Thailand’s Economy and COVID-19: Five Things You Should Know
Like many other countries, Thailand’s economy was hit hard by the COVID-19 pandemic last year. The country’s GDP fell by over 6 percent in 2020 and many workers, especially those involved in the tourism sector, lost their jobs.
It did so despite determined government action to implement a package of fiscal, monetary and financial policies to mitigate the virus’ impact on the country.
According to the Most recent annual IMF assessment or Article IV consultation, Thailand’s economy is expected to grow 2.6 percent in 2021, and an increase in COVID-19 infections in the country and region since the beginning of the year underscores uncertainty about how the pandemic will unfold and the importance of further efforts to contain the spread of the disease Virus for a strong and lasting recovery.
Here are five things to know about Thailand’s recent economic challenges and prospects for recovery:
1. The pandemic led to a sudden halt in tourism flows and a significant decline in economic activity
Thailand’s GDP fell 6.1 percent in 2020, the sharpest drop since the Asian financial crisis. The tourism sector, which accounts for around a fifth of GDP and 20 percent of employment, has been particularly hard hit by the end of tourism.
Low-skilled workers, as well as informal and migrant workers, are badly affected, especially women and young people who have suffered disproportionately from reduced job opportunities in contact-intensive sectors, which have weathered the pandemic well, but in the small and medium-sized sectors, a significant burden from the layoffs observed in 2020 Company has built up stress.
2. The government reacted boldly to alleviate the crisis
Timely and rigorous containment measures put in place by authorities have successfully flattened the infection curve for most of 2020. Interest rate cuts by 75 basis points to its all-time low of 0.5 percent and measures by the financial sector to help the smooth functioning of financial markets and support debtors affected by COVID 19 helped limit the impact.
The tax support includes health care expenses and support for affected households, including those outside the social security system, financed through some re-prioritization in the 2020 budget, and an additional borrowing of 1 trillion baht.
These actions have saved lives and livelihoods, and in part aided initial recovery by restoring confidence and providing a path to safe and gradual resumption of activity. However, the budget deficit widened to 4.8 percent of GDP in 2020 and the government debt ratio rose from 41 percent in 2019 to 49.6 percent of GDP in 2020.
3. Dark clouds persist and require flexibility in government policy to build better and stronger.
The economic recovery in 2021 is expected to be sluggish, with growth projected at 2.6 percent in the recently concluded Article IV consultation in 2021 and varying from sector to sector. The prospects for a near-term recovery are being challenged by an aggressive third wave of the pandemic.
This environment requires flexibility and careful coordination between fiscal, monetary and financial sector policies in order to adapt to rapidly changing circumstances. Most important for a resilient recovery at this point in time is vaccine policy. Accelerating and ensuring adequate vaccine distribution is critical to achieving herd immunity, ending the pandemic and laying the groundwork for a strong recovery.
4. Mutually reinforcing actions are needed to support the recovery, with fiscal policy at the center of the policy response.
An early withdrawal of support measures would not make sense before a recovery is in full swing. To accelerate the recovery, more ambitious fiscal expansion is warranted, with spending aimed at increasing public investment and protecting the vulnerable, including through more targeted social transfers.
As the crisis subsides and the recovery deepens, Thailand needs to embark on a medium-term revenue mobilization strategy to rebuild budget buffers and ensure public finances are sustainable. Rebuilding budget buffers after the pandemic requires additional efforts in both revenue generation and spending prioritization. Targeted and more effective financial sector support for badly hit businesses and households, complemented by additional monetary accommodations, would also support the recovery.
5. Thailand’s dependence on high-contact sectors and long-standing structural problems such as the high level of informality – obviously before the pandemic – justify strong pressure to adapt the economy to the world after the pandemic.
A further increase in investment, especially in digital infrastructure, in conjunction with improving training results and promoting innovation will catalyze the digital transformation of the economy and mitigate the possible long-term economic damage caused by the pandemic.
The authorities see the crisis as an opportunity to transform the tourism sector from mass and cheap tourism to high-end and low-density tourism, while promoting domestic tourism in order to reduce the sector’s dependence on tourism-related infrastructures and natural resources.
In order to allow a safe reopening for the tourism sector, Thailand has added tourism workers as key employees to the vaccination queue and plans to start from July 1st underPhuket sandpit“Initiative to allow fully vaccinated tourists to move freely on the island. The COVID-19 crisis also provides an opportunity to better align development policy with climate change goals in order to strengthen recovery and economic resilience and put Thailand on a firm path to meet the climate change goals.
Efficient carbon pricing would encourage a gradual transition to cleaner energy alternatives, reduce greenhouse gas emissions and air pollution, and help transition to a decarbonised economy.
By Stella Kaendera and Lamin Leigh
IMF Asia and Pacific Department