Washington, DC: On February 11, The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Thailand and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
Thailand's economy is gradually recovering, but at a slower pace than peers. Economic activity expanded modestly by 1.9 percent in 2023 and 2.3 percent in the first three quarters of 2024, driven by private consumption growth and a rebound in tourism. Inflation remained subdued, averaging 0.4 percent (y/y) annually in 2024, well below the Bank of Thailand's target range of 1 to 3 percent. External factors such as the decline in global energy and food prices, lower import prices have played a role, but domestic factors such as energy subsidies, price controls, and the unwinding of pandemic-related fiscal support have also contributed to the lower inflation. The current account balance strengthened to 1.4 percent of GDP in 2023, from -3.5 percent of GDP in 2022, and continues to register a moderate surplus as of November 2024, supported by the continued recovery in tourism and higher exports.
A gradual cyclical recovery is expected to continue. Real GDP is projected to grow by 2.7 percent in 2024 and to increase to 2.9 percent in 2025. This is underpinned by the expansionary fiscal stance envisaged under the 2025 budget, which includes additional cash transfers of 1.0 percent of GDP and a rebound in public investment. Tourism-related sectors are expected to continue to support growth, as well as private consumption that will be further boosted by the authorities' cash transfers. As growth continues to firm up, inflation is expected to pick up but remain in the bottom half of the target range in 2025. The current account balance is expected to improve further in 2024 and 2025, driven by the ongoing recovery in tourist arrivals.
Risks to Thailand's economic outlook are tilted to the downside. On the external front, an escalation of global trade tensions or deepening geoeconomic fragmentation could disrupt Thailand's export recovery and dampen FDI inflows, while increased commodity price volatility could affect growth and lead to inflation spikes, and potentially tighter-for-longer global financial conditions. The intensification of regional conflicts could disrupt trade and travel flows while more frequent extreme climate events would adversely impact growth prospects. On the domestic front, the private sector debt overhang could impair financial institutions' balance sheets and further decrease credit supply, negatively affecting growth. Renewed political uncertainty could hinder policy implementation and undermine confidence.
Executive Board Assessment [2]
In concluding the 2024 Article IV consultation with Thailand, Executive Directors endorsed the staff's appraisal, as follows:
Thailand's economic recovery is ongoing, but it has been relatively slow and uneven. Economic activity expanded modestly in 2024, driven by private consumption and a rebound in tourism-related activities, while delayed budget implementation slowed the pace of public investment. The slow recovery, compared to ASEAN peers, is also rooted in Thailand's longstanding structural weaknesses, while emerging external and domestic headwinds have also contributed to subdued inflation. The outlook remains highly uncertain with significant downside risks.
As economic slack narrows, the focus should shift to rebuilding fiscal space. A less expansionary fiscal stance than envisaged under the FY25 budget would still provide impulse to support the recovery while helping to preserve policy space. Alternatively, reallocating part of the planned cash transfers toward productivity-enhancing investments or social protection would enable stronger inclusive growth and help reduce the public debt-to-GDP ratio. Starting in FY26, a revenue-based medium-term fiscal consolidation is needed to bring down public debt and rebuild buffers.
Thailand's fiscal framework can be further strengthened. This would require strengthening fiscal rules to better support the debt anchor by introducing a risk-based rules approach. Costs associated with quasi-fiscal operations such as energy price caps should be adequately accounted for, and fiscal risks closely monitored. Improving data provision for government finance statistics and SOEs is important.
Staff welcomes the BOT's decision to cut the policy rate in October and recommends a further reduction in the policy rate to support inflation and also translate into improvements in borrowers' debt-servicing capacity with limited risk of additional leverage amid tight lending. Given remaining high uncertainty in the outlook, the authorities should stand ready to adjust their monetary policy stance in a data and outlook-dependent manner. Central bank independence with clear communication of policy moves is key to maintaining the credibility and effectiveness of monetary policy in anchoring inflation expectations.
Effective coordination across policy tools, underpinned by adequate buffers, is essential for managing adverse scenarios. While the flexible exchange rate should continue to act as a shock absorber, the complementary use of FXI might alleviate policy trade-offs by smoothing destabilizing premia when large non-fundamental shocks render the FX market dysfunctional. Further liberalization of the FX ecosystem and phasing out of remaining capital flow management measures would help deepen the FX market and limit the need for FXI over time.
A comprehensive package of prudential and legal measures needs to be deployed to facilitate an orderly private deleveraging. Staff welcomes the measures already implemented to address both the existing household debt stock and the buildup of new leverage. However, simultaneous and forceful implementation of personal debt workouts via more effective bankruptcy proceedings is essential to lower the existing household debt stock.
The external position in 2024 was moderately stronger than warranted by fundamentals and desirable policy settings. Policies aimed at promoting investment, enhancing social safety nets, liberalizing the services sector, and minimizing tax incentives and subsidies that distort competition would facilitate external rebalancing.
Resolute structural reforms are needed to boost productivity and competitiveness. Reform priorities include facilitating competition and openness, upgrading physical and ICT infrastructure, upskilling/reskilling the labor force, increasing export sophistication by leveraging digitalization, and strengthening governance. Providing an adequate social protection floor to vulnerable households could help enhance their resilience to shocks and address structural drivers of household debt accumulation.
Table 1. Thailand: Selected Economic Indicators, 2019–30
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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] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
