IMF says Thailand needs structural change in its economy to fully recover from pandemic

The International Monetary Fund (IMF) in its new Country Focus on Thailand published on June 23 suggests that Thailand uses the current crisis for a structural change in its economy and labour policies in order to “lay the groundwork for a strong recovery” from the Covid-19 pandemic.

Thailand has been hit significantly by the disastrous fallout of the pandemic on the economy, with its gross domestic product (GDP) falling by 6.1 per cent in 2020, the largest contraction since the Asian Financial Crisis 1997/98.

While the pandemic has been the direct trigger for the downturn, it has also exposed structural problems of the Thai economy and their inherent risk factors that have existed before, the IMF says.

“Thailand’s dependence on contact-intensive sectors and long-standing structural issues, such as high informality – evident before the pandemic –, warrant a strong push to adapt the economy to the post-pandemic world,” it adds.

One of the country’s key industries, the mass tourism sector which accounted for about a fifth of GDP and (officially) for 20 per cent of employment in pre-pandemic times, has been especially affected by the cessation of tourist travel. Even though international organisations and analysts for years warned that looking for ever-growing foreign arrival numbers was not an adept strategy to make the country fit for the 21st century, no noticeable measures were undertaken by the Thai government towards diversification away from mass tourism.

As the millions of foreign tourist arrivals came to an end, low-skilled, informal and migrant workers have suffered disproportionately from diminished employment opportunities in contact-intensive sectors, bearing a significant burden of the layoffs observed in 2020. They were followed by those made redundant by small and medium enterprises which saw their businesses dwindling from one lockdown to the next.

The large toll of the pandemic on the Thai economy would potentially induce long-term scarring and further increase an already high inequality, the IMF warns.

Further scaling up of investment, particularly for digital infrastructure, combined with improving training and education outcomes and promoting innovation should be prioritised now in order to catalyse the Thai economy’s digital transformation and mitigate the possible long‑term economic damage from the pandemic, the development fund recommends.

The Thai authorities should see the crisis as an opportunity to transform the tourism sector from mass and low‑cost to high‑end and low-density tourism in order to reduce the sector’s dependence on tourism‑related infrastructure, services, as well as human and natural resources, the IMF notes.