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, GDP growth has picked up modestly since the surge in COVID-19 cases in 2021, but economic activity remained below pre-pandemic levels in the first quarter of 2022. The economy is expected to expand by 2.9% in 2022, one percent slower than expected in December 2021, but the recovery will strengthen in the medium term.
While poverty and unemployment are estimated to have declined over the past year, labor incomes have fallen, and household debt has increased to meet expenditure needs. The official unemployment rate declined to 1.5% in the first quarter of 2022 from 2.0% a year earlier. Poverty is estimated to have declined to its pre-pandemic level in 2021 after a slight increase in 2020 as the impacts of the economic slowdown were mitigated by covid-relief measures. Nevertheless, since 2019 the average labor income of Thai households has declined, and average household debt has increased by about a quarter, driven by loans for housing and education.
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. The emergence of new vaccine-resistant strains of coronavirus could affect domestic activity, goods trade, and the projected recovery in tourism arrivals. The economic fallout from Russia’s invasion of Ukraine could also last for longer than expected, with a more prolonged impact on prices likely to put further downward pressure on consumer demand. To sustain recovery, it will be important to rebuild fiscal buffers, monitor financial sector vulnerabilities, and explore more environmentally sustainable and efficient approaches to economic production. 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 September 2022
