Press Release No. 15/30

Press Release: IMF Staff Completes 2015 Article IV Mission to Thailand

February 4, 2015

An International Monetary Fund (IMF) team, led by Luis Breuer, visited Bangkok and Khon Kaen from January 15-29, 2015, to conduct the 2015 Article IV Consultation discussions. The team exchanged views with officials in the government, Bank of Thailand, and other public agencies and enterprises on recent economic developments in Thailand and the near- to medium-term outlook. It also met with the private sector, civil society, and academia.

At the conclusion of the visit, Mr. Breuer issued the following statement:

“Staff estimates that real GDP expanded by around 0.5 percent in 2014. A modest recovery is expected to continue in 2015 with growth projected at 3.5 percent on account of some recovery in consumption, including from lower fuel prices, and in private investment as backlogs of project approvals have been largely cleared by various government agencies. Accommodative monetary policy will also support the recovery. Nonetheless, private investment is being hampered by low capacity utilization, weak external demand, and concerns over political uncertainty. Private consumption is also weakened by high household debt and tighter credit conditions. At the same time, global demand for Thailand’s exports is weak. The expansion of public investment has proven more difficult than expected, including the implementation of the stimulus package approved in October.

“Headline inflation fell dramatically in the second half of 2014 while core inflation remained stable. Going forward, inflation is projected to remain subdued in 2015 and recover somewhat toward the end of the year.

“The current account has strengthened mainly on account of lower international oil prices in recent months, and the surplus is expected to rise further in 2015. A gradual recovery in imports is expected, while exports are projected to grow only modestly, leading to a lower current account surplus over the medium term.

“Risks to the outlook are tilted to the downside. Domestic risks to the economy come from policy slippages, weaker-than-expected private demand and political uncertainty. External risks include a surge in global financial volatility and protracted slow growth in advanced and emerging economies. On the upside, domestic consumption and exports may experience a stronger boost from sharply lower oil prices.

“The mission supports the authorities’ plans to expand the fiscal stimulus to boost the economy and encourages the authorities to frame it within a medium-term fiscal plan to strengthen revenue, increase investment, and bolster fiscal institutions. Priority should be given to completing the fuel subsidy reform, including the full reinstatement of diesel taxes. As part of the medium-term fiscal strategy, the authorities should consider gradually increasing the VAT rate to 10 percent, from 7 percent, starting only when the economic recovery is well entrenched, while introducing programs to mitigate the impact on vulnerable groups. A stronger revenue base would lead to a critical strengthening of the fiscal position and allow for higher infrastructure spending and provide for the needs of an aging population in the coming years.

“Reforms to state enterprises, the rice scheme, infrastructure projects, and tax administration and expenditures would further strengthen transparency, confidence and fiscal sustainability.

“Staff welcomes the move to target headline inflation instead of core inflation, because, as the more relevant measure, it is likely to be more easily communicated to the public. While the current monetary stance is accommodative, there is scope to consider a further easing of the policy stance if the economic recovery is weaker than anticipated.

“The mission supports the authorities’ efforts to strengthen financial surveillance by enhancing monitoring of financial vulnerabilities arising from credit growth, household debt, and SFIs. The mission encourages the authorities to continue strengthening the financial stability framework and welcomes the plan to extend the BOT’s supervisory and regulatory mandate to the SFI and to invite the savings and credit cooperatives to be included in the national credit bureau.

“The mission supports the authorities’ efforts to strengthen productivity growth by encouraging investment in higher skilled and value-added industries within Thailand and the relocation of labor intensive industries to special economic zones at the border with the neighboring countries. Raising labor participation rates and facilitating immigration may help offset the economic impact of a maturing population.

“The mission wishes to express its sincere gratitude to the authorities and to our technical counterparts for both their generous support and the frank and constructive discussions. The IMF's Executive Board is tentatively scheduled to discuss the staff report in April.”