including closing existing gaps in crisis management and resolution frameworks.
- Enhance the macroprudential framework and policies.
- Strengthen an Early Warning Indicators framework and triggers for early intervention for the banking system.
Authorities’ progress noted:
- Expanded the MPP toolkit.
- Strengthened further an Early Warning Indicators framework and triggers for early intervention.

Strategic direction: support Thailand 4.0 and the 20-year National Strategy to propel Thailand to higher-value activities and a digital economy.
Policy priorities:
- Enhance labor productivity and boost competitiveness.
- Promote inclusiveness and address large regional income disparities.
- Greater investment in human capital across regions (education, health, equalizing opportunities).
- Measures to facilitate household deleveraging and better targeted social safety net programs to spur domestic demand and more inclusive growth.
- Pension reform combined with active labor market policies and more liberal immigration policies to attract foreign skilled labor to address demographic headwinds from population aging.
Governance:
- Note ongoing work by the National Anti-Corruption Commission (NACC) to implement the national anti-corruption strategy phase 3 (2017-2021) as supportive of medium-term growth.

Mission dates: An IMF staff team, led by Mr. Lamin Leigh, visited Bangkok from July 4–19, 2019, for discussions on the 2019 Article IV Consultation with Thailand.
Engagement: Discussions held with the government, the Bank of Thailand, other public institutions, and private sector representatives; meetings also in Khon Kaen.
Follow-up: Staff will prepare a report, subject to management approval, to be presented to the IMF's Executive Board for discussion and decision.
Tentative scheduling: IMF’s Executive Board is tentatively scheduled to discuss the Staff Report in September.

IMF Press Release No. 19/294, July 22, 2019.