IMF Executive Board Concludes 2018 Article IV Consultation with Thailand | WPN World People News

On May 21, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Thailand.

A cyclical recovery is underway in Thailand but has yet to become broad based. GDP growth is estimated at 3.9 percent in 2017, boosted by strong tourism services and manufacturing exports. Domestic demand remained sluggish amid structural challenges, and export gains failed to trickle down to household incomes and investments in other sectors. Headline inflation averaged 0.7 percent, below the target band for the third year in a row, reflecting low food prices and weak core inflation. The current account surplus remained large, at about 10.6 percent of GDP. Financial system stability continued to strengthen.

The growth momentum is expected to continue in 2018 and 2019, supported by sustained export dynamism. A rebound in public investment, in line with the government’s infrastructure plans, is expected to crowd in private investment. The current account surplus is projected to gradually decline over the medium term, as investor and consumer confidence strengthen, and domestic demand gathers speed. Inflation is expected to remain below the 2.5 percent target. Risks to the near-term outlook arise from potential weaknesses in the external environment, including protectionism, as well as domestic structural challenges. On the other hand, a stronger than projected rebound in investment provides an upside risk to growth, and greater dynamism in regional trade could further boost Thai exports.

Executive Board Assessment

Executive Directors welcomed Thailand’s improving economic prospects, which are supported by strong global and regional trade. Directors noted, however, that the recovery has yet to become broad‑based, as structural challenges continue to be a drag on domestic demand, while inflation dynamics remain weak. Against this backdrop, they encouraged the authorities to calibrate the policy mix and use available space to support domestic demand and external rebalancing, and implement structural reforms to boost growth potential.

Directors welcomed the enactment of the fiscal responsibility law, and ongoing efforts to anchor fiscal policy in a medium‑term fiscal framework, which are key to safeguarding fiscal sustainability. They agreed that scaling up macro‑critical infrastructure projects would crowd in private investment, stimulate domestic demand, and facilitate external rebalancing. Directors emphasized the importance of fiscal reforms aimed at strengthening public investment implementation capacity and better targeting of social expenditures to boost demand on a sustained basis. They concurred that additional growth‑friendly revenue mobilization will be needed in the medium to long term, as part of a broader strategy to prepare for aging‑related expenditure pressures.

A number of Directors agreed that monetary easing, within a broader expansionary policy mix, could help steer inflation back to target, with macroprudential policy used to address financial stability concerns. A number of other Directors considered the current monetary stance to be sufficiently accommodative, and that monetary policy should balance support for inflation against financial stability risks. Directors noted that enhanced communication would improve the effectiveness of monetary policy transmission by strengthening the expectations channel. They emphasized the importance of exchange rate flexibility, with intervention limited to avoiding disorderly market conditions. A number of Directors encouraged publication of the intervention data with appropriate lags to improve transparency and communication. A few other Directors, noting the potential sensitivity of the data, supported a more cautious approach.

Directors agreed that the financial system remains sound, and commended the authorities for measures taken to strengthen financial system stability. While not expected to pose systemic risks, they called for close monitoring of vulnerabilities in the nonbank financial sector. Directors broadly concurred that strengthening macroprudential policy should help ensure continued containment of systemic risks. They looked forward to the forthcoming FSAP, which will conduct a more comprehensive assessment of risks in the financial sector.

Directors called for a comprehensive package of reforms to boost potential growth and improve inclusiveness. They underscored the need to increase productivity and address the impact of aging through pension reform, human capital development, higher female labor force participation, and improvements in the business environment. Directors welcomed the authorities’ plans to expedite investment in infrastructure and logistics as part of a broader strategy to deepen economic integration within the ASEAN region.

Most Directors agreed that Thailand’s external position is substantially higher than warranted by medium‑term fundamentals and desirable policies. Some Directors called for a more cautious interpretation of the external balance assessment citing Thailand‑specific issues as contributing factors.

Source: International Monetary Fund