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. 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. Structural transformation is unlikely to continue moving resources from agriculture to industry, as it once did. Manufacturing shows modest forward linkages but remains dependent on foreign inputs and faces increasing competition from regional neighbors. Travel and tourism, the country’s mainstay in services, present relatively fewer linkages and diversification prospects when compared to other service subsectors.
Thailand’s progress in poverty reduction has slowed from 2015 onwards, mirroring a slowing economy and stagnating farm, business, and wage incomes. Poverty is estimated to stagnate in 2021 amid slow labor market recovery and gradual phasing out of the government’s relief measures. 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.
According to the Thailand Economic Monitor, the COVID-19 pandemic shock saw the Thai economy contract by 6.2% in 2020 due to a decline in external demand affecting trade and tourism, supply chain disruptions, and weakening domestic consumption. After suffering its worst contraction since the Asian financial crisis in 2020, the economy expanded by 1.6% in 2021 amid four waves of the pandemic and is not expected to recover to pre-COVID-19 levels until 2023. The COVID-19 pandemic also has created several additional challenges in the labor market. The primary impact has been a spike in the unemployment rate. By the first quarter of 2021, there were 710,000 fewer jobs compared to the previous year.
Thailand’s policy response to the COVID-19 pandemic was to bolster economic activity and support the livelihoods of the most vulnerable, which has centered on a 1.5 trillion baht off-budget fiscal package – about 9% of GDP – to fund cash transfers, the medical response, and economic and social rehabilitation. Large-scale cash transfer programs have been established to support vulnerable groups who would not otherwise have been covered by existing social assistance mechanisms.
The global trajectory of the pandemic remains unpredictable. Rising energy and food prices will slow growth in private consumption and household welfare. This welfare impact can be mitigated by continued social assistance and government relief programs. To sustain the recovery, Thailand will depend on continued progress with the rollout of vaccines booster shots, the ongoing implementation of other preventive and testing/tracing measures, and sustained reopening of international borders.
To bring back momentum for poverty reduction, policy priorities would need to focus on expanding social assistance benefits for vulnerable populations. It is estimated that in the absence of the compensation package introduced by the government, poverty would have increased to 7.4% in 2020, instead of the actual 6.2%. Another wave of COVID-19 in 2021 has slowed the recovery with vulnerable groups bearing a disproportionate burden.
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 March 2022