Thailand hopes to receive a loan of US$3.1 billion from the World Bank for clean energy technology projects to help limit the impact of climate change, according to the Department of Alternative Energy Development and Efficiency (DEDE).
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Private investment in Thailand has been subdued in the past three years due to uncertainty about the political situation.
In 2006-2008 investment grew by an average of 2.7 percent a year (compared with real GDP growth of 4.3 percent on average), down from 14.8 percent during 2003-2005. This earlier retrenchment of investment has dampened the impact of the financial crisis, most notably on foreign direct investment (FDI). While little new FDI is expected, there has been no rush to exit from foreign investors. Growth of private investment in 2008 came mainly from Thai investors, as gross FDI inflows declined from 2007 levels. Private investment is expected to contract 5 percent in 2009 as capacity utilization remains low (around 50 percent). However, growth could resume in the fourth quarter on the back of increased public investment. Public investment has been sluggish in Thailand since the 1998 crisis, but is expected to increase in 2009 given increased political stability and the political imperative to respond to the slowdown in the export sector. The share of public investment in real GDP averaged only 5.7 percent during 2004-2008 compared more than 10 percent before the 1998 crisis. In 2008, public investment contracted by nearly 5 percent as a result of political uncertainties, which delayed investment decisions. Public investment is projected to grow at 7 percent in 2009 as the implementation of large infrastructure projects step up.
Fiscal policy has become expansionary to mitigate the impacts of the crisis.
Thailand’s economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade.
With unemployment on the rise, the number of people living under the poverty line will likely increase. Employment opportunities for workers in the urban informal sector, such as contract workers in manufacturing, in construction, and in tourism are shrinking, and it is unclear if they can go back to agriculture. As the government plans another economic stimulus program, considerations should be given to measures that will boost employment and specifically target these workers.
So far, the Thai government has enough capacity to finance the first economic stimulus package and the three-year public investment plan. In the face of shrinking revenues, the government estimates its budget deficit to be about 525 billion baht, or 6 percent of Thailand’s gross domestic product, in the fiscal year ending September 2009. It is also seeking loans from domestic and external sources to shore up the budget and support planned investment.
However, the World Bank cautioned that, for public debt to remain manageable, budget deficits will need to be reduced over the next few years and growth needs to return its long-term average, highlighting the importance of using the crisis as an opportunity to enhance growth prospects.
For the year 2008, the Thai economy decelerated from the previous year, particularly in the last quarter where global economic downturn and internal political unrest adversely affected manufacturing production and tourism. Nonetheless, farm income still expanded well from higher major crop production and price compared to the previous year.The political unrest in the last quarter of 2008 will continue to dampen tourist confidence into at least the first half of 2009. In addition, the slow down in growth of the economies from which a large number of tourists come to Thailand, such as EU and Japan, will reduce tourist receipts next year. With the slow down in exports capacity utilization is expected to fall; which will negatively affect private investment.Household consumption growth will also continue to be dampened as income growth will be slower next year with employment increasing minimally, and consumer confidence falling, even though inflation will be significant lower at only around 2 percent compared to 6 percent this year. Significant downside risks remain to the growth projection should political instability heighten, the global economy decelerate faster than projected, and implementation of the fiscal stimulus is delayed.