An International Monetary Fund (IMF) staff team, led by Corinne Deléchat, held the 2024 Article IV Consultation with Thailand between November 11 and 26, 2024. At the conclusion of the discussions, Ms. Deléchat issued the following statement:

“Thailand’s economy continues to recover gradually. Economic activity expanded modestly by 1.9 percent in 2023 and by 2.3 percent in the first three quarters of 2024, primarily driven by private consumption and a rebound in tourism-related activities. International tourist arrivals recovered to around 90 percent of the pre-pandemic levels, although tourism receipts remain somewhat lower. Reflecting a delayed budget approval, and slower-than-expected budget implementation, public consumption increased by only 1.6 percent and public investment contracted by -2.3 percent in the first three quarters of 2024.

“Looking ahead, the cyclical recovery is expected to continue. Growth is projected at 2.7 percent in 2024 and expected to accelerate moderately to 2.9 percent in 2025. This reflects planned fiscal stimulus measures and a pickup in public investment envisaged under the FY2025 budget. Private consumption growth is expected to remain robust, boosted by the government stimulus. Private investment is also projected to pick up, driven by public capital spending and increasing foreign direct investment (FDI) inflows. At the same time, headline inflation is expected to rise gradually, reaching the lower bound of the Bank of Thailand (BOT)’s target range by end-2024.

“Staff’s projections are subject to emerging risks. On the external front, escalation of global trade tensions or heightened trade uncertainty could slow global and regional growth, disrupting Thailand’s export recovery and dampening FDI inflows. Increased commodity price volatility could also affect growth and lead to inflation spikes both globally and domestically, and potentially tighter-for-longer global financial conditions. On the domestic front, the private sector debt overhang could lead to increased defaults and non-performing loans (NPLs), further impairing credit supply and negatively affecting growth.

“As the economic slack narrows, the policy focus should shift to rebuilding policy space. In the near term, the mission recommends a somewhat less expansionary fiscal stance than envisaged under the budget, which would still provide fiscal impulse while preserving fiscal space. Alternatively, reallocating at least part of the planned cash transfers toward productivity-enhancing investments or social protection reforms would provide stronger impetus for inclusive growth while also helping reduce the public debt-to-GDP ratio. Starting in FY26, a gradual, growth-friendly medium-term fiscal consolidation is needed to bring down public debt and create fiscal space for rising spending needs to address population aging and climate change risks.

“The mission welcomes the BOT’s decision to cut the policy rate by 25 bps in October. A further reduction in the policy rate would support the ongoing recovery, while translating into improvements in borrowers’ debt-servicing capacity with little risk of additional leverage amid tightened lending. Given remaining high uncertainty and two-sided risks to inflation, the mission advises the authorities to stand ready to adjust their monetary policy stance in a data and outlook-dependent manner, with the flexible exchange rate continuing to act as a shock absorber.

“Addressing the persistent household debt overhang requires a resolute, well-coordinated and comprehensive approach. Staff welcomes the authorities’ steps to enhance financial literacy, implement responsible lending guidelines and provide debt restructuring options to viable borrowers while limiting moral hazard. However, simultaneous and forceful implementation of personal debt workouts via more effective bankruptcy proceedings is essential to address the existing household debt stock, while allowing impaired borrowers a ‘fresh start’ in the future.

“Thailand needs to implement comprehensive and coordinated structural reforms to reverse the downward trend in potential growth. Reform priorities include facilitating competition and openness, increasing export sophistication by leveraging digitalization, upskilling and reskilling the labor force, liberalizing the service sector and strengthening governance. Upgrading physical and ICT infrastructure will be essential to harness the growth benefits of a digital and green economy, boost productivity and economic resilience, raise private investment and improve social outcomes. In parallel, enhancing social protection could help low-income households better withstand shocks and address structural drivers of household debt accumulation. Together, these policies would support stronger and more inclusive growth as well as facilitate external rebalancing.

“The IMF team exchanged views on recent economic developments and the outlook with officials in the government, the Bank of Thailand, other public institutions, and representatives of civil society and the private sector. The team would like to thank the authorities and other interlocutors in Bangkok for the productive discussions. The IMF’s Executive Board is tentatively scheduled to discuss the Staff Report in February 2025.”