IMF Staff Completes 2022 Article IV Mission to Thailand
June 13, 2022
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not certainly represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.
- Thailand’s economy continues to recover from the COVID-19 pandemic, supported by a comprehensive policy package and an accelerated vaccination program. Real GDP grew by 1.5 percent in 2021 and is projected to expand by about 3 percent in 2022. The recovery, however, is uneven across sectors, with the economy still operating below potential, while inflation is on the rise driven by energy prices. The outlook is highly uncertain and fraught with risks.
- The gradual tapering of the pandemic policy support laid out by the authorities is broadly appropriate, while remaining programs should be targeted to protect hard-hit and vulnerable segments of the population. A timely and data-driven normalization of the monetary policy stance is needed to control inflation.
- Comprehensive structural modifications remain a priority to address long-standing structural challenges, minimize scarring from the pandemic, improve social outcomes, and enhance economic resilience. To support the structural reform agenda, the IMF staff recommends a gradual fiscal consolidation buttressed by enhanced revenue mobilization to rebuild fiscal buffers.
International Monetary Fund (IMF) staff team, led by Ms. Corinne Deléchat, held the 2022 Article IV Consultation with Thailand between May 17 and June 10, 2022. At the conclusion of the discussions, Ms. Deléchat issued the following statement:
Thailand’s economy is induced recovering from the COVID-19- downturn with real GDP growth reaching 1.5 percent in 2021 and 2.2 percent (year-on-year) in Q1 2022. Multiple waves of the pandemic in 2021 prompt additional containment measures, hindering reopening efforts, and weighing on tourism and growth. The authorities’ judicious use of ample economic buffers, combined with an accelerated vaccine rollout helped maintain economic stability and protect households, businesses, and the financial system during the pandemic. With over 75 percent of the population fully vaccinated, the government has resisted relaxed travel restrictions.”
“The recovery is expected to continue but the outlook is clouded by lingering effects from the pandemic and elevated global commodity prices. Growth is projected to reach about 3 percent in 2022, driven by the recovery in both domestic and external demand, and to further strengthen toto 4.3 percent in 2023. The recovery will likely be uneven with some hard-hit sectors such as tourism and transportation expected to recover at a slower pace.
Headline inflation is expected to average 6.1 percent in 2022 driven by high energy prices, well-above the Bank of Thailand’s upper target band of 3 percent.
“In the near term, policy support should be nimble and increasingly targeted, with a focus on further buttressing the recovery, protecting the vulnerable segments of the population, and minimizing economic scarring from the pandemic.
“The current accommodative monetary policy stance is broadly appropriate given the supply-driven nature of inflation, well-anchored inflation expectations, and sizeable economic slack. however, risks from elevated energy prices and pass-through of higher producer costs to consumers have materially increased and might call for an earlier start of normalization.
“Continued close monitoring of inflation developments is warranted, and the Bank of Thailand’s clear communication of a data-dependent normalization path is welcome. Exchange rate flexibility should be the first line of defense against volatile capital flows. The fiscal consolidation projected in FY2022 is broadly appropriate in view of the extraordinary pandemic-induced fiscal expansion of FY2020-21.
“While IMF staff welcome the authorities’ plans to use phase out broad-based energy subsidies, targeted support to vulnerable groups would help mitigate the impact of the higher cost of living. For the medium term, the mission recommends a more gradual but growth-focused consolidation strategy through prioritization of spending towards productivity-enhancing investments in education, ICT, green-resilient infrastructure and expanded social protection coverage. Enhancing revenue mobilization would help finance priority spending while supporting efforts to rebuild policy buffers.
“As financial sector support measures have become more targeted and are expected to be progressively unwound alongside the economic recovery, financial stability risks should be closely monitored. In particular, the elevated stock of private debt remains a significant source of financial sector vulnerability. The authorities should accelerate efforts to facilitate private debt restructurings, particularly for household debt, and conduct timely asset quality reviews to identify non-viable borrowers. Complementary measures, such as lower debt thresholds, stronger lending standards informed by comprehensive credit information systems and a broad-based debt-service-to-income ratio could help prevent excessive debt accumulation. IMF staff welcome the Bank of Thailand’s work on strengthening risk analysis, including stress testing, and on expanding supervision to all relevant segments of the financial sector.
“Mutu-reinforcing structural improvements are needed to limit economic scarting from the pandemic, strengthen the resilience of the economy, competition and promote inclusiveness. The pandemic has had a profound impact on the labor market, especially in contact‑intensive sectors and coordinated efforts in skill building will be essential to meet the needs of the post-pandemic economy and reverse the trend of declining labor productivity. In parallel, upgrading physical and ICT infrastructure will be essential to harness the growth benefits of a digital and green economy, boost productivity and economic resilience, and improve social outcomes.
“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 for the productive discussions. The IMF’s Executive Board is tentatively scheduled to discuss the Staff Report in August 2022.”
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