Thai Bankers Association President, Phayong Sriwanich, calls for urgent measures to tackle Thailand’s vast informal economy, accounting for nearly half of GDP. Highlighting its detrimental impact on economic development, he proposes data-driven policies, SME formalisation, and debt reform to spur growth.

With nearly half its GDP off the books or in the dark, a top banker has called for moves to rein in the country’s black economy. Thai Bankers Association President Phayong Sriwanich, this week, made the call. It comes with Thailand’s economy in the doldrums and facing significant challenges. These include external geopolitical threats and mounting concerns also about political instability inside the country. At the same time, the country’s manufacturing base faces a plethora of chronic ills.

Thai Bankers Association President, Phayong Sriwanich, speaking this week at the iBusiness Forum 2024 in Bangkok. He highlighted the country’s black market as a key facet of Thailand’s economy. Indeed, most workers in Thailand are within the country’s informal sector with only 11 million people filing tax returns.

A top banker on Friday took aim at Thailand’s large informal or black economy.

The top executive identified the current situation as a barrier to Thailand’s economic development.

He was addressing a business conference in Bangkok.

He called for small business enterprises to move into the formal economy. Mr Phayong Sriwanich is the current President of the Thai Bankers Association. He was Speaking at the iBusiness Forum 2024.

Huge black economy requires urgent action. Top banker says 48.4% of GDP is essentially off the books or not seen by the government or key economic agencies

Certainly, Mr Phayong took the view that the issue was one of a number of key structural issues hampering the country’s progress. The problem required urgent action.

Firstly, he highlighted the detrimental effects of Thailand’s substantial informal economy. In short, it accounts for a staggering 48.4% of GDP, ranking 14th globally.

With over half the workforce engaged in informal employment, the country struggles with low productivity, poverty and high inequality.

Furthermore, informal debt, according to Mr Phayong is estimated to be as high as ฿3.97 trillion. In effect, it places intolerable pressure on top of already existing financial vulnerabilities.

Significantly, only 10 to 11 million people file income tax returns. However, the government is certainly moving towards widening the tax base.

Indeed, this includes foreign residents from this year with a change made last September to a 1985 regulation.

New tax era in Thailand begins as Revenue now shares data with 138 countries within the OECD

To combat the ongoing challenges posed by the informal or black economy, Mr Phayong proposed three initiatives.

More data to understand what is really happening in Thailand’s economy. This will in effect ensure decisions taken by economic planners are the right ones

Firstly, he called for more data-driven information on the economy. At this time, the government lacks the knowledge or data to make appropriate decisions. 

For example, it is not clear what the impact of the persistently huge black economy on Thailand’s GDP is.

The banker on Friday called for the establishment of a comprehensive national data platform.

Thailand, could consequently enhance decision-making and foster greater transparency. In addition, it would provide the government with the information to address inequality more effectively. 

Presently this cannot be easy. In brief, over 50% of Thai workers are within the black economy. This is over 20 million people.

Mr Phayong took inspiration from successful models like that in Chile.

In short, the South American country successfully consolidated data from various government agencies to streamline policymaking.

The banking chief secondly called for the transition of all small enterprises into the formal sector. Unquestionably, this is essential, he said, for fostering inclusive growth.

Mr Phayong pointed out that only 840,000 of Thailand’s small enterprises were presently incorporated. This meant that some 2.4 million did not produce annual financial statements. This is 74% of businesses

Bring more small business concerns in from the cold. Incentivise them with government projects and access to formal credit facilities so they can compete

Furthermore, he called on the government to offer incentives for small businesses to formalise their operations. For example, this may include participation in government projects and access to credit.

For one thing, this would bolster their competitiveness and promote fair competition.

In addition, the banker called for legislative reforms and fair trade practices. Undoubtedly, these were essential to support small enterprises navigating the formal business landscape.

Thirdly, the issue of tackling informal debt. The banker was clear that this must involve a concerted effort from the government and financial institutions. 

Besides, a comprehensive strategy must focus on increasing income levels in Thailand. Following this, there must be enhanced access to formal credit. In truth, this would also call for reforming debt information systems. 

Mr Phayong noted that eradicating informal debt must be bolstered by financial inclusion. Thailand should empower low-income households and bring about greater economic stability.

Top banker sees a link between equity and inclusion and increased productivity within the economy. However, right now, Thailand’s economic base is in peril

On Friday, he urged stakeholders to expedite these initiatives.

The banker said in the meantime, the emphasis must be on agility and collaboration. Aligning private and public sector efforts is crucial for accelerating Thailand’s steady progress towards a formalised economy.

At the same time, the country must embrace digitalisation and fortify supply chains. The top financial executive sees a link between enhancing efficiency and equity for all.

He felt that this eventually was the only way to lay the foundation for sustainable development.

At this time, Thailand’s economy was under enormous pressure. Its manufacturing base is being eroded due to a lack of inward investment and innovation as well as a diminished workforce.

Economists have consistently noted both the large informal economy in Thailand and the quite sizeable amount of the population still on the land. On a positive note, both are seen as shock absorbers bolstering the country’s financial stability.

The nature of Thailand’s economy and control of the country’s wealth by a super elite means a radical transformation in the short term is rather unlikely

In truth, the extent of both phenomena shows how far the kingdom has to go.

Meanwhile, the control of the country’s wealth by a small elite and several family conglomerates is another key factor. This has both a positive and negative impact.

The banker illustrated this by pointing out that 10% of Thais control 74.3% of the kingdom’s wealth. Similarly, the top 10% of income earners generated 48.8% of all income.

In the meantime, a radical transformation of the Thai economy or society is unlikely. Especially so, given the growing political conflict in the world. Increasingly, Thailand’s geo-political position is also impacting its economic fortunes.

In the meantime, the country’s internal politics are also far from stable. In short, this has been at the root of the country’s problems for the last two decades.

This week, the Economist Intelligence Unit (EIU) Democracy Index saw Thailand fall by eight places since 2022.

It comes despite a General Election in May 2023. Thailand ranked 63rd out of 167 countries. 

Threat of political instability is rising again

The country’s score was 6.35 points. In 2022, it was 55th with a score of 6.67 points. In short, it means international confidence in Thailand as a democracy has fallen.

The negative impact can be explained by the leverage used by the unelected upper house or Senate in the formation of a new government.

In brief, this excluded the Move Forward Party which won the national election with 36.23% of the vote.

Violent clashes between royalists and activists in central Bangkok lead to injuries and concern

Presently, the outlook has recently grown even bleaker with rising political tension between pro-democracy activists and ultra-conservative groups.

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