Thailand: Risk Assessment
Country Risk Rating
Business Climate Rating
- Diversified and efficient production in fisheries, agriculture (40% of world production of natural rubber), industry (automobile, electronics, agri-foods) and services
- Regional crossroads open to its dynamic neighbors
- Strong external accounts
- Diverse exports: tourism, agri-food products (rubber, seafood, rice, cane sugar, fruits), electronic components, computers and organic chemistry
- High savings rate
- Uncertain political situation and 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 political milieus (corruption), underground economy
- High level of household debt (79% of GDP)
Steady and Moderate Growth in 2018
The National Strategic Plan (2017-2036) places the emphasis on competitiveness through the development of rail, road, airport, and electricity infrastructures. Although the government hopes to attract foreign investors – for the Eastern Economic Corridor in particular –the big public investments in 2018 will likely rely solely on the state. Private investment, whether national or foreign, is likely to remain cautious. Exports of goods and services (71% of GDP) are set to perform well, with the slowdown in China being offset by the economic upturn in other markets. The automobile sector is set to continue as the second biggest exporting sector, behind tourism.
The contribution of trade to growth is expected to remain slightly positive, despite the increase in imports of capital goods, intermediate products, and raw materials associated with the dynamism of public investment and industrial exports. Household consumption (half of GDP) should remain strong, reflecting the levels of real disposable income, and despite high indebtedness. Slightly higher inflation will likely be counterbalanced by the favorable impact on pay of strong employment and activity in most sectors. In addition, households are also set to continue benefitting from a relaxed budget policy with, specifically, the maintenance of VAT at 7% instead of 10%, at least until the 30th September 2018. Finally, the central bank is expected to hold its key lending rate at 1.5%. In terms of supply, services (55% of GDP), such as hotels, catering, transports, and telecommunications, will benefit from growing numbers of foreign visitors, and agriculture (10% of GDP and 30% of jobs) from growth in external markets. The construction sector will likely gain from the launch of large-scale transport infrastructure projects, although the situation will be more mixed for industry.
Resilient Financial Situation
Vigorous public investment, and, more generally, the accommodating budget policy in the run-up to an eventual election, is likely to lead to a slight increase in the public deficit. There is, however, room for maneuver, as tax revenues only amount to 18% of GDP. Public debt, more than 95% held by residents, will remain well below the 60% ceiling defined in the Constitution.
In external terms, the decline in the goods and services surplus (10% of GDP in 2017), caused by increasing imports, will impact on the current account surplus – although this will still remain substantial, as the former will continue to largely exceed the income deficit arising from the repatriation of dividends. Thai investments in other countries (ASEAN, USA, and Europe) – both portfolio and direct – in hotels, retail, agri-foods, chemicals, and finance, exceed foreign investments into the country. However, the surplus on the balance of payments will probably be large enough to supplement the currency reserves, which amount to approximately ten months of imports, and are greater than the external debt (31% of GDP), which is mainly supported by the private sector. The Thai baht is expected to hold steady against the dollar.
Elections Delayed by the Military
Since the May 2014 coup d’état, the nineteenth since democracy was adopted in 1932, General Prayuth Chan-o-cha, Commander-in-Chief of the armed forces, heads the National Council for Peace and Order (the junta) and, as Prime Minister, an interim government consisting of a 35 member cabinet, a legislative assembly of 200 members, and a Reform Council of 250 members, dominated by the military. The adoption of a new Constitution in a referendum (61% of votes in favor) in August 2016 and its ratification in July 2017 by the new King Maha Vajiralongkorn could lead to parliamentary elections at the end of 2018 or in 2019, but not before the passing of ten organic laws. The new Constitution (twentieth since 1932) reduces the role of universal suffrage in the appointment of the Prime Minister. The Prime Minister will be appointed by an Assembly consisting of 500 elected members and a Senate of 250 members appointed by the military. He is then required to apply the National Strategic Plan which, in addition to improving infrastructures, includes strengthened security, the promotion of social equality, the development of human resources and those of the public sector. Royal powers have been increased – an illustration of the cooperation there is between the military and the king, who succeeded his father, Bhumibol Adulyadej, following a reign of over 70 years. Today, the king is a symbol of continuity and stability in a country that has lived through a large number of coups d’état. With the possible approach of elections, conflict – often used as a pretext by the army to intervene – between, on one side, (the “red shirts” (the rural population of the north, students, and workers) and the “yellow shirts” (the royalists, nationalists and urban bourgeoisie of the south) could once again be ignited. The former is represented by the populist Pheu Thai Party, winner of all elections since 2001 and led in turn by the former Prime Ministers, Thaksin and Yingluck Shinawatra, brother and sister, removed in 2006 and 2014 and exiled to escape punishment. The latter is represented by the Democrat Party, conservative and liberal, generally unable to constitute a majority to form a government, but quick to foster street demonstrations in the capital.