IMF recommends Thailand fiscal reform and monetary easing
In the wake of slowing GDP growth amid rising global trade tensions and the lack of internal stimulus, Thailand should adopt an expansionary policy mix, including fiscal reforms, monetary easing and measures to increase labour productivity in order to help turn things around, the International Monetary Fund (IMF) said in a statement on July 22.
The note was the result of a visit of an IMF team in Bangkok from July 4–19, 2019, for a regular consultation.
The team acknowledged that Thailand’s economy grew by 4.1 per cent in 2018, but also noted it has slowed this year amid rising global trade tensions. In fact, GDP growth decelerated to 2.8 per cent in the first quarter of 2019 year-on-year driven largely by declines in exports.
Weaker external demand and slowing tourism receipts have also contributed to the narrowing of the current account surplus to 6.4 per cent of GDP in 2018. Overall growth in 2019 and 2020 is expected to slow further as a result of continued uncertainty over trade tensions.
To support domestic demand, the IMF staff team recommended an expansionary policy mix that includes a scaling up of public investment projects combined with fiscal reforms and monetary easing consistent with a data dependent approach.
Going forward, the mission further recommended an increase in public investment in 2020, including through Eastern Economic Corridor projects and other public-private partnership initiatives, supported by stronger public investment management, which would catalyse private investment and raise productivity growth.
Structural reforms would also contribute to addressing the macroeconomic imbalances and promoting inclusive and sustainable growth, the statement said, especially given the delay in the enactment of the budget for fiscal year 2020 with the transition to the new government and the resulting lack of fiscal stimulus in the remaining months of 2019.
With regards to the strong bath, the IMF team said that the exchange rate should remain “flexible” to serve as a key shock absorber in response to volatile capital flows while using macro-prudential policies to address possible financial stability risks. However, foreign exchange intervention should be limited to avoiding disorderly market conditions.
For the Thai government, policy priorities should be to enhance labour productivity, boost competitiveness, promote inclusiveness and address large regional income disparities. Greater investment in human capital across the regions would help unlock growth potential, including through education, health and equalising opportunities.
The IMF further recommended measures to facilitate household deleveraging and better targeted social safety net programmes, which should help spur domestic demand and more inclusive growth. Pension reform, combined with measures to strengthen active labour market policies and more liberal immigration policies to attract foreign skilled labour would also help promote growth.
In the wake of slowing GDP growth amid rising global trade tensions and the lack of internal stimulus, Thailand should adopt an expansionary policy mix, including fiscal reforms, monetary easing and measures to increase labour productivity in order to help turn things around, the International Monetary Fund (IMF) said in a statement on July 22. The note was the result of a visit of an IMF team in Bangkok from July 4–19, 2019, for a regular consultation. The team acknowledged that Thailand’s economy grew by 4.1 per cent in 2018, but also noted it has slowed this year amid rising...
In the wake of slowing GDP growth amid rising global trade tensions and the lack of internal stimulus, Thailand should adopt an expansionary policy mix, including fiscal reforms, monetary easing and measures to increase labour productivity in order to help turn things around, the International Monetary Fund (IMF) said in a statement on July 22.
The note was the result of a visit of an IMF team in Bangkok from July 4–19, 2019, for a regular consultation.
The team acknowledged that Thailand’s economy grew by 4.1 per cent in 2018, but also noted it has slowed this year amid rising global trade tensions. In fact, GDP growth decelerated to 2.8 per cent in the first quarter of 2019 year-on-year driven largely by declines in exports.
Weaker external demand and slowing tourism receipts have also contributed to the narrowing of the current account surplus to 6.4 per cent of GDP in 2018. Overall growth in 2019 and 2020 is expected to slow further as a result of continued uncertainty over trade tensions.
To support domestic demand, the IMF staff team recommended an expansionary policy mix that includes a scaling up of public investment projects combined with fiscal reforms and monetary easing consistent with a data dependent approach.
Going forward, the mission further recommended an increase in public investment in 2020, including through Eastern Economic Corridor projects and other public-private partnership initiatives, supported by stronger public investment management, which would catalyse private investment and raise productivity growth.
Structural reforms would also contribute to addressing the macroeconomic imbalances and promoting inclusive and sustainable growth, the statement said, especially given the delay in the enactment of the budget for fiscal year 2020 with the transition to the new government and the resulting lack of fiscal stimulus in the remaining months of 2019.
With regards to the strong bath, the IMF team said that the exchange rate should remain “flexible” to serve as a key shock absorber in response to volatile capital flows while using macro-prudential policies to address possible financial stability risks. However, foreign exchange intervention should be limited to avoiding disorderly market conditions.
For the Thai government, policy priorities should be to enhance labour productivity, boost competitiveness, promote inclusiveness and address large regional income disparities. Greater investment in human capital across the regions would help unlock growth potential, including through education, health and equalising opportunities.
The IMF further recommended measures to facilitate household deleveraging and better targeted social safety net programmes, which should help spur domestic demand and more inclusive growth. Pension reform, combined with measures to strengthen active labour market policies and more liberal immigration policies to attract foreign skilled labour would also help promote growth.
