Via IMF (Den Internationale Valutafond)

On September 30, 2019, the Executive Board of
the International Monetary Fund (IMF) concluded the Article IV


with Thailand.

Growth lost momentum over the last 12 months, while inflation remained
subdued. Real GDP growth reached 4.8 percent
year-on-year in 2018:H1 but declined to 3.4 percent in 2018:H2; and 2.8
percent and 2.3 percent in 2019:Q1 and 2019:Q2 respectively. Although
private consumption held up, global trade tensions impacted Thai
exports, particularly electronics, through the global value chains.
Headline inflation averaged 1.1 percent in 2018 and declined to 0.5
percent in August 2019 on the back of food and energy prices, and core
inflation remains subdued at 0.5 percent. The output gap seems to be
closing by some measures, although the combination of low inflation and
a large current account surplus suggest a still negative gap.

Credit and housing markets are also cooling. Total credit growth
moderated in 2019:Q1, led by declines in corporate borrowing. In
contrast, loans to households picked up in 2018 and remained buoyant
through 2019:Q1, driven by auto loans and new mortgages. Following the
tightening of LTVs in April 2019, housing loan demand softened, and
condo prices declined by 1¾ percent (y/y) also reflecting weaker
foreign demand. The housing market is already going through a period of
adjustment consistent with the broad-based cooling of the Thai economy.

The current account surplus narrowed sharply in 2018.
The decline of the surplus to 6.4 percent of GDP in 2018 from 9.7
percent in 2017 was driven partly by the U.S.-China trade tensions,
which weighed on exports. Data as of end-June 2019 reveal the continued
impact of trade tensions, as exports contracted by 2.2 percent y-o-y,
driven by electronics and computer parts, with a 14.9 percent decline
in China-bound goods and a 2.2 percent decline in U.S.-bound goods.
Imports declined by 9.4 percent y-o-y, with lower capital goods, raw
materials, and intermediate goods imports. Tourism receipts have also
softened, led by a slowdown in Chinese tourists.

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The continued strong external position and looser global financial
conditions have contributed to the recent appreciation pressures. Since
December 2018, the baht has appreciated by about 5.5 percent against
the U.S. dollar, making it one of the best performers in the region.
The level of reserves increased by nearly US$11 billion by end-June
2019 to US$250.3 billion, well above Fund adequacy metrics. Since May
2019, capital inflows have further accelerated, contributing to a
sharper appreciation of the baht. On July 12, 2019, the Bank of
Thailand announced measures aimed at curtailing short-term speculative
capital inflows (a reduction in the limit of the outstanding balance
for non-resident baht accounts) and the tightening of the reporting
requirements for of non-resident holdings of debt securities issued in

With respect to the outlook, growth is projected to slow down to about
3 percent in 2019–20 reflecting external and domestic headwinds. On the
external side, the projected slowdown in global demand and uncertainty
about trade tensions are expected to weigh on exports throughout this
year. Domestic factors include a weakening in consumption growth—as the
debt overhang weighs on credit growth and the drought depresses farm
incomes. Over the medium term, private consumption and investment are
expected to strengthen, supported by dissipating political uncertainty
and a scale-up in public investment. This would also contribute to
external rebalancing as demand feeds into higher imports. Risks to the
outlook are tilted to the downside emanating most notably from the
ongoing escalation of protectionism threatening the global trading

Executive Board Assessment


Executive Directors
noted that Thailand’s robust policy framework and ample buffers,
created through the authorities’ judicious management of public
finances, continue to underpin its resilience to shocks. Directors also
welcomed the progress in improving the coverage and effectiveness of
financial supervision and macroprudential policies which has enhanced
financial stability. They noted, however, that external and domestic
headwinds are challenging near term growth prospects, and that risks
are tilted to the downside stemming from the impact of the global
economic slowdown, ongoing trade tensions, and weak domestic demand. In
this regard, Directors encouraged an expansionary policy mix to support
domestic demand, and structural reforms to promote inclusive and
sustainable growth.

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Directors encouraged the authorities to undertake an investment-led
expansion through the judicious use of existing fiscal space, while
preserving sufficient buffers and ensuring fiscal sustainability.
Strong implementation of macro-critical public infrastructure projects
currently in the pipeline would crowd in private investment and
stimulate domestic demand in the short run, while helping lift up
potential growth in the long run. Directors emphasized the importance
of better targeting social assistance to protect vulnerable households
while minimizing distortions. They welcomed the authorities’ intention
to strengthen revenue mobilization over the medium to long run, as part
of a broader strategy to prepare for aging-related expenditure

Directors welcomed the Bank of Thailand’s August decision to cut the
policy rate. Going forward, a number of Directors saw scope for further
monetary easing to help steer inflation back to target. Many other
Directors considered the current monetary stance to be sufficiently
accommodative, and noted that monetary policy should be calibrated
based on assessment of financial stability risks. Complementary use of
macroprudential policy would also address financial stability concerns.

Many Directors considered that Thailand’s external position remains
substantially stronger than warranted by medium-term fundamentals and
desirable policies. A number of other Directors called for a more
cautious interpretation of the external balance assessment citing
Thailand-specific issues as contributing factors.

Directors emphasized the importance of exchange rate flexibility, with
foreign exchange intervention limited to avoiding disorderly market
conditions. While a number of Directors recognized that recent
tightening of existing capital flow management measures (CFMs) plays an
important role in mitigating short-term volatility, a number of other
Directors considered that these measures should be phased out and
replaced with appropriate macroeconomic, financial and structural

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Directors agreed that financial stability risks appear contained
although household indebtedness is relatively high and there are
pockets of vulnerability in the corporate sector. In line with the FSAP
recommendations, they encouraged the authorities to strengthen the
crisis management and resolution framework, close leakages in the
macroprudential toolkit, and establish an overarching body to help
enhance coordination among supervisors. Many Directors noted that the
recommendations on institutional arrangements of supervisory agencies
should be tailored to a country-specific context. To enhance oversight
of the non-bank sector, Directors recommended strengthening the
supervision and regulation of Specialized Financial Institutions and
Credit Cooperatives.

Directors emphasized that the start of the new government is a timely
opportunity to forge ahead with a concerted reform agenda. Targeted
policies to enhance labor productivity across the regions can boost
competitiveness, raise potential growth, and enhance its inclusiveness.
A key priority is to address population aging through pension reform
and investment in human capital that will help unlock growth potential,
including through education, health, and equalizing opportunities.
Directors took note of the authorities’ ongoing efforts to strengthen
anti-corruption institutions and called for improving the operational
aspects of the procurement law and addressing AML/CFT deficiencies.