Regions and Countries

	Table of Contents
p. 21 of 23 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Thailand

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VII. ADB’s Operational Program

A. The Proposed Program

128. The CPM and the Government reviewed Thailand’s external borrowing plans. Despite very comfortable foreign exchange reserves, in order to revive growth, the Government has adopted an expansionary macroeconomic policy of low interest rates combined with a large fiscal deficit. However, the crisis-related expansion in government deficits and financial sector restructuring costs since 1997 has contributed to a rapid increase in public sector debt. Gross public sector debt has increased from 15 percent of GDP in 1995/96 to 56 percent of GDP during 1998/99. The rapid increase in public sector debt has in turn focused more attention on the medium-term fiscal outlook. The IMF has analyzed the medium-term debt dynamics, concentrating on a relatively conservative baseline scenario that is based on a continuation of existing policies which build in a number of revenue-raising and expenditure-reducing measures. Under this scenario, IMF’s forecast is for debt to GDP to peak at about 64 percent of GDP in 2000/01 and then revert to 57 percent by 2004/05. Overall, the prospects remain good for a reduction in debt levels in the future, while the historical record also supports a tendency for the Government to keep public debt levels under control. For FY2000, the overall public sector deficit was set at 6 percent of GDP, excluding the fiscalized cost of financial sector restructuring. However, if this deficit were financed through domestic borrowings, then private borrowers would be crowded out, and interest rates would again be driven up, thereby offsetting the expansionary impact of the deficit. This problem is compounded by Thailand’s vulnerability to increases in world interest rates and a slowdown in global exports. In the near future, Thailand may need to rely less on exports and more on domestic demand to support its fragile economic recovery. This shift in strategy requires a recovery in investment, which in turn requires a credit recovery. Given the benefit of low interest rates to facilitating this transition, there is a compelling and continuing need for external financing of the deficit. The above rationale notwithstanding, there are growing political concerns about the level of Thailand's public debt, and the Government is under pressure to be both more selective and stringent in terms of its external borrowings.

129. Although Thailand has made considerable progress in economic recovery and in restoring financial sector stability, post-crisis recovery will take several more years. A reasonable pipeline of loans to implement the strategy outlined above for poverty reduction and to support the recovery process will therefore require a fairly large lending program. Subject to the availability of resources, therefore, a loan pipeline has been prepared for 2001-2003 comprising ten projects totaling $863.4 million, or an average annual lending level of $250-300 million. Note this amount is below pre-crisis annual lending by the ADB to Thailand of $330 million in 1995 and 1996. Specifically, the annual lending level is programmed for $253.4 million in 2001, $310 million in 2002, and $300 million in 2003. The proposed program will depend on country performance including the Government’s ability to sustain macroeconomic stability, proven commitment to implement policy and institutional reforms, absorptive capacity and effectiveness in utilizing the ADB’s resources, and continued improvements in the governance dimensions of ADB operations in Thailand. The program also reflects the renewed emphasis to be given to poverty reduction, which will be at the core of the next COS. Social infrastructure projects account for 42 percent of the loan program, followed by multisector projects at 40 percent, agriculture and natural resources sector at 12 percent, and transport at 6 percent.

130. The TA program focuses on governance reforms, capacity building, and policy reforms in the social, agriculture/rural development, and financial sectors, and the preparation of participatory project designs. Subject to the availability of resources, a TA pipeline has been prepared for 2001-2003 comprising 13 activities totaling $9.9 million, or an average annual TA level of $3.3 million.