20210602-IMF-Thailand_2021_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Thailand_104页_2mb

2021 Article IV Consultation Summary: Thailand

Core Content

The 2021 Article IV consultation with Thailand, conducted by the IMF, assessed the country's economic recovery from the impact of the pandemic, policy responses, and long-term structural challenges. The consultation emphasized the need for continued support to ensure a durable recovery, address inequality, and enhance economic resilience.

Main Economic Developments

• Economic Recovery: Thailand's economy showed signs of recovery from the sharp contraction of 9.4% q/q in 2020Q2, with real GDP rebounding in 2020Q3 and 2020Q4, resulting in an overall decline of 6.1% for the year. The recovery is expected to be slow and uneven in 2021, with real GDP growth projected at 2.6%, and a rebound of 5.6% in 2022.

• Inflation: Weak domestic demand and a subdued global economy led to weak headline and core inflation throughout 2020. Headline inflation is expected to recover somewhat in 2021, supported by rising oil prices, while core inflation is likely to remain inert due to continued economic slack.

• Current Account: The current account surplus narrowed from 7% of GDP in 2019 to 3.2% in 2020, largely due to the collapse in tourism receipts. It is projected to decline further to about 0.5% in 2021 and gradually recover to 3–3.5% of GDP by the medium term.

• Fiscal Accounts: The fiscal deficit widened from 0.3% of GDP in 2019 to 5.0% in 2020, with public debt rising to 49.6% of GDP. The fiscal impulse reached 3.2% of GDP in 2020, driven by emergency fiscal measures.

• Monetary Accounts: Broad money growth surged to 10.1% in 2020Q2, while narrow money growth reached 14.2%. The Bank of Thailand (BOT) cut the policy rate to an all-time low of 0.50% during the pandemic.

• Financial Sector: The financial sector remained resilient, with non-performing loans (NPLs) at around 3.1% as of 2020Q4. However, SMEs and tourism sectors faced higher NPLs, indicating underlying vulnerabilities.

• Labor Market: Employment rebounded after a sharp contraction in 2020Q2, but underemployment increased, particularly in the informal and agricultural sectors. Low-skilled workers were disproportionately affected by job losses.

• Exchange Rate and External Position: The exchange rate remained stable, with a slight appreciation in the NEER and REER. The external debt-to-GDP ratio increased to 37.9% in 2020, with the private sector accounting for the majority of the debt.

Key Policy Recommendations

• Vaccination and Health Measures: A timely and broad vaccination rollout is essential to put a durable end to the pandemic and restore confidence. The authorities should continue to implement containment measures effectively.

• Fiscal Policy: Further fiscal expansion is recommended, with emphasis on public investment and support for the most vulnerable. Premature tapering of fiscal support should be avoided to prevent financial sector stress and worsen inequality.

• Monetary Policy: The BOT should maintain an accommodative monetary stance, with potential for further easing, especially if downside risks materialize. Unconventional monetary measures may be considered to enhance the impact of financial measures and fiscal stimulus.

• Financial Policies: Targeted measures to enhance financial intermediation and support viable firms should be implemented. This includes debt relief and regulatory forbearance to reduce the burden on SMEs and tourism sectors.

• Structural Policies: Coordinated and multipronged structural reforms are needed to address long-standing challenges, such as low productivity, weak human and physical capital accumulation, and high informality. These reforms should focus on upskilling workers, resource reallocation, and adapting the economy to the post-pandemic environment.

• Social Inclusion and Economic Resilience: Policies should aim to limit long-term economic scarring and enhance social inclusion, particularly for vulnerable groups like informal and migrant workers, women, and youth.

Key Challenges and Risks

• Pandemic Uncertainty: The uncertain path of the pandemic and potential delays in vaccine distribution pose significant risks to the recovery.

• Tourism Drag: The tourism sector, which accounts for about a fifth of GDP, remains a key drag on growth due to the ongoing restrictions on international travel.

• Inequality and Informality: High inequality and informality persist, with the pandemic exacerbating these issues, especially for low-skilled workers.

• Debt Sustainability: The public debt-to-GDP ratio is rising, and the external debt position is under pressure. The authorities should ensure that fiscal and debt policies remain sustainable in the long term.

• Output Gap: The output gap remains large due to the significant reduction in demand outpacing potential output growth, which could lead to long-term economic scarring.

Conclusion

The IMF commended Thailand's timely and multi-pronged policy response to the pandemic, which helped to cushion the impact on households and businesses. However, the recovery is expected to be slow and uneven, and further policy support is necessary to ensure a durable and inclusive recovery. Structural reforms and coordinated efforts are essential to address long-standing challenges and enhance economic resilience.