## Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Thailand

_IMF News, May 10, 2012_

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## Bibliographic details
- Published: May 10, 2012

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### Background and recent developments
- Thailand experienced natural disasters in 2011 that severely disrupted the economy:
  - Earthquake in Japan in March disrupted supply chains and slowed production.
  - Massive floods beginning in August and worsening in October–November slowed the economy to a near halt.
  - Output contracted by 10¾ percent (quarter-on-quarter) in Q4 2011, the largest quarterly contraction ever recorded.
  - Annual GDP growth fell from 7.8 percent in 2010 to 0.1 percent in 2011.
  - Total losses from the disasters are estimated at about 3 percent of GDP.
- Sector impacts:
  - Manufacturing (automobile and electronics), agriculture, and tourism were particularly badly affected.
- Policy response and near-term outlook:
  - Monetary easing: Bank of Thailand lowered the policy rate twice by a cumulative 50 basis points in November 2011 and January 2012.
  - Fiscal support: A large fiscal package aimed at income redistribution, reconstruction, and flood-prevention.
  - High-frequency indicators improved sharply since December 2011; manufacturing output surged in December 2011.
  - Growth projections: GDP should grow by 5½ percent in 2012 and a further 7½ percent in 2013, with domestic demand driven by reconstruction and flood-prevention efforts.
- Downside risks highlighted:
  - Uncertainty in the global economy, contagion from turmoil in the euro area, weak growth among trading partners.
  - Domestic political tensions could re-emerge.
  - Capacity constraints and potential failure of water management projects could affect confidence.

### Executive Board assessment — main conclusions
- Short-term outlook: Directors commended the authorities’ policy response and called the short-term outlook favorable, but emphasized significant downside risks from global, domestic, and implementation challenges.
- Macroeconomic policy stance:
  - Directors agreed that current expansionary fiscal and monetary stances are appropriate given weak world demand and muted inflationary pressures.
  - Recommendation to unwind supportive policy as recovery takes hold and move to a medium-term consolidation path consistent with low inflation and fiscal sustainability.
  - Authorities should stand ready to tighten monetary policy as the output gap closes.
- Fiscal institutions and transparency:
  - Support for formalizing current budgetary practices and targets; anticipation of the adoption of the Public Finance Act.
  - Recommendation to improve transparency and accountability of fiscal operations in line with the 2009 review of fiscal standards and codes.
- Structural and distributional reforms:
  - Support for ambitious reform agenda to promote more inclusive growth.
  - Recent income redistribution policies, including the rice price support mechanism, should be monitored and assessed to contain fiscal costs and improve efficiency.
  - Minimum wage increases should be accompanied by measures to boost labor productivity to preserve competitiveness.
  - Need for technology transfers and investment in human capital and infrastructure, particularly in less developed regions, to raise long-term growth.
  - To create fiscal space for these reforms, Directors saw scope for:
    - Scaling back subsidies,
    - Eliminating income tax credits,
    - Reviewing the rate structure for excise and value added taxes,
    - Strengthening tax administration.
- Capital flows and exchange rate policy:
  - Capital inflows have been volatile and likely to remain so in the near term.
  - With high international reserves and more risk-aware agents, Directors considered there is room to increase exchange rate flexibility in both directions.
  - Support for gradual relaxation of restrictions on capital outflow with adequate safeguards against sudden reversals.
- Financial sector and supervision:
  - Progress in developing financial markets welcomed; expected to facilitate private investment.
  - Need for swift action to mitigate risks from government-owned specialized financial institutions by refocusing them on core mandates, improving risk-assessment standards, and strengthening supervision (as suggested in the latest module of the Financial Sector Assessment Program).
  - Recommendation to continue developing strong financial safety nets and address remaining weaknesses in the regulatory framework to combat money laundering and the financing of terrorism.

### Key statistics (Thailand: Selected Economic Indicators, 2009–12)
- Real GDP growth (percent)
  - 2009: -2.3
  - 2010: 7.8
  - 2011: 0.1
  - 2012 (Proj.): 5.5
- Inflation
  - Headline CPI (period average, percent): 2009: -0.8; 2010: 3.3; 2011: 3.8; 2012 (Proj.): 3.9
  - Core CPI (period average, percent): 2009: 0.3; 2010: 0.9; 2011: 2.4; 2012 (Proj.): 2.2
- Saving and investment (percent of GDP)
  - Gross domestic investment (excluding stocks): 2009: 24.1; 2010: 24.7; 2011: 26.2; 2012 (Proj.): 27.7
  - Of which: private: 2009: 17.6; 2010: 18.8; 2011: 20.7; 2012 (Proj.): 21.7
  - Gross national saving: 2009: 32.4; 2010: 28.9; 2011: 29.7; 2012 (Proj.): 28.7
  - Of which: private, including statistical discrepancy: 2009: 29.6; 2010: 23.8; 2011: 26.0; 2012 (Proj.): 25.9
- Fiscal accounts (percent of GDP) 1/
  - Central government budgetary balance: 2009: -4.2; 2010: -2.6; 2011: -1.9; 2012 (Proj.): -2.8
  - Revenue and grants: 2009: 17.0; 2010: 18.2; 2011: 19.0; 2012 (Proj.): 18.3
  - Expenditure and net lending: 2009: 21.2; 2010: 20.8; 2011: 20.9; 2012 (Proj.): 21.1
  - General government balance 2/: 2009: -3.2; 2010: -1.6; 2011: -3.0
  - Public sector balance 3/: 2009: -3.6; 2010: -2.4; 2011: -4.4
  - Public sector debt: 2009: 45.2; 2010: 42.6; 2011: 41.7; 2012 (Proj.): 44.1
- Monetary accounts (end-period, percent change)
  - Broad money growth: 2009: 6.8; 2010: 10.9; 2011: 15.2; 2012 (Proj.): ...
  - Private sector credit growth: 2009: 2.5; 2010: 12.3; 2011: 16.7
- Balance of payments (billions of U.S. dollars)
  - Current account balance: 2009: 21.9; 2010: 13.2; 2011: 11.9
  - (Percent of GDP): 2009: 8.3; 2010: 4.1; 2011: 3.4; 2012 (Proj.): 1.0
  - Exports, f.o.b. (billions): 2009: 151; 2010: 194; 2011: 225; 2012 (Proj.): 246
  - Exports growth rate (in dollar terms): 2009: -13.9; 2010: 28.4; 2011: 16.4; 2012 (Proj.): 9.2
  - Imports, f.o.b. (billions): 2009: 118; 2010: 162; 2011: 202; 2012 (Proj.): 227
  - Imports growth rate (in dollar terms): 2009: -25.1; 2010: 37.0; 2011: 12.5
  - Gross official reserves (end-year; incl. net forward position, billions): 2009: 154.1; 2010: 191.7; 2011: 206.3; 2012 (Proj.): 212.7
  - (Months of following year's imports): 2009: 11.4; 2010: 10.2
  - Exchange rate (baht/U.S. dollar): 2009: 34.3; 2010: 31.7; 2011: 30.5
  - External debt (in percent of GDP): 2009: 28.6; 2010: 31.5; 2011: 30.7; 2012 (Proj.): 29.0
  - Debt-service ratio 4/: 2009: 7.6; 2010: 4.7
- Sources listed in the table: Data provided by the Thai authorities; and IMF staff estimates.
- Fiscal and statistical notes:
  - 1/ On a fiscal year basis. The fiscal year ends on September 30.
  - 2/ Includes budgetary central government, extrabudgetary funds, and local governments.
  - 3/ Includes general government and nonfinancial public enterprises.
  - 4/ Percent of exports of goods and services.

*Public Information Notice (PIN) No. 12/48; May 10, 2012. Executive Board concluded the Article IV consultation on April 27, 2012.*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn1248_