## Public Information Notice: IMF Concludes 2004 Article IV Consultation with Thailand

_IMF News, December 1, 2004_

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## Bibliographic details
- Published: December 1, 2004

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### Background: recent macroeconomic developments and policy actions
- Real GDP expanded by 6.8 percent in 2003; growth momentum continued but the economy slowed in Q1 2004 due to avian flu and a contraction of agricultural activity.
- Inflation:
  - Core inflation close to zero (year-on-year) in 2003.
  - Core inflation at 0.5 percent and headline inflation at 3 percent in June 2004.
- Monetary policy:
  - Bank of Thailand (BOT) cut its policy rate by 50 basis points (to 1.25 percent) in June 2003.
  - In fall 2003 BOT imposed selective capital controls to limit speculative inflows while relaxing controls on outflows.
- Financial sector and markets:
  - Measures taken in 2003 to prevent financial imbalances in the stock market, housing market, and consumer lending (tighter regulations on credit cards, real estate lending, and share trading).
  - Average debt to equity ratio for nonfinancial companies fell to 1 in 2003; some large corporates remain overleveraged.
  - NPLs at Thai private banks declined from 21 percent in June 2003 to 15 percent in June 2004.
  - Credit growth has mostly come from state-owned banks.
  - The Thai Asset Management Corporation continues progress on resolving NPLs but significant efforts remain.
- Fiscal position:
  - Central government recorded a small surplus in FY 2002/03.
  - A supplementary budget of around 2 percent of GDP was passed in FY 2003/04 as revenue projections were revised upward.
  - Central government expected to have a broadly balanced budget in FY 2003/04.
- External position:
  - Current account recorded a surplus of 5½ percent of GDP in 2003.
  - At end-June 2004, reserves were US$43 billion, equivalent to over 200 percent of end-2003 short-term debt.
  - External debt to GDP declined by 11 percentage points in 2003 to 36 percent.
  - The baht appreciated by around 10 percent (year-on-year) against the dollar in 2003, but depreciated slightly in real effective terms; in the first half of 2004 the baht depreciated by around 3 percent against the U.S. dollar.

### Executive Board assessment: judgment and policy recommendations
- Overall appraisal:
  - Directors commended authorities for sound policies contributing to continued strong performance despite shocks to tourism and agriculture.
  - Noted low inflation, trending downward unemployment, a fiscal surplus, and broadly favorable financial market developments.
- Growth outlook and risks:
  - Foundations for continued near-term growth likely to remain strong.
  - Vulnerability to external shocks reduced by flexible exchange rate, lower external debt, and comfortable reserves.
  - Downside risks remain; sustained high growth would be strengthened by further structural and legal reforms.
- Monetary policy and exchange rate:
  - Directors endorsed proactive monetary policy to adapt to emerging price pressures.
  - Welcomed BOT decision to increase policy rate to contain inflation risks; urged a cautious forward-looking approach given uncertainties and the relatively untested inflation targeting framework.
  - Supported two-way exchange rate flexibility; acknowledged that selective intervention and capital controls helped contain volatility but cautioned against one-sided intervention and prolonged use of capital controls.
  - Warned that continued sterilized intervention amid rising inflation would complicate monetary policy; recommended greater exchange rate flexibility to align monetary policy with domestic developments.
- Fiscal policy:
  - Considered the current fiscal year budget broadly appropriate; cautioned against fiscal stimulus at this stage.
  - Welcomed shift to a neutral fiscal stance for the upcoming fiscal year.
  - Stressed that medium-term fiscal adjustment remains a priority; running modest budgetary surpluses over the cycle would improve debt dynamics and build a fiscal cushion.
  - Urged careful costing and sequencing of infrastructure upgrades and cautious fiscal decentralization with attention to budgetary impacts and quality of public services.
  - Emphasized strengthening transparency in financing of policy initiatives and quasi-fiscal activities; welcomed introduction of the public service account system.
- Financial sector and corporate restructuring:
  - Called for further progress in corporate and banking sector restructuring to underpin a durable pickup in investment.
  - Encouraged acceleration of amendments to the legislative framework for market-based transfer of nonperforming loans to the Asset Management Corporation.
  - Recommended greater disclosure by the Thailand Asset Management Corporation, including cash recovery targets and progress metrics.
  - Urged state-owned commercial banks to operate on commercial principles and stronger supervisory oversight of all state-owned financial institutions.
  - Recommended regulators address risks from new financial products and enhance supervision of non-bank and specialized financial institutions.
  - Welcomed planned Financial Sector Assessment Program and suggested early participation in data and fiscal Reports on Standards and Codes (ROSCs).
- Structural and governance reforms:
  - Encouraged legal reforms to improve public and corporate governance; commended commitment to assess corporate governance under the ROSC initiative.
  - Advised reform of the bankruptcy framework and enactment of other important economic laws.
  - Welcomed intention to reinvigorate privatization and urged acceleration of regulatory reforms to support privatization.
- Trade policy:
  - Noted progress in trade liberalization and suggested further streamlining of the tariff system, including replacing specific duties with ad valorem rates.
  - Observed bilateral and regional FTAs could improve the domestic business climate and market access, and encouraged consistency with multilateral trade liberalization goals.
- Social outcomes:
  - Commended authorities for considerable progress in reducing poverty in Thailand.

### Thailand: selected economic indicators (highlights from 1999–2004 series and 2004 projections)
- Real GDP growth:
  - 1999: 4.4
  - 2000: 4.8
  - 2001: 2.1
  - 2002: 5.4
  - 2003: 6.8
  - 2004 Est./Proj.: 6.5
- Inflation (period average):
  - Headline CPI:
    - 1999: 0.3
    - 2000: 1.6
    - 2001: 0.7
    - 2002: 1.8
    - 2003: 2.7
  - Core CPI:
    - 1999: 1.3
    - 2000: 0.4
    - 2001: 0.1
    - 2003: (close to zero); 2004 (June): 0.5 percent (from narrative)
- Fiscal accounts (percent of GDP):
  - Budgetary central government balance:
    - 1999: -3.5
    - 2000: -2.9
    - 2001: -2.8
    - 2002: 0.2
    - 2003: -0.1
  - Revenue and grants:
    - 1999: 15.5
    - 2000: 15.0
    - 2001: 15.7
    - 2002: 16.6
    - 2003: 17.0
  - Expenditure and net lending:
    - 1999: 18.9
    - 2000: 18.4
    - 2001: 17.9
    - 2002: 18.5
    - 2003: 16.4
    - 2004: 17.2
  - General government balance:
    - 1999: -3.1
    - 2000: -2.5
    - 2001: -1.2
    - 2002: -1.7
    - 2003: 1.5
    - 2004: 1.1
  - Comprehensive public sector balance:
    - 1999: -6.0
    - 2000: -4.1
    - 2001: -2.0
    - 2002: -3.0
    - 2003: 0.8
    - 2004: 0.9
  - Public sector debt:
    - 1999: 56.0
    - 2000: 57.9
    - 2001: 57.3
    - 2002: 57.1
    - 2003: 50.5
    - 2004: 48.2
- Monetary accounts (end-period):
  - M2A growth:
    - 1999: 2.2
    - 2000: 5.1
    - 2001: 3.5
    - 2004 figures are percentage changes March 2004 over December 2003 (note in source).
- Balance of payments (in billions of U.S. dollars, unless otherwise indicated):
  - Current account balance (1999–2004):
    - 1999: 12.5
    - 2000: 9.3
    - 2001: 6.2
    - 2002: 7.0
    - 2003: 8.0
    - 2004: 6.4
  - Exports, f.o.b.:
    - 1999: 56.8
    - 2000: 67.9
    - 2001: 63.1
    - 2002: 66.1
    - 2003: 78.4
    - 2004: 92.7
  - Imports, c.i.f.:
    - 1999: 47.5
    - 2000: 62.4
    - 2001: 60.6
    - 2002: 63.4
    - 2003: 74.2
    - 2004: 90.9
  - Capital and financial account balance:
    - 1999: -8.2
    - 2000: -10.8
    - 2001: -3.6
    - 2002: -1.4
    - 2003: -7.4
    - 2004: -4.4
  - Overall balance:
    - 1999: 4.3
    - 2000: 2.6
    - 2001: 0.5
    - 2002: 2.0
  - Gross official reserves (end-year):
    - 1999: 34.8
    - 2000: 32.7
    - 2001: 33.0
    - 2002: 38.9
    - 2003: 42.1
    - 2004: 44.1
  - Reserves as percent of maturing external debt:
    - 1999: 122.7
    - 2000: 119.1
    - 2001: 121.2
    - 2002: 154.5
    - 2003: 210.6
    - 2004: 223.6
- External debt:
  - As percent of GDP:
    - 1999: 77.6
    - 2000: 65.0
    - 2001: 58.5
    - 2002: 47.0
    - 2003: 36.2
    - 2004: 28.6
  - In billions of U.S. dollars:
    - 1999: 95.1
    - 2000: 79.7
    - 2001: 67.5
    - 2002: 59.5
    - 2003: 51.7
    - 2004: 46.5
  - Public sector external debt (as percent of total external debt):
    - 1999: 33.9
    - 2000: 28.3
    - 2001: 23.3
    - 2002: 13.0
    - 2003: (data line continues in source)
  - Private sector external debt (as percent of total external debt):
    - 1999: 58.8
    - 2000: 45.8
    - 2001: 39.2
    - 2002: 34.7
    - 2003: 33.5
  - Debt-service ratio (percent of exports of goods and services):
    - 1999: 19.8
    - 2000: 15.8
    - 2001: 21.1
    - 2002: 20.0
    - 2003: 16.1
    - 2004: 9.5

*Public Information Notice: IMF Concludes 2004 Article IV Consultation with Thailand — December 1, 2004.*

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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/pn04133_