An International Monetary Fund (IMF) staff team, led by Mr. Lamin Leigh,
visited Bangkok from July 4–19, 2019, to hold discussions on the 2019
Article IV Consultation with Thailand. At the conclusion of the visit, Mr.
Leigh issued the following statement:
“Thailand’s economy has slowed this year. Following real GDP growth of
4.1 percent in 2018, growth decelerated to 2.8 percent (y/y) in the
first quarter of 2019 driven largely by declines in exports.
Global trade tensions have weighed heavily on exports which continued to
decline through May. Weaker external demand and slowing tourism receipts
have partly contributed to the narrowing of the current account surplus to
6.4 percent of GDP in 2018. Although private consumption has held up,
headline inflation remains subdued, averaging 0.9 percent (y/y) in the
first half of 2019 and below the Bank of Thailand’s target range on the
back of food and energy prices.
Growth in 2019–20 is expected to slow as uncertainty over trade
tensions weigh on global demand.
Risks to the outlook are tilted to the downside, most notably the
escalation of protectionism threatening the global trade system.
“To support domestic demand, the team recommends an expansionary policy mix
consisting of judicious use of fiscal space, fiscal reforms, and monetary
easing consistent with a data dependent approach. The authorities are
making steady progress on implementing the medium-term fiscal framework in
support of the fiscal responsibility law, increasing the efficiency of the
tax structure, and preparing a bill to improve the pension system. Going
forward, the mission recommends a frontloaded increase in public investment
in FY 2020, including through PPPs (e.g. Eastern Economic Corridor
projects), supported by stronger public investment management, which can
catalyze private investment and raise productivity growth. Given the delay
in the enactment of the FY 2020 Budget with the transition to the new
government and the resulting lack of fiscal stimulus in the remaining
months of 2019, as well as the moderation of the financial cycle, monetary
easing would help support domestic demand and external rebalancing. The
exchange rate should remain flexible to serve as a key shock absorber in
response to volatile capital flows while using macroprudential policies to
address possible financial stability risks. Foreign exchange intervention
should be limited to avoiding disorderly market conditions.
“The authorities have also made commendable progress in improving the
coverage and effectiveness of financial supervision and macroprudential
policies (MPPs). The recently concluded Financial Sector Assessment Program
(FSAP) highlighted that financial vulnerabilities appear to be contained,
but household indebtedness is relatively high and there are signs of
weaknesses in some corporates and small and medium sized enterprises.
Stress test results suggest that the banking sector is resilient to severe
shocks and that systemic and contagion risks stemming from interlinkages
are limited.
To safeguard financial stability, the mission encourages the
authorities to continue to implement the FSAP recommendations,
including
closing existing gaps in the crisis management and resolution frameworks,
and enhancing the macroprudential framework and policies. The authorities
have already started implementing some of the recommendations, including
expanding the MPP toolkit and strengthening further an Early Warning
Indicators framework and triggers for early intervention for the banking
system.
“Structural reforms would also help address macroeconomic imbalances,
promote inclusive growth, and enhance the key drivers of long-run growth.
In this context, the authorities’ plan to propel Thailand to
higher-value activities and to a digital economy (Thailand 4.0) as
outlined in the 20-year National Strategy is an important step forward.
Policy priorities should aim to enhance labor productivity, boost
competitiveness, promote inclusiveness and address large regional income
disparities. Greater investment in human capital across the regions will
help unlock growth potential, including through education, health, and
equalizing opportunities. Measures to facilitate household deleveraging and
better targeted social safety net programs should help spur domestic demand
and more inclusive growth. Pension reform, combined with measures to
strengthen active labor market policies and more liberal immigration
policies to attract foreign skilled labor, can help address demographic
headwinds from population aging. The team takes note of the ongoing work by
the National Anti-Corruption Commission (NACC) to implement the national
anti-corruption strategy phase 3 (2017-2021) that would also help promote
growth over the medium term.
“The IMF team exchanged views on recent economic developments and the
outlook with officials in the government, the Bank of Thailand, other
public institutions, and representatives of the private sector. The team
would like to thank the authorities and other interlocutors in Bangkok and
Khon Kaen for the constructive dialogue and generous hospitality. The IMF’s
Executive Board is tentatively scheduled to discuss the Staff Report in
September.”
