Five Things to Know About Thailand’s Economy and COVID-19

IMF News, June 23, 2021

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Thailand’s GDP fell by over 6 percent in 2020.
Thailand’s GDP fell by 6.1 percent in 2020, the largest contraction since the Asian financial crisis.
The tourism sector accounts for about a fifth of GDP and 20 percent of employment and was especially affected by the cessation of tourist travel.
Low-skilled workers and informal and migrant workers have been hit hard, particularly women and the youth, who suffered disproportionately from diminished employment opportunities in contact-intensive sectors.
The financial sector has thus far weathered the pandemic well, but stress has been building up in the small and medium enterprises sector.

Government response included timely and stringent containment measures that flattened the infection curve during most of 2020.
Policy package elements:
- Fiscal stimulus amounting to about 10 percent of GDP.
- Cuts in the policy rate by 75 basis points to its all time low of 0.5 percent.
- Financial sector measures to buttress the smooth functioning of financial markets and support debtors affected by COVID 19.
- Fiscal support included health-related spending and assistance to affected households, including those outside the social security system financed by some reprioritization in the fiscal year 2020 budget and an additional borrowing of 1 trillion baht.
Outcomes and fiscal metrics:
- The fiscal deficit widened to 4.8 percent of GDP in 2020.
- Public debt-to-GDP ratio increased to 49.6 percent of GDP in 2020 from 41 percent in 2019.
The measures helped save lives and livelihoods, supported an initial recovery by restoring confidence, and permitted a pathway to a safe and gradual reopening of activity.

IMF’s latest annual assessment (Article IV consultation) forecasts Thailand’s economy to grow at 2.6 percent in 2021.
A surge in COVID‑19 infections in the country and the region since the beginning of the year highlights uncertainty about the path of the pandemic.
Prospects for a near-term recovery are challenged by an aggressive third wave of the pandemic.
Key priority: accelerating and ensuring adequate distribution of vaccines is critical to attain herd immunity, put an end to the pandemic and lay the groundwork for a strong recovery.
This environment calls for flexibility and careful coordination among fiscal, monetary and financial sector policies to adapt to fast changing circumstances.

Fiscal policy should remain at the center of the response; a premature withdrawal of support measures would not be prudent before a recovery is well underway.
To accelerate the recovery, a more ambitious fiscal expansion is warranted with spending focused on:
- Scaling up of public investment.
- Protecting the vulnerable, including through better targeted social transfers.
As the crisis subsides and the recovery strengthens, initiate a medium-term revenue mobilization strategy to rebuild fiscal buffers and ensure fiscal sustainability.
Rebuilding fiscal buffers will require additional effort in both revenue generation and expenditure prioritization.
Provide targeted and more effective financial sector support to hard hit firms and households, complemented with additional monetary accommodation.

Thailand’s dependence on contact-intensive sectors and long-standing structural issues, such as high informality, warrant a strong push to adapt the economy to the post-pandemic world.
Recommended structural priorities:
- Scale up investment, particularly for digital infrastructure.
- Improve training and education outcomes.
- Promote innovation to catalyze the economy’s digital transformation and mitigate long‑term economic damage from the pandemic.
Tourism sector transformation:
- Authorities view the crisis as an opportunity to transform tourism from mass and low‑cost to high‑end and low-density tourism, while encouraging domestic tourism.
- To facilitate a safe reopening for the tourism sector, Thailand added tourism employees as essential workers in the vaccination queue and plans to reopen to international tourists from July 1 under the "Phuket Sandbox" initiative, allowing free movement of fully vaccinated tourists on the island.
Climate-aligned recovery:
- Use the crisis to better align development policies with climate objectives to strengthen the recovery and economic resilience.
- An efficient carbon pricing would encourage a gradual shift to cleaner energy alternatives, reduce greenhouse gas emissions and air pollution, and help in transitioning to a decarbonized economy.

IMF Asia and Pacific Department, June 23, 2021