Washington, DC: On May 17, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the 2021 Article IV consultation [1] with Thailand.
The Thai economy is showing incipient signs of recovery from the COVID‑19 downturn, owing in part to a multi‑pronged policy package of fiscal, monetary, and financial policies. After the economic contraction of 9.4 percent q/q in 2020:Q2, far exceeding the fall during the Global Financial Crisis (GFC), real GDP, buttressed by policy support, rebounded in the second half of 2020 limiting the overall GDP decline for the year to 6.1 percent. Weak domestic demand, coupled with a subdued global economy, contributed to both weak headline and core inflation throughout the year. The current account (CA) surplus narrowed from 7 percent of GDP in 2019 to 3.2 percent of GDP in 2020 (Table 3), largely reflecting the collapse in tourism receipts.
The economic recovery is expected to be sluggish, uneven, and subject to heightened uncertainty. Real GDP is projected to expand by 2.6 percent in 2021, led by a gradual recovery in domestic demand and goods exports. The drag on tourism is expected to continue for most of 2021 due to uncertainty around vaccine rollouts and full resumption of global travel. The economy is projected to rebound by 5.6 percent in 2022 supported by an acceleration in tourism and continued strength in the global recovery. Headline inflation is forecast to recover somewhat in 2021, buoyed by the recovery in oil prices, while core inflation would likely show some inertia given the continued sizable slack in the economy. With recovering domestic demand pushing up imports and the continued weaknesses in tourism, the CA surplus is projected to decline further to about 0.5 percent of GDP in 2021 and slowly recover to around 3−3½ percent of GDP through the medium term as tourism strengthens. The uncertainty surrounding the growth outlook is nevertheless larger than usual. While a faster distribution of an effective vaccine is a positive risk, the unknown path of the pandemic and potential bottlenecks on vaccination plans could challenge the pace of the recovery. A prolonged pandemic could amplify vulnerabilities in the nonfinancial corporate sector raising the risk of scarring. Both distributional and long‑term scarring risks also loom large.
Executive Board Assessment [2]
Executive Directors commended the authorities for their timely and multipronged policy support, which helped to cushion the impact of the pandemic on households and firms. Acknowledging that the ongoing economic recovery is expected to be slow, uneven, and clouded by the unknown path of the pandemic, Directors welcomed Thailand's accelerated vaccination rollout plan and called for continued accommodative policies to support the recovery. Moving forward, they encouraged the authorities to leverage the post‑COVID economic recovery towards greener, digital, and more sustainable and inclusive growth.
Directors called for further fiscal expansion to support the recovery, with an emphasis on public investment and support to the most vulnerable, while ensuring fiscal governance and transparency. Premature tapering should be avoided. Once the recovery is firm, a comprehensive medium‑term consolidation strategy anchored on a strengthened fiscal framework would be necessary to rebuild buffers and preserve fiscal sustainability.
Directors welcomed the Bank of Thailand's accommodative monetary policy stance, including targeted policy measures to enhance the efficiency of intermediation and shore up viable firms. Given the large output gap and fragile inflation expectations, many Directors saw scope for further monetary easing, including unconventional monetary measures if downside risks materialize to enhance the impact of the financial measures and fiscal stimulus. On the other hand, many others concurred that such measures would be less effective given Thailand's specific circumstances. Noting the resilience of the financial sector, Directors called for continued vigilance and close monitoring of emerging risks and vulnerabilities to safeguard financial system stability.
Directors welcomed the authorities' commitment to exchange rate flexibility and supported that FX interventions should be limited for addressing disorderly market conditions. They also concurred with staff's recommendation to phase out the remaining capital flow management (CFM) measures on non‑resident baht accounts.
Many Directors noted that Thailand's external position remains stronger than warranted by medium term fundamentals and desirable policies. Many other Directors called for a more cautious interpretation of the external balance assessment citing Thailand-specific issues and the pandemic-led structural shifts in the global economy as contributing factors.
Directors emphasized that coordinated and multipronged policies are needed to heal pandemic-induced scars on the economy and address long-standing structural challenges. Such measures could include active labor market policies to upskill workers dislocated by the pandemic and government-supported initiatives to incentivize formal employment and human capital accumulation. Measures to support private sector-led investment to reshape the tourism sector and encourage digitalization would also be useful. The authorities' commitment to adopt well-designed green policies is an important step towards enhanced sustainability and economic resilience.
Table 1. Thailand: Selected Economic Indicators, 2017-22 |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
