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Regions and Countries Country Economic Reviews Document
Executive SummaryIn 2000, Thailand’s economy continued to recover from the currency and financial crisis that erupted in 1997. However, recovery was incomplete and only some of the income lost as a result was restored. Real gross domestic product (GDP) grew at 5.9 percent year-on-year in the first half, but slowed to 3.1 percent in the second half of the year. For the year as a whole, real GDP grew by 4.4 percent. Faster growth in the first half of the year was propelled mainly by strong export performance, the lagged effects of an earlier fiscal stimulus, and accommodative monetary conditions. Slower growth in the second half was attributable to less favorable external demand conditions and political uncertainty ahead of the January 2001 national election. The global economic slowdown is having a significant impact on the Thai economy. In the first half of 2001, considerably weaker export growth together with sluggish domestic demand led to a GDP growth rate of 1.9 percent year-on-year. The consumer price index increased by 1.6 percent in 2000, and by 2.0 percent in the first half of 2001, after exceptionally low inflation of 0.3 percent in 1999. The unemployment rate fell to 3.6 percent in 2000, but was still higher than the 1.5 percent in 1996 before the crisis. The crisis has had a severe impact on the poor. By 1999, the incidence of poverty in Thailand had returned to around its 1994 level. Poverty incidence increased from 11.4 percent in 1996 to 15.9 percent in 1999, pushing about 3 million people below the poverty line during 1996-1999. Despite the reduced deficit, the Government maintained a supporting fiscal position to stimulate economic growth. In FY2000 the Government registered a consolidated central Government deficit of B153.9 billion, or 3.2 percent of GDP, a reduction from B512.5 billion, or 11.2 percent of GDP in FY1999. The sharp reduction in deficit was due to the decline in capital transfers to the financial sector in FY2000 over FY1999. The deficit was financed mainly by domestic sources. As a result of successive deficit spending measures to stimulate the economy and support for financial sector restructuring, four years of fiscal deficits have led a substantial increase in public debt. Total public debt outstanding was about B2.8 trillion at the end of 2000, equivalent to around 58 percent of GDP. This is almost four times its precrisis level of 15 percent of GDP in 1996. However, based on current fiscal policy, Thailand’s public debt position remains manageable. Bank of Thailand (BoT) introduced an “inflation targeting framework” to guide monetary policy in May 2000. The 14-day repurchase rate averaged at about 1.5 percent in 2000 and was raised to 2.5 percent in June 2001. BoT continues to target inflation and uses the benchmark 14-day repurchase interest rate to signal its monetary policy stance. In 2000 the average annual growth rate of money supply (M2) was 3.7 percent, compared with 2.1 percent in 1999. With high liquidity in the financial system, short-term interest rates remained at a two-year low. However, net domestic credit continued to decline and fell by 7.4 percent during 2000. In particular, credit to the private sector dropped by 8.4 percent. This was the third year of domestic credit decline, largely reflecting the commercial bank’s unwillingness to lend in the face of high credit risks and weak balance sheets, and weak domestic demand. Progress has been made in reducing the proportion of nonperforming loans (NPLs). The NPL ratio declined to about 18 percent at the end of 2000, and to about 13 percent at the end of June 2001, from its peak of 47.7 percent of total loans outstanding in 1999. The sharp decline in NPLs was partly the result of debt restructuring, but was also due to the transfer of NPLs to the asset management companies. Therefore the resolution of the NPL problem is incomplete and remains a significant challenge to the Government. However, it is expected that NPLs will be reduced and debt restructuring accelerated by the effective operation of the centralized Thai Asset Management Corporation (TAMC) which was established in June 2001. Robust export growth continued to be a major factor contributing to economic growth during 2000. Exports rose by 19.6 percent (in $ value terms) over 1999, but began tapering off from the fourth quarter of 2000. In the first half of 2001, exports contracted by 0.9 percent (in $ value terms) year-on-year. Slower export growth was attributed to the United States (US) economic slowdown and the ongoing slowdown in the electronics business cycle. About 22 percent of Thailand’s exports go to the US and about 19 percent of total exports are electronics. The trade account surplus was narrower at $5.5 billion at the end of 2000, following the significant growth in imports, and at $4.67 billion in the first half of 2001. Service income performed strongly in 2000, as net income from tourism surged. Thailand's economy is less vulnerable than in 1996. Although the current account surplus narrowed to $9.21 billion in 2000 from $12.5 billion in 1999, this compares with a large current account deficit in 1996. The capital account deficit increased to $9.8 billion in 2000 from $7.9 billion in 1999, mainly caused by repayment of foreign loans by the corporate sector. International reserves were $32.7 billion at the end of 2000, and fell slightly to $31 billion by the end of June 2001. However, reserves are more than twice the level of short-term debt and equivalent to around five months of imports. Thailand’s external debt has declined from the levels of 1996. Total external debt decreased to about $80 billion at the end of 2000, from about $109 billion at the end of 1996, mainly due to continued external debt repayments by the private sector. Short-term external debt obligations also declined to $15 billion or 18 percent of the total outstanding external debt in 2000 from $47.7 billion or 44 percent in 1996. Meanwhile, international reserves as a ratio of short-term debt have increased from 81 percent in 1996 to 222 percent in 2000. Dr. Thaksin Shinawatra became the Prime Minister following a general election on 6 January 2001. The new administration has identified the sluggish economy, poverty, narcotics, and corruption as the four main challenges facing the country. The Prime Minister faces immense pressure to stimulate the economy quickly and fulfill his campaign pledges. The new administration outlined its economic plan to Parliament on 26 February 2001, including a village fund, farmer debt suspension, a public health program, reform of government salary payment, banking facilities for the poor, and the centralized TAMC. Faced with a sharp decline in export growth largely as a result of deteriorating external conditions, the Government has adopted an expansionary fiscal stance to stimulate the economy. The 11 September 2001 attacks on the US, against a backdrop of an already weakening global economy, have further worsened the outlook for the Thai economy in short term. Growth is projected to slow down to 1.5 percent in 2001. Exports are expected to contract by around 4.5 percent and imports to grow by around 1 percent. The current account surplus is expected to decline to around 4 percent of GDP. The level of international reserves is expected to remain at around $30 billion, covering about 5 months of imports. It is expected that economic momentum will strengthen in 2002 with anticipated growth in the range of 2.5–3.0 percent. Prospects for growth are highly dependent on continued progress in financial sector reform and corporate debt restructuring. Both are much needed to improve efficiency and profitability, and to boost investor confidence. Growth prospects will also be influenced by how external conditions evolve.
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