Five things to know about the Thai economy and COVID-19
Like many countries, Thailand’s economy was hit hard by the COVID-19 pandemic last year. The country’s GDP fell by more than 6% in 2020 and many workers, especially those linked to the tourism sector, lost their jobs.
This despite decisive action by the government to implement a set of fiscal, monetary and financial policies to mitigate the impact of the virus on the country. According to IMF’s latest annual assessment or consultation under Article IV, Thailand’s economy is expected to grow 2.6% in 2021, and an increase in COVID-19 infections in the country and region since the start of the year highlights uncertainty over the trajectory of pandemic and the importance of continuing efforts to contain the spread of the virus for a strong and sustainable recovery.
Here are five things to know about Thailand’s recent economic challenges and prospects for recovery:
- The pandemic precipitated a sudden stop in tourist flows and a significant contraction in economic activity. Thailand’s GDP fell 6.1% in 2020, the biggest contraction since the Asian financial crisis. The tourism sector, which accounts for about one-fifth of GDP and 20 percent of employment, has been particularly affected by the cessation of tourist travel. Low-skilled workers and informal and migrant workers have been hit hard, especially women and youth, who have suffered disproportionately from declining employment opportunities in contact-intensive sectors bearing a significant labor burden. layoffs observed in 2020. The financial sector has so far weathered the pandemic well, but stress has built up in the small and medium-sized business sector.
- The government has responded boldly to alleviate the crisis. Timely and strict containment measures introduced by the authorities were successful in flattening the infection curve for most of 2020. Effective containment, as well as a timely and multi-pronged policy package, including fiscal stimulus measures representing around 10% of GDP; cuts in the policy rate from 75 basis points to an all-time low of 0.5%, and financial sector measures to strengthen the well-functioning financial markets and support debtors affected by COVID 19 — have helped limit the impact. Budget support included health-related spending and assistance to affected households, including those outside the social security system funded by a re-prioritization in the FY20 budget and an additional borrowing of $ 1 trillion. baht. These measures saved lives and livelihoods and in part supported an initial recovery by restoring confidence and providing a path to a safe and gradual reopening of business. However, the budget deficit widened to 4.8% of GDP in 2020 and the public debt-to-GDP ratio rose to 49.6% of GDP in 2020 from 41% in 2019.
- Dark clouds persist and require flexibility in government policies to build back better and stronger. The economic recovery in 2021 is expected to be slow, with growth projected at 2.6% in the recently completed Article IV consultation in 2021, and diverging across sectors. The prospects for a short-term recovery are challenged by an aggressive third wave of the pandemic. This environment requires flexibility and careful coordination between fiscal, monetary and financial policies to adapt to rapidly changing circumstances. Most important for a resilient recovery at this point is vaccination policy. Accelerating and ensuring adequate vaccine distribution is essential to achieve collective immunity, end the pandemic and lay the foundations for a solid recovery.
- Mutually reinforcing policies are needed to support the recovery, with fiscal policy at the center of the policy response. A premature withdrawal of support measures would not be prudent until a recovery is well underway. To help accelerate the recovery, more ambitious fiscal expansion is warranted with spending focused on increasing public investment and protecting vulnerable people, including through better targeted social transfers. As the crisis subsides and the recovery strengthens, Thailand will need to initiate a medium-term revenue mobilization strategy to rebuild fiscal buffers and ensure fiscal sustainability. Replenishing fiscal buffers after the pandemic will require additional efforts for both revenue generation and prioritization of spending. Targeted and more effective financial sector support to hard-hit businesses and households, complemented by additional monetary accommodations, would also support the recovery.
- Thailand’s dependence on contact-intensive sectors and long-standing structural problems, such as a high rate of informality – evident before the pandemic – justify a strong push to adapt the economy to the world post-pandemic. Further scaling up of investments, especially for digital infrastructure, combined with improving training and education outcomes and promoting innovation will catalyze the digital transformation of the economy and mitigate the economic damage to the economy. possible long term of the pandemic. The authorities see the crisis as an opportunity to transform the tourism sector from mass and low-cost tourism to high-end and low-density tourism, while encouraging domestic tourism, in order to reduce the sector’s dependence on it. tourism-related infrastructure and natural resources. To facilitate a safe reopening of the tourism sector, Thailand has added tourism workers as essential workers in the vaccination queue and plans to reopen to international tourists from July 1, under the “Phuket sandbox», Initiative allowing the free movement of fully vaccinated tourists on the island. The COVID-19 crisis also provides an opportunity to better align development policies with climate goals to strengthen economic recovery and resilience, and to put Thailand on track to meet change mitigation goals. climate. Efficient carbon pricing would encourage a gradual shift to cleaner energy alternatives, reduce greenhouse gas emissions and air pollution, and aid the transition to a carbon-free economy.