Thailand: Risk Assessment
Country Risk Rating
Business Climate Rating
- Regional hub; long coastlines; proximity to fast-growing Asian markets
- Strong external accounts and substantial foreign exchange reserves
- Richly endowed in agricultural resources (natural rubber, rice and sugar cane)
- Diversified exports: tourism, machines, car parts, electronic components, agri-food products, fish and shellfish
- Inadequate infrastructure
- Aging population and shortage of skilled labor
- Uncertain political situation; antagonism between rural and urban areas
- High corruption perception and large informal economy
- High household debt levels
Gradual growth recovery
Thailand's economic growth contracted sharply because of COVID-19. The main reason was the decline in exports of goods and services (60% of pre-crisis GDP), which were hit by softer global demand, supply chain disruptions and border closures. In 2021, economic growth should gradually resume. Exports are expected to recover in line with the economic upturn and rising external demand while remaining constrained by economic uncertainties.
Tourism (20% of GDP, 21.5% of employment and 21% of exports) was severely impacted by the mobility crisis triggered by COVID-19. In 2021, it should recover as travel restrictions are eased, but will not return to pre-crisis levels as, with the virus still present, obstacles may remain. The manufacturing sector, which is integrated within regional and global value chains, notably for electronics and automobiles, was likewise rocked by the crisis and the decline in domestic and external demand. In 2021, it is expected to rebound with the recovery.
Household consumption declined (50% of GDP). It was already affected by high debt levels (80% of GDP in Q1 2020) and also had to contend with rising unemployment (3% in 2020 against 1% in 2019). However, the government implemented significant fiscal measures (9.6% of GDP), including health measures as well as social and economic aid (financial support for households, businesses and sectors hardest hit by the crisis) that will continue to be implemented in 2021 and that should help next year’s recovery. Investments, which contracted sharply because of the crisis, are expected to recover strongly despite the uncertain economic and social environment. Thailand is planning for public-private partnership investments worth USD 33 billion between 2020 and 2027, in order to boost its economy over the long-term. The plan includes 92 projects, 18 of which are focused on infrastructure. Furthermore, the Eastern Economic Corridor, a development plan aimed at creating a vast industrial and technological cluster in an area southeast of Bangkok and that is a government priority, will continue to attract foreign investment.
Current account surplus and public deficit
The current account balance, which is traditionally positive due to a high trade surplus, showed a smaller surplus because of COVID-19, as the decline in exports affected the trade balance, which then reduced the current account surplus. While the trade balance remained in surplus, the services balance showed a deficit for the first time since 2014, notably due to the downturn in tourism. In 2021, it is expected to grow only modestly, without returning to its pre-crisis level because of the weak tourism sector, which is not expected to fully recover because travel restrictions have not yet been lifted. Growth in goods exports will be affected by the moderate recovery of some of Thailand's partners, such as the United States, which continue to be severely impacted by the health crisis. However, the external situation will remain strong, with recurring current account surpluses helping to fuel official reserves, which stood at over 12 months of imports in 2019. This will support the exchange rate and enable the baht to be resilient.
The public deficit widened in 2020 due to increased spending and lower revenues following the health crisis. In 2021, it will remain high since government revenues will only gradually recover and additional spending to address the crisis will continue to act as a drag. Public debt increased but remains at relatively low risk: it is almost entirely denominated in Thai baht and contracted over the medium- to long-term.
Demonstrations are testing the government
Thailand has been a constitutional monarchy since 1932. It is plagued by chronic political instability and numerous army-led coups. Since the beginning of 2020, the country has seen a series of student-led demonstrations, which have been further exacerbated by the crisis. The mass protests are the largest since the 2014 coup d'état that led to the appointment as prime minister of Prayuth Chan-o-cha of the pro-military Phalang Pracharat (PP) Party. Following disputed elections in 2019,. Prayuth Chan-o-cha remained in power. The protests began in response to the constitutional court's decision to dissolve the Future Forward Party founded by Thanathorn Juangroongruangkit, a young politician. His party had 81 seats in the lower house. This decision allowed the government to strengthen its majority in the house (270 of the 500 seats). The protestors’ main demands include reforming the monarchy, including the monarch’s status, and rewriting the 2017 constitution, which gives broad powers to the 250 senators chosen by the army. They are also calling for parliament to be dissolved and for the prime minister to resign. With the authorities refusing to make concessions, protests are continuing, despite being banned, and may be more severely repressed.