## Public Information Notice: IMF Concludes 2003 Article IV Consultation with Thailand

_IMF News, September 17, 2003_

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## Bibliographic details
- Published: September 17, 2003

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### 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.*

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## References

- [Thailand and the IMF](http://www.imf.org/external/country/THA/index.htm)
- [Public Information Notices](https://www.imf.org/en/news/searchnews)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn03119_