Thailand: Risk Assessment
Country Risk Rating
Business Climate Rating
- Diversified and efficient production in fisheries, agriculture (40% of global natural rubber production), industry and services
- Regional crossroads open to its dynamic neighbors
- Strong external accounts
- Diverse exports: tourism, automotive components, agri-food products (rubber, seafood, rice, cane sugar, fruits), electronic components and organic chemistry
- High savings rate
- Uncertain political situation; antagonism between rural and urban areas
- Inadequate infrastructures
- Aging population and shortages of skilled labor
- Mid-range positioning and lack of innovation
- Enduring links between private sector and politicians (corruption), underground economy
- High level of household debt
Strong growth supported by public investments
GDP growth is expected to remain strong in 2019. Household consumption (half of GDP) will grow by 4.5%. The adverse effects of high household debt (above 75% of GDP) and sluggish real wage growth on consumption will be offset by recovering consumer confidence, low interest rates, low inflation and the yet-again deferred increase of the VAT rate (from 7% to 10%) until September 2019. Private investment, both foreign and national, will continue to be dimmed by investors’ fears of instability and regional competition. Public investments are therefore stepping in via the National Strategic Plan (NSP) 2017-2036, which aims to enhance competitiveness through the development of rail, road, airport, and electricity infrastructures. The construction sector will therefore show a strong performance in 2019. Through investment, the government also aims to increase growth potential by accelerating the transition towards a service economy (currently 55% of GDP), starting with upgrades of the automotive and electronics industries. The service industry will continue to perform well, notably thanks to tourism-linked demand. Tourism will contribute largely to GDP growth, even if it will continue to be challenged by the decline in Chinese tourists, following a boat accident which led to 41 Chinese casualties (Chinese tourists count for nearly a third of tourism in Thailand). External demand will also drive growth, as slowing Chinese demand will be compensated by other markets: exports of goods and services are set to pass 70% of GDP in 2019. The automotive sector is the biggest sector for exports of goods.
The central bank plans to maintain the policy rate at 1.5%, targeting growth and inflation. However, a pickup in private investment is needed for growth rates to accelerate strongly while inflation remains below the brackets of the central bank’s inflation target of 1 to 4%, especially given that the 0.9% growth of prices is mostly due to rising oil prices.
Resilient financial situation
Thailand is far from reaching the constitutionally-imposed limits of 60% of GDP for public debt and of 3% of GDP for budget deficit. Public debt remains contained: although approximately 20% of it is externally held, it is almost entirely denominated in baht and with medium- to long-term maturity. Public expenditure will continue to focus on addressing social challenges, including poverty, child-care assistance and a pension reform. Most of the planned infrastructure investments, such as the Eastern Economic Corridor or the linkage of the Andaman Sea to central Thailand, will be carried out via SOEs. Including these investments in the budget balance would bring the deficit to 2.5% in 2019.
Global monetary tightening triggered depreciation pressures on emerging markets’ currencies, but the baht is expected to hold steady against the US dollar. Thailand has a strong external position and buffers, with foreign reserves representing over nine months of imports. The current account will remain in surplus, although it will deteriorate on the back of higher commodity prices, which means that Thais are investing more abroad than foreigners invest in the country.
Elections delayed by the military
Since the country’s nineteenth coup d'État in May 2014, a Constitution institutionalizes dominant military power and increases the power of the King. Parliamentary elections were promised after ratification but were postponed six times and rescheduled for February 2019. Currently, the Commander-in-Chief of the army, General Prayuth Chan-o-cha, governs as Prime Minister via a junta called the National Council for Peace and Order (NCPO). The Constitution limits political campaigning rights in the run-up to the elections and leaves a lot of control to the military, whatever the outcome of the elections. In addition to nominating Senate members, the junta retains the reins of policy making via the NSP, as all governments are constitutionally bound to carry out this development strategy until 2037, otherwise risking impeachment. General Chan-o-cha is the favored candidate. His main opponent would be the yet-to-be-announced candidate of the Puea Thai party, which has won all elections since 2001 and represents the “red shirts” electorate. The billionaire Thaksin Shinawatra is the party’s charismatic leader. He was Prime Minister until the 2006 coup, followed by his sister until the 2014 coup. They are both in exile to avoid jail sentences for corruption charges. Public protests, repressed by the army, between the “red shirts” (Northern rural population, students and workers) and the “yellow shirts” (royalists, nationalists and Southern urban bourgeoisie) are still commonplace. Elections may again be postponed until the junta is assured of winning the vote, but could be held in February for fear of public unrest.
Upon the United States’ withdrawal and the promise of organized elections in 2019, Japan agreed to support Thailand’s planned 2018 application for membership to the CPTPP.