IMF urges expansionary policy for Thailand

IMF urges expansionary policy for Thailand

An IMF delegation has recommended Thai policymakers use an expansionary policy mix to boost domestic demand while the economy stutters, according to preliminary findings of the agency's team after an annual visit to Thailand.

The expansionary policy mix includes a scaling up of public investment projects combined with fiscal reforms and monetary easing consistent with a data-dependent approach, accompanied by macroprudential policies to preserve financial stability, said the findings, which will be presented to the IMF's executive board.

The IMF staff visited Bangkok from July 4-19 to hold talks on the 2019 Article IV Consultation with officials from the government, the Bank of Thailand, other public institutions and representatives from the private sector.

The IMF's executive board is tentatively scheduled to discuss the staff report in September.

Structural reforms would also contribute to addressing large economic imbalances and promoting inclusive and sustainable growth, it said.

Thailand's economy is spluttering, with annual growth of 2.8% during the first quarter -- the lowest pace in more than four years, compared with last year's growth of 4.1% -- the fastest growth since 2012.

"The authorities are making steady progress in implementing the medium-term fiscal framework to support the fiscal responsibility law, increasing the efficiency of the tax structure, and preparing a bill to improve the pension system," said the IMF.

"The mission recommends a front-loaded increase in public investment in fiscal 2020, including through public-private partnerships [for example, Eastern Economic Corridor projects], supported by stronger public investment management, which can catalyse private investment and raise productivity growth."

With an absence of fiscal stimulus for the remainder of this year because of delays in the 2020 fiscal budget following the new government's transition and the moderation of the financial cycle, monetary easing would help support domestic demand and external rebalancing, the findings said.

The exchange rate should remain flexible to serve as a key shock absorber in response to volatile capital flows, while using macroprudential policies to address possible financial stability risks and foreign exchange intervention should be limited to avoid disorderly market conditions.

The findings referred to a recent Financial Sector Assessment Program (FSAP) conclusion that financial vulnerabilities appear to be contained, while household debt is relatively high and there are signs of weaknesses in some corporations and small and medium-sized enterprises.

Stress test results suggest the banking sector is resilient to severe shocks and that systemic and contagion risks stemming from interlinkages are limited.

To safeguard financial stability, the mission encourages the authorities to continue to implement the FSAP recommendations, including closing existing gaps in the crisis management and resolution frameworks, and enhancing the economic framework and policies.

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