Over the last four decades, Thailand has made remarkable progress in social and economic development, moving from a low-income to an upper middle-income country in less than a generation. As such, Thailand has been a widely cited development success story, with sustained strong growth and impressive poverty reduction. Thailand’s economy grew at an average annual rate of 7.5% in the boom years of 1960-1996 and 5% during 1999-2005 following the Asian Financial Crisis. This growth created millions of jobs that helped pull millions of people out of poverty. Gains along multiple dimensions of welfare have been impressive: more children are getting more years of education, and virtually everyone is now covered by health insurance while other forms of social security have expanded.
However, the growth prospects from the export-led model that not long ago powered so much of Thailand’s economic growth seem to have diminished significantly, owing to a stagnation in productivity. Average growth in total factor productivity (TFP) stagnated from a high of 3.6% per annum during the early 2000s to just 1.3% during 2009–2017. Private investment declined from more than 40% in 1997 to 16.9% of GDP in 2019, while foreign direct investment flows and participation in global value chains have shown signs of stagnation.
Additionally, the COVID-19 pandemic has dealt a blow to the economy, aggravating the structural challenges. In 2020, the economy is estimated to have contracted by 6.1%. This is sharply steeper than the decline that occurred during the 2008 Global Financial Crisis (0.3% in 2008) and second only to the 7.2% contraction in 1998, the sharpest full-year economic contraction in the past 25 years. A rapid phone survey by the World Bank implemented from April to June 2021 estimated that more than 70% of households experienced a decline in their income since March 2020, with vulnerable groups being hit hardest.
Thailand has made remarkable progress in reducing poverty from 58% in 1990 to 6.8% in 2020 driven by high growth rates and structural transformation. But 79% of the poor remain in rural areas and mainly in agricultural households. Thailand’s poverty reduction slowed from 2015 onwards with poverty increasing in 2016, 2018 and 2020, mirroring a slowing economy, stagnating farm and business incomes and the COVID-19 crisis. It finds that in 2020, the poverty rate was over 3 percentage points higher in rural areas than in urban zones and the number of rural poor outnumbered the urban poor by almost 2.3 million. The distribution of poverty has also been uneven across geographic regions with the poverty rate in the South and in the Northeast almost double the poverty rate at the national level.
According to the Thailand Economic Monitor, Thailand’s economy is projected to recover to its pre-pandemic level in 2022, but the pace of growth will be slower-than-expected in 2023 owing to global headwinds. The economy is projected to expand by 3.4% in 2022 and 3.6% in 2023. Growth in 2023 has been revised down by 0.7 percentage point compared to earlier projections reflecting faster-than-expected decline in global demand. Tourism sector recovery and private consumption will remain the major drivers of growth.
Thailand’s fiscal response to COVID-19 significantly mitigated the impact of the crisis on household welfare. Poverty is, however, projected to rise to 6.6% in 2022 from 6.3% in 2021 as the COVID-19 relief measures start to be phased out amid elevated inflation. Additional shocks, including a renewed spike in energy prices, may further erode fiscal space unless more targeted and cost-effective social assistance measures are introduced.
Thailand’s 2020 Human Capital Index (HCI) of 0.61 indicates that the future productivity of a child born today will be 39% below what could have been achieved with complete education and full health. Thailand is renowned for its universal health care program (UHC) and success in child nutrition, but quality of education remains a weak point for the country’s human development. According to the Index, the country ranks high in quantity (expected years) of schooling and in the fraction of children not stunted, but low in education quality—measured by harmonized test scores. Social assistance schemes are fragmented, with untapped opportunities to modernize the level of benefits packages and efficiency.
Aging will directly lead to increased spending needs, through rising public pension and healthcare costs. The combined fiscal costs of the Civil Servant Pension, the Social Security Fund, and the Old Age Allowance are projected to rise from 1.4% of GDP in 2017 to 5.6% in 2060. Long-term aged care and healthcare costs are also expected to rise. The International Monetary Fund (IMF) estimates that public expenditure on healthcare will increase from 2.9% of GDP in 2017 to 4.9% of GDP in 2060 due to aging. The absence of offsetting measures will make it more difficult to maintain fiscal sustainability, which will become a constraint on potential growth.
The increasing frequency of natural disasters is also a threat to sustained economic growth, as it has come at the cost of the environment and inclusion. Greenhouse gas emissions have risen markedly during this recent period of rapid growth, as has inequality between the country’s regions and firms. Thailand is a major marine plastic polluter on land, in river systems, and along coastlines. With the country’s National Action Plan on Marine Plastic Debris 2023-2027, and Bio-Circular-Green Economy (BCG Model), Thailand set out the goal to identify public-private-people mechanisms for plastic waste segregation and enhance plastics circularity.
Last updated April 2023