May 15, 2023
BANGKOK – Thailand’s next government must be more ambitious to lead the country towards long-term progress and prosperity, the World Bank’s chief economist for East Asia and the Pacific told The Nation in an exclusive interview.
“Thailand should not be complacent about its past achievements. Be more ambitious … A country that has come so far can go much further,” Aaditya Mattoo said as Thais prepared to vote.
Thailand has made remarkable progress in social and economic growth over the last several decades, but to advance further Thailand cannot rest on its laurels, Mattoo said.
Thailand’s population is ageing and – like the rest of the world – it is facing new challenges, including geopolitical tension, economic volatility, and climate change, he said.
Previous growth strategies no longer work because the social and economic environment has shifted, he added.
Thailand’s economy will grow 3.6% this year, up from 2.6% last year, according to the World Bank’s Thailand Outlook 2023. This growth is underpinned by the tourism sector’s revival and China’s reopening, which strengthens private consumption and increases domestic demand, the report said.
Although it indicated encouraging signs of growth, it also underscored that global trade and investment are not as well integrated as they once were.
Without deeper reforms, Mattoo believes it will be increasingly difficult to sustain development in Thailand.
Following the Asian Financial Crisis and the Great Recession, Thailand and some other Asian countries lost some of their potential to catch up with rich countries due to their aging societies and the rising impacts of climate change.
Thailand’s aging population, according to the World Bank, will immediately require greater spending due to rising public pension and healthcare costs.
The total costs of the Civil Servant Pension, Social Security Fund, and Old Age Allowance are expected to climb from 1.4% of GDP in 2017 to 5.6% in 2060. Costs for long-term care and healthcare are also expected to climb.
The absence of compensatory measures will make it more difficult to maintain fiscal sustainability, which will constrain future growth, the World Bank said, adding that the rising frequency of natural disasters in the country is also a danger to long-term economic progress.
“Reforms are becoming more important,” Mattoo said.
He said Thailand must focus on three things – services, innovation, and human capital – which he described as a triangle of sustainable development.
The service sector needs to be reformed because it will become the major source of income for people who leave agriculture.
“The country and the region grew by openness to trade, investment and manufacturing, but in services, it remains much more reluctant to reform,” Mattoo said, adding that the service sector will evolve in tandem with technology, and that increasing productivity has become a necessity.
“We need reform to harness technology and make sure the benefits go to everybody,” he said.
Furthermore, in order to increase productivity in manufacturing and services, innovation is required as well as proper liberalisation, laws, and incentives.
Investing in human capital is required for both innovation and service delivery.
“You need people with well-educated skills. However, if you generate human capital without also creating opportunities, you will end up with educated unemployed people. So, if I had to put these things together, I would say that this triangle characterises both the growth difficulty and the reform challenges,” Mattoo explained.
According to the World Bank’s Thailand Outlook 2023, Thailand should focus on six issues:
.Improving the business climate through competition and innovation,
.Stabilising fiscal and economic institutions,
.Improving the quality of infrastructure investments,
.Addressing climate change and water resource management,
.Promoting quality education, and
.Assisting vulnerable groups, particularly in the conflict-affected areas of southern Thailand.
As a country that has managed to maintain its growth rate over the last four decades, Thailand already knows what it needs to do to accomplish more, Mattoo said.
Thailand must now figure out what is preventing it from implementing necessary reforms, he said.
Thailand’s reform inertia could be the consequence of a political stalemate, he said.
“I think asking that question is important because you need to provoke a conversation,” he said.
“Most of the people I met here are smarter than me. It is a bit stupid for me to say things that they already know. The question that we should be asking is – why don’t people do what they already know would make the cake expand?”