It’s an economic SOS: The World Bank sounds the alarm! Ageing woes, private sector debt and corruption threaten 20 years of sluggish growth. Urgent structural reform is needed to avoid stagnation.

Shockingly low third-quarter GDP figures this year confirmed to the government that the Kingdom’s economy is in crisis. A new World Bank report confronts this and points the finger at the country’s ageing demographics. However, there are also problems with private sector debt, education and corruption. Any real solution will take time, a responsible approach and a new vision.

Kiatipong Ariyapruchya, the World Bank’s senior economist for Thailand (right) and Mr Fabrizio Sarcone, World Bank Country Manager for Thailand (left). The top World Bank executives this week laid out the hard truth. Thailand faces decades of stagnation.

In a stark assessment, the World Bank forecasts a prolonged period of low growth for Thailand. It expects its potential growth to be the lowest among ASEAN economies over the next two decades. The primary culprits identified are the country’s ageing demographics and a simultaneous slowdown in private investment.

‘The potential growth of Thailand’s economy is expected to be around 3% for the next 20 years, the lowest level in the region, without economic reform,’ stated Kiatipong Ariyapruchya, the World Bank’s senior economist for Thailand, at a seminar to launch the Thailand Economic Monitor report.

Ageing demographics, like Japan, is the gravest threat to the country’s economic prospects. It’s a long-term problem that requires a long-term solution

The challenges, as identified by Ariyapruchya, are manifold. ‘The low level is attributed to an ageing society, an easing of private investment, and reduced labour productivity.’

At length, Thailand, like other countries, is still dealing with economic fallout from the pandemic. But Thailand’s problems began before the virus emerged. The country’s deep-seated, chronic problems must be tackled to open any prospect of strong GDP growth.

However, the underlying factors contributing to Thailand’s economic challenges are multifaceted. Ageing demographics play a crucial role, and this is now quite obvious across the economic landscape. 

Fertility rate predicts GDP growth in Thailand’s case as the country fails to attract substantial technological investment. Education is the key here

Lower productivity, especially since the pandemic, is clear to see. Nonetheless, the Kingdom continues to rely on elderly labour as it struggles to fill jobs. In the absence of a high-tech transformation, sheer population numbers predict economic performance.

The ability to attract technological investment, at the same time, depends on the country’s level of education. Unfortunately, Thailand’s education system is not performing. It ranked 103 out of 113 countries polled in a recent worldwide education survey.

Bhumjaithai and Anutin plan Thailand’s education agenda with an emphasis on national pride and ethical, civic duties

Thailand faces stagnated GDP growth at 3% in the coming decades because of its tiring and ageing population. The country’s fertility rate in 2022 was 1.46 children per female. It fell steadily from 1.5 in 2019.

Attributed initially to United Nations population control measures. Societal trends have driven the fertility rate inexorably well below replacement levels

In 1960, it was 6.14 and began to fall in 1964, rapidly declining from 1968.

Thailand’s fertility rate is significantly lower than Cambodia’s at 1.96 in 2020 or the Philippines at 2.78.

The kingdom’s fertility rate continues to fall. Attributed initially to United Nations birth control initiatives, it has since been driven by modern societal trends.

Thailand’s days of GDP growth in excess of 5% may be a thing of the past as it has grown too old
Noble spirit of Thailand’s elderly helps the country deal with the demographic problem

It is accepted that a fertility rate of 2.1 is needed to maintain a country’s population. Thailand, unlike many other countries, is well below that figure. However, Thailand, unlike most others, has never attained a developed or wealthy status. This is a growing global problem, perhaps the most serious threat to the world’s economy.

Thailand appears to be suffering from other economic retardants. It has singularly failed to rebound from the pandemic disaster like other ASEAN nations

The World Bank paints a grim picture, emphasising that without substantial reform, Thailand’s potential growth will stagnate at 3% for the next two decades.

‘The low level is attributed to an ageing society, an easing of private investment, and reduced labour productivity,’ explains Ariyapruchya.

Comparisons with ASEAN peers are particularly disheartening, as Ariyapruchya noted, ‘Thailand’s lagging recovery diverged from its ASEAN peers, with gaps equivalent to 7-10% of GDP during the post-pandemic period from 2022.’

Two key factors may be the country’s sensitivity to geopolitical conflict between the US and China. Then there are its internal problems. Chief among these is sky-high household debt which for over a decade has been choking domestic consumption.

Corruption and a poor education system are also quietly damaging Thailand’s economic growth prospects

There is also the glaring inadequacy of the country’s education system and corruption. A key reason for weaker growth this year has been reduced government spending.

While this was caused by this year’s election, corruption also causes this. A slice of any funding earmarked for capital projects goes astray through kickbacks. It also puts off large firms from doing business in Thailand.

Global headwinds, undoubtedly exacerbated by the ongoing pandemic, have cast a shadow on Thailand’s recovery, creating a substantial gap with its regional counterparts.

The foreign direct investment (FDI) inflows, a crucial barometer of economic health, tell a tale of their own. ‘Thailand’s foreign direct investment (FDI) inflows contracted in 2020 compared with the growth of regional peers including Indonesia, the Philippines, Malaysia, and Vietnam,’ remarked Ariyapruchya.

The country is losing out to other ASEAN countries such as Vietnam and Malaysia. Thailand never healed from the pandemic shutdown.

Thailand was not ready for the pandemic shock

While there has been an improvement in net FDI inflows over 2021-2022, Thailand still finds itself trailing behind Malaysia and Vietnam in this crucial economic indicator.

A closer look at Thailand’s economic sectors reveals a significant discrepancy. ‘Manufacturing remained below pre-pandemic levels, diverging from private consumption and services,’ noted Ariyapruchya.

It appears that the hard, draconian shutdown of the economy in 2020 and 2021 has left permanent economic damage behind. This may be due to underlying weaknesses in the first place. One key outcome is a soaring level of ‘zombie’ enterprises.

Zombie Thai firms holding back economic growth as they struggle just to pay interest on bank debt

To address these challenges and chart a path toward sustainable growth, the World Bank emphasises the urgent need for structural reform, particularly through fiscal policy interventions.

Investments in human capital, a quality education system and tax reform are seen as essential core elements of this reform agenda.

Country must take the time to develop its human capital, says the World Bank. This involves long-term planning and thinking. It will also take time and patience

According to Ariyapruchya, ‘To improve its long-term growth potential, Thailand needs structural reform via fiscal policy by investing more in human capital, quality education, health, climate change adaptation, and tax reform.’

Human capital investment takes centre stage in the World Bank’s recommendations. ‘In particular, human capital investment is needed to improve labour skills and productivity in the long term,’ emphasised the report.

In the medium term, the World Bank underscores the importance of targeted social assistance and transfers, especially focusing on pensions. However, it’s not just about short-term measures; long-term fiscal resilience is equally critical.

‘Thailand needs to enhance fiscal resilience while addressing challenges posed by an ageing society,’ stated the report. This includes promoting fiscal sustainability while meeting spending pressures and investment needs.

World Bank also pushes the Kingdom towards new climate change measures and a goal of carbon neutrality

Carbon pricing emerges as a significant policy instrument, especially in the context of Thailand’s ambitious goals. ‘If Thailand wants to achieve carbon neutrality, carbon pricing must be considered an important policy tool,’ asserted Mr Fabrizio Sarcone, World Bank Country Manager for Thailand.

Despite the economic challenges, the World Bank sees room for fiscal manoeuvring. ‘Thailand has sufficient fiscal space to increase its spending on key social protection measures without risks to fiscal sustainability,’ stated the report.

Among its suggestions, Thailand should raise its Value added Tax (VAT).

Modest improvement in the poverty rate in 2022

The impact of such measures is not just economic but also social. ‘Thailand’s poverty rate likely declined in 2022 because of the labour market recovery,’ said the bank. Per capita household consumption witnessed growth between 2021 and 2022, leading to an anticipated decline in the number of Thais below the poverty line.

The World Bank poverty line is ฿269 a day. There was a fall from 12% of the population in 2021 to 11% in 2022.

As the World Bank lays out the broader reform agenda, attention moves to near-term solutions. Thailand’s Digital Wallet scheme takes centre stage in this context.

‘The planned Digital Wallet is not yet included in the baseline but could potentially boost near-term growth further if implemented,’ the World Bank report suggests. While acknowledging the short-term economic activity such a programne could stimulate, it also cautions about the potential downsides.

Growth rate for 2023 down to 2.5% with only 3.2% growth seen in 2024. A fall to 3.1% seen for 2025

It predicts a 0.5% to 1% rise in GDP in 2024 if the Digital Wallet plan goes ahead.

In a recent update, the World Bank revised Thailand’s economic growth outlook for 2023. ‘The World Bank cut Thailand’s economic growth outlook to 2.5% this year from its forecast of 3.4% in October,’ highlighted Mr Zarcone.

Despite the revision, there’s a glimmer of hope for the future. ‘The Thai economic growth should pick up to 3.2% in 2024 from 2.5% this year, supported by a recovery in tourism and goods exports and sustained private consumption,’ he added.

However, challenges remain, particularly in managing inflation. ‘Decreased energy prices are predicted to slow Thailand’s inflation to 1.1% in 2024,’ noted Zarcone. Geopolitical tensions and high oil prices could potentially drive up inflation, posing a risk to the economic outlook.

The World Bank, like Thai voters, wants to see a long-term vision, reform plan for the economy and society

In the quest for economic revival, Thailand faces a critical juncture. The World Bank’s recommendations echo beyond mere policy tweaks. It proposes a holistic, longer-term approach to address challenges and set the foundation for sustained growth.

As Thailand stands at a fork in the road calling out for economic decisions, the will to implement tough reforms is questionable. Undeniably, this will determine not only its economic future but also its resilience in the face of global uncertainties. 

Significantly, the May 14th General Election showed the voting public taking a long-term view.

In contrast, it is the country’s elites that tend to fear change. The World Bank’s clarion call is for reform. It could serve as a guide for Thailand in uncharted waters towards a future that is both sustainable and inclusive.

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