Thailand has made remarkable socio-economic progress over the past several decades. Sustained strong growth has turned it into an upper-middle income country, brought down poverty and delivered advances in a number of well-being dimensions. Even so, rising prosperity has not been shared equally across the country. Today, Thailand strives to pursue a development path to benefit all, seeking to reinvigorate economic transformation and reduce multifaceted inequalities in the face of a rapidly ageing population and technological change. This overview presents Thailand’s development from a comparative and historical perspective and assesses performance across a range of well-being outcomes. On the basis of the analysis in the subsequent chapters, which cover the five critical areas of the Sustainable Development Goals – people, prosperity, partnerships, planet and peace – the overview identifies the key constraints facing policy makers in their pursuit of inclusive development.
Multi-dimensional Review of Thailand (Volume 1)
Overview
Abstract
Thailand is striving to realise an ambitious long-term development vision. Strong growth since the 1970s enabled the country to join the group of upper-middle-income economies in the early 2010s and has seen Thailand perform well in many areas. Poverty has plummeted and well-being has improved considerably, notably with respect to health and education. At the same time, economic development has taken a toll on the environment and the benefits of prosperity have not been shared evenly nationwide. Moreover, a very large share of the labour force remains in informal work. Moving forward, Thailand needs to achieve faster but also more inclusive economic growth, while contending with demographic and other challenging structural transitions.
The Multi-dimensional Country Review (MDCR) is being undertaken to support Thailand in achieving its development objectives. It consists of three phases and reports. This first volume builds on the 2030 Agenda for Sustainable Development and its Sustainable Development Goals (SDGs) to identify the main constraints to achieving inclusive sustainable development. The second review phase will consist of an in-depth analysis of those constraints to formulate more detailed policy recommendations that can be integrated into Thailand’s development planning processes. The third and final phase of the MDCR will focus on moving from analysis to action.
This overview describes Thailand’s performance across well-being dimensions and brings together the results of the thematic chapters to identify the key constraints to development. First, it outlines the history and context of Thailand’s development and describes the country’s vision for the future. Second, it presents performance across a range of well-being indicators. The overview then draws lessons from the subsequent five thematic chapters, which follow the five Ps of the 2030 Agenda: People, Prosperity, Partnerships, Planet and Peace. The final section reviews the key transitions needed for Thailand to achieve its development ambitions. Whenever relevant and subject to data availability, Thailand is compared with a set of benchmark countries in Asia (China, Indonesia, Korea, Malaysia, the Philippines, Singapore and Viet Nam) and beyond (Colombia, Mexico, Poland, South Africa and Turkey).
A brief history of Thailand’s development
Thailand has developed from a feudal trading hub connecting South with East Asia in the 18th and 19th centuries into a rapidly modernising urban economy. Remarkable progress has been made since the introduction of constitutional rule in 1932, but several challenges remain.
The second half of the 20th century saw rapid economic expansion and transformation towards an urban economy dominated by manufacturing and services. Building on reforms promoting openness and investment in the 1960s, the composition of Thai exports shifted from mainly agricultural base materials to electronics and textiles. Tourism has boomed since the 1970s, resulting in revenues of USD 9 billion or some 5% of GDP as of 1995. This transformation was driven largely by Thailand’s urban centres, which offered jobs and higher living standards. By the mid-1990s, 18 million citizens (30%) resided in urban areas, up from 7 million in 1970. Productivity rose fast and continued to propel the economy as urban jobs replaced rural ones.
The Asian financial crisis of the late 1990s hit Thailand hard (Figure 1) and highlighted shortcomings, but became an opportunity to improve economic management and governance. Capital account liberalisation in the 1980s and early 1990s facilitated inward foreign investment, but limited regulatory capacity constrained the government’s ability to rein in risky investments and corporate cronyism. At the same time, human capital emerged as a weakness, as real wages increased faster than educational attainment. This caused many Thai and foreign firms to relocate to countries with cheaper and often better educated labour. As foreign exchange reserves dwindled and business sentiment turned sour, the baht collapsed in mid-1997 amid substantial capital flight, causing a deep recession. This cycle was soon repeated elsewhere in key emerging Asian economies, an event now known as the Asian financial crisis of 1997-98. The lessons learnt from the crisis have guided Thai economic policy in subsequent years, leading to substantial structural reforms.
Figure 1. Per capita incomes have soared, but the share of formal employment has progressed less
Source: World Bank (2017a), World Development Indicators database; Conference Board (2017), Total Economy Database, May.
With an enhanced policy framework in place, robust growth resumed, and the economy was better prepared to weather the global financial crisis in 2008 and periodic natural disasters. Post-Asian financial crisis reforms included strengthening public finances, establishing a more prudent financial system by restructuring banks, restoring business confidence through debt forbearance, rebuilding foreign exchange reserves, introducing inflation targeting and diversifying the economy by developing the services sector. By the mid-2000s, Thailand had regained pre-crisis levels of GDP per capita. Exports continued to pull the economy forward, reaching 70% of GDP by 2008. The share of high-tech products – including automobiles, electronics and electrical appliances – and that of processed agricultural products has increased. However, exports slowed down in the context of the global financial crisis in 2008 and the devastating floods in 2011. Even so, the economy continued to grow, albeit more slowly in recent years. Thailand has become an integral part of global value chains (GVCs) for automobile and electronics, which account for some 30% and 20% of total manufacturing output respectively, up from about 10% for both sectors in 1996.
Economic success has brought impressive social progress. Poverty has plummeted from 60% in 1990 to 7% today measured against the national poverty line, while social services in education and health have expanded considerably and improved. The introduction of the Universal Health Coverage Scheme in 2002 represented a major step towards basic social protection for all, including those living in informal circumstances, and was complemented by the introduction of a universal monthly old-age allowance for the elderly in 2009.
However, as transformation slowed, social and regional imbalances came to the fore. The share of those in precarious employment stagnated at around half of the working population following the mid-2000s, after falling from 70% in the late 1980s, when records started. This reflects the high share of poor agricultural workers in rural areas and significant urban informality. The creation of new activities replacing low-productivity employment has slowed down and the skills required for modern urban jobs exceed those of rural migrants and the urban poor. Today, only 11% of Thai citizens say that they can live comfortably with their current income (Gallup, 2017). While Bangkok’s success as a metropolis has been key to Thailand’s transformation, the country suffers from a lack of booming secondary cities. Such cities could provide more urban opportunities and help overcome the territorial disparities in household income and consumption that remain, with sizeable pockets of poverty in the Northeast, North, and South regions.
Over the past several decades, Thailand has seen frequent political changes. Since Thailand became a constitutional monarchy in 1932, it has had 20 different constitutions, oscillating between democratic participation and elite rule, while slowly adding elements of regional decision-making to a traditionally highly centralised state. The slower pace of economic transformation, quality job creation and reduction of regional inequalities in the new millennium has put pressure on the political system, and on the ability of the state to respond to the growing need for better public services and environmental management.
Future challenges and Thailand’s development ambitions
Moving forward, Thailand will need to adapt to an ageing society, while developing new engines for further economic transformation and approaches to overcome regional inequality. The share of the population over the age of 65 is set to double from 15% to 30% between now and 2030. With around half of Thailand’s workforce still in precarious employment, public finances will be under growing pressure and many elderly people at risk of poverty.
Environmental disasters, particularly those related to water, will continue to challenge Thailand’s ability to manage prevention and effective service delivery. The cost of floods averaged over THB 6 billion (nearly USD 190 million) per year between 1989 and 2013, and is likely to increase given climate change.
Meanwhile, continuing regional integration provides significant opportunities, while the broader international environment presents challenges. Southeast Asia will remain among the world’s most dynamic economic regions for the foreseeable future and ASEAN integration will open up new opportunities for Thailand. However, regional integration will also create challenges through intensified foreign direct investment (FDI) and trade competition with regional peers, notably the Philippines and Viet Nam. Uncertainties about global economic prospects point to the need for resilience in the event of another financial crisis or slowdown, or geopolitical shocks.
Three frameworks outline Thailand’s official strategic development ambitions in response to these challenges and reflect citizens’ aspirations. Strategy Thailand 2036 sets out a vision of a fast-growing economy, with a targeted growth rate of 5-6% per year, and full achievement of the 2030 SDGs. Building on a long tradition of development planning, the 12th National Economic and Social Development Plan (2017-2021) (12th Plan) translates this broad vision into more concrete goals and reforms (NESDB, 2016a). Thailand 4.0 presents a desired future economic model for a more innovative, inclusive and sustainable economy and encapsulates the key objectives of the Strategy and the Plan. The aspirations of a small sample of citizens have been collected as part of this review and reflect similar hopes (Box 1).
Box 1. Thailand 2036 and citizens’ vision for the future
To increase policy continuity from one administration to the next, the government has recently ratified the National Strategy Preparation Act 2017. The National Strategy spans 2017 to 2036, and aims to make Thailand a high-income economy enjoying “security, prosperity and sustainability” based on the sufficiency-economy philosophy. The National Strategy sets out the agenda for economic, social and administrative development. It rests on six key pillars: national security, creation of equal opportunity and society, building competitiveness, human capacity building, improving quality of life and the environment, and balance and development in public administration. Beyond these pillars, the strategy sets out five broad objectives:
Economic prosperity – to create a strong and competitive economy driven by innovation, technology and creativity. The strategy aims to boost research and development expenditure to 4% of GDP, raise the economic growth rate to 5-6% over the next 20 years, and reach the threshold of a high-income country.
Social well-being – to create an inclusive society that moves forward without leaving anyone behind through the realisation of the full potential of all members of society. The goals are to reduce income disparity as measured by the Gini coefficient from 0.47 in 2013 to below 0.36 by 2036, to ensure fair access to job opportunities and public services for every Thai and to turn at least 20 000 households into “smart farmers” within five years.
Human resource development and empowerment – to transform Thai citizens into “competent human beings in the 21st century” and “Thais 4.0 in the first world”. The objective is to raise Thailand’s human development index from 0.722 to 0.8 or to place the nation in the top 50 countries within 10 years, and to ensure at least five Thai universities rank among the world’s top 100 within 20 years.
Environmental protection – to become a liveable, low-carbon society with an economic system capable of adjusting to climate change. The main targets are to develop at least ten cities into the world’s most liveable cities and to reduce the risk of terrorism.
Public sector governance – to improve public sector administration and reduce corruption. The main targets are to achieve second best ranking among ASEAN countries in the IMD Global Competitiveness Report for public governance, and to improve Thailand’s score on the Transparency International’s Corruption Perceptions Index to above 50.
To capture a society’s aspirations beyond official documents, MDCRs include a stakeholder exercise which brings together representatives of society (government agencies and representatives of the private sector, public sector, civil society and academia, etc.) in order to develop ideas for the country’s future. In Thailand, this exercise assembled a number of participants in Bangkok in July 2017 and gave them the task of describing citizens’ lives in 2030.
Aspirations for the future lives of citizens in Thailand focused strongly on the world of work, raising questions about how global trends will shape opportunities and lifestyles. Participants described a future transformed by technology, which would offer new socio-economic opportunities, as well as improvements in well-being. Online opportunities related to the provision of services or trading in goods on the global market would radically change professions and working patterns. Urban citizens would be independent innovative entrepreneurs with multiple jobs and income sources, and have greater agency to decide on their working hours, place of work and type of economic activity. Rural citizens’ lives would also be transformed by technology, enabling greater sustainability of farming practices and improved productivity through the “Internet of Things”.
Participants also discussed idiosyncratic Thai behaviour and values, and how these might affect development prospects and relate to the SDGs. They drew attention to the Thai concept “น้ำใจ” (nam-jai), which is related to kindness, and the Sufficiency Economy Philosophy, as two elements driving social cohesion and consensus towards national development goals. Elitism, patronage and perceptions of a lack of meritocracy were discussed as obstacles to social cohesion and realising national economic aspirations. The participants also noted that the skills and characteristics required to realise the national development plan included entrepreneurship, independence, risk-taking and being a self-starter.
Source: Vimolsiri (2017); OECD/NESDB Workshop: “Thailand 2030: vision and challenges”, held on 18 July 2017 in Bangkok.
Assessment and key constraints to development in Thailand
Progress with respect to the above frameworks can be assessed from various perspectives. One perspective is to evaluate citizens’ well-being, which can be thought of as an ultimate policy objective. Another complementary perspective is to examine Thailand’s progression on each of the SDGs.
How’s life in Thailand? Through the OECD well-being lens
In order to assess Thailand’s overall performance with respect to the well-being of its citizens, it is useful to compare progress across various dimensions using the OECD’s “How’s Life?” toolbox. Well-being encompasses material conditions (e.g. income, jobs and housing), but also the broader quality of people’s lives including their health, education, environment, social connections and subjective well-being. Recognising the importance of how people themselves evaluate their lives, the OECD Framework for Measuring Well-Being and Progress uses a mix of objective and subjective indicators (Boarini et al., 2014; OECD, 2011).
Compared to countries at a similar level of development, Thailand performs relatively well in most well-being dimensions (Figure 2). Performance is especially strong with respect to life evaluation, social connections, security, and housing and infrastructure. The picture is more mixed when it comes to other dimensions, such as the environment, education and skills, or work. For instance, while levels of unemployment are very low, working conditions are worse than might be expected given Thailand’s level of development.
Figure 2. Current and expected well-being outcomes for Thailand: worldwide comparison
Note: The bars represent the observed well-being values for Thailand and the black circle shows the expected values based on Thailand’s level of GDP per capita. The latter stem from a set of bivariate regressions with GDP as the predictor and the various well-being outcomes as dependent variables from a cross-country dataset of around 150 countries with a population over a million. All indicators are normalised in terms of standard deviations across the panel. The observed values falling inside the black circle indicate areas where Thailand performs poorly in terms of what might be expected from a country with a similar level of GDP per capita. As this figure only shows outcomes at the national level, disparities between regions might be masked.
Source: OECD (2015), PISA Database, www.oecd.org/pisa/data/2015database; Transparency International (2016), 2016 Corruption Perceptions Index, www.transparency.org/cpi2016; Gallup (2017), Gallup World Poll, www.gallup.com/services/170945/world-poll.aspx; and World Bank (2017a), World Development Indicators (database), https://data.worldbank.org/data-catalog/world-development-indicators.
Moving ahead on the SDGs
The SDGs consist of 17 goals and 169 targets with the ultimate objective of ending poverty, protecting the planet and ensuring prosperity and peace for all. They came into effect in January 2016 and provide guidelines for all countries up to 2030. Thailand has committed to achieving these goals and has embedded them into its national vision.
Thailand generally performs well across the SDGs, but further progress towards a more inclusive and sustainable economy is needed (Figure 3). Overall, benchmarking past performance against SDG targets attests to Thailand’s impressive performance, particularly on outcomes related to people and prosperity. Progress in poverty reduction and boosts to innovation and electricity infrastructure are especially notable. At the same time, the underlying structure of the labour market has hardly changed and about half of the working population continues to work informally with limited access to protection and services. Major environmental challenges remain as well, notably with respect to emissions and pollution.
Figure 3. Progress towards the Sustainable Development Goals (SDGs)
Figure 3. Progress towards the Sustainable Development Goals (SDGs) (cont.)
Figure 3. Progress towards the Sustainable Development Goals (SDGs) (cont.)
Note: The bars measure Thailand’s performance in 2000 and 2016 (or latest year – as indicated accordingly) for a selection of 26 indicators across the 17 Sustainable Development Goals (SDGs). The 2030 aspirational target values refer to the pre-defined UN target (established by the UN IAEG and available at: https://unstats.un.org/sdgs/iaeg-sdgs/metadata-compilation/). Targets are all normalised to 100 for representation and comparison purposes.
a. When UN 2030 targets were not quantifiable, targets were calibrated to the average performance of OECD countries, in accordance with the methodology outlined in a recent OECD study on measuring distance to the SDGs targets (OECD, 2017g). However, the target for “Total debt service” was calibrated to the average value of the top 3 performers in the ASEAN region, due to data unavailability in OECD countries.
1. Indicators were chosen in line with the UN global indicator framework. When they were not measurable, indicators were selected that approximate the respective SDGs and at the same time ensure international comparability.
Source: World Bank (2017a), World Development Indicators, https://data.worldbank.org/data-catalog/world-development-indicators; National Statistical Office of Thailand (NSO) and NESDB calculations; Inter-Parliamentary Union (IPU), United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics; OECD International Energy Agency; International Monetary Fund; Gallup World Poll, www.gallup.com/services/170945/world-poll.aspx; and Bertelsmann Stiftung’s Transformation Index (BTI).
Progress and challenges on the five Ps
The thematic chapters that follow delve in greater detail into each of the above five critical areas, and identify a number of bottlenecks that appear to constrain policy makers as they design and implement policies to reach the SDGs.
People: Towards better lives for all
Poverty has fallen impressively and inequality is on a downwards trend, but more efforts are needed to reduce persistent, substantial regional inequalities and further improve living standards, especially for the large informal workforce. To achieve these objectives, the government needs to: (i) boost the participation rates of informal workers in social protection schemes; (ii) expand adequate social safety nets for poor households and the elderly; (iii) prepare the healthcare system for an ageing and modernising society; and (iv) improve educational outcomes, particularly in rural areas. Gaps also remain in ensuring women’s political participation and reducing gender-based violence and discrimination.
Future growth needs to be inclusive
During the first half of the 2010s, living standards improved less rapidly than in most comparator countries. Despite Thailand’s impressive track record of poverty reduction, 6.7 million people or close to 10% of the population live at most 20% above the national poverty line, and are thus vulnerable to falling back into poverty. The majority live in rural areas and work in agriculture.
Inequality in Thailand has a strong regional dimension. Inhabitants of the poorer North, Northeast and Southern regions lag behind the more prosperous Bangkok and Central regions, both in terms of income and other dimensions of well-being such as employment conditions, education attainment, health outcomes, and transport and communication infrastructure (Figure 4). Mainstreaming equality considerations into the policy formulation process and directing efforts towards narrowing Thailand’s regional gaps, as recognised in the 12th Plan, is likely to improve social cohesion.
Figure 4. The Bangkok metropolitan region outperforms others in most dimensions of well-being
Note: The Human Achievement Index is a composite index that compares regional performance with achievement scores that use the worst and best performance observed in the provinces. These scores are calculated for a range of indicators for relevant sub-indices (e.g. for employees covered by social security, occupational injuries, unemployment and underemployment rates in the case of the employment sub-index). For the purpose of this report, only the scores for the sub-indices of income, employment, education, health, transport and communication, and housing and living conditions are shown, since their underlying indicators come closest to the SDGs. The Central region as shown here excludes the Bangkok Metropolitan Area.
Source: NESDB (2017a), Thailand Human Achievement Index 2017, www.nesdb.go.th/nesdb_en/download/article/social2-2560-eng.pdf.
Informality is very prevalent
Although the official unemployment rate is exceptionally low, the majority of workers remain in informal occupations and are more likely to be exposed to unstable contractual situations, long hours and hazardous working conditions. Thailand’s relatively strict labour protections, particularly individual dismissal and temporary employment regulations, may contribute to informal employment. However, informality has many other drivers, including tax and social security (dis)incentives to formalise labour, rigid wage structures, low worker productivity and the overall structure of the economy.
Thailand relies heavily on migrant workers primarily from neighbouring ASEAN countries. There are an estimated 3.5 million migrants workers, making up 9% of the labour force. Many industries, such as agriculture, fishing, construction, domestic service, manufacturing and retail, depend on low-skilled migrant labour. Furthermore, immigrant workers are relatively young and thus represent a fresh labour supply in the face of an ageing native-born population.
Compliance with the minimum wage and, more generally, the enforcement of labour protection measures need to improve for both Thai and migrant workers. One-third of private sector workers and over half of young and low-skilled workers received wages below the minimum rate in 2013, unemployment insurance is only available to employees in the formal sector, and unionisation rates are low in international comparison.
Women’s participation in politics should be increased, and gender-based violence remains a problem
Women’s labour participation and wages are lower than men’s, but the gap is smaller than the average for OECD countries. Moreover, Thailand outperforms comparator countries in terms of senior private sector management roles occupied by women. In contrast, a major gender gap exists in terms of political empowerment, with women holding only 6% of seats in the national parliament.
Women face continued incidences of domestic violence. Although the Act on the Prevention and Resolution of Domestic Violence criminalises perpetrators, overall convictions have been low due to the emphasis on mediation and family reunification, rather than encouraging victims of violence to speak up. Human trafficking and forced labour, especially in the commercial sex industry and domestic work sector, represent another form of gender-based violence. Despite strong government commitments to fight human trafficking, greater efforts are needed in legal enforcement and to reduce official complicity. The OECD Guiding Principles on Combatting Corruption related to Trafficking in Persons underline the fundamental role that corruption plays in the trafficking process and stress the importance of tackling both issues together (OECD, 2016).
Social protection needs to be broadened, notably for informal workers and the elderly
The gradual evolution of Thailand’s social security schemes has resulted in a relatively comprehensive but fragmented system, calling for simplification and harmonisation of programmes. Benefit eligibility is largely tied to employment status, with different programmes for civil servants, people holding formal jobs and informal workers.
Social protection coverage needs to expand further, notably for informal workers who mostly access benefits through voluntary schemes. Easier registration procedures, including flexibility on the required documents, the opportunity to register and claim in different localities, the development of an online registration system, and the use of behavioural nudges would help improve low participation rates. A universal old-age allowance supports informal workers without pension coverage, but the adequacy of benefits can be improved to prevent old-age poverty. The recent addition of means-tested benefits that target people below a certain income threshold, such as a child grant and a welfare card for low-income earners, is an encouraging step towards reducing inequality.
Thailand established universal healthcare in 2002, and both subjective and objective health outcomes confirm the solid performance of the Thai health system. As in many developing and middle-income countries, disease profiles have evolved alongside changing lifestyle patterns and non-communicable chronic diseases and associated curative costs are on the rise. To fight obesity, which is of particular concern, the government is taking steps to encourage healthier diets and more active lifestyles. Such efforts should be expanded.
Moving forward, the healthcare system needs to adapt to an ageing society by developing a long-term care (LTC) system. While the 12th Plan recognises the need for such a system, current services are still embryonic and there is limited evidence that proposed policies aiming to integrate family and community care into the LTC system are feasible. More efficient primary care, more funding for prevention and health promotion, and increased use of information and communication technology (ICT) are needed to improve quality and ensure the fiscal sustainability of the healthcare system.
Improving basic education quality and performance will be essential
At around 4% of GDP, Thailand’s public expenditure on education is among the highest in the region. Access is near universal for primary and secondary education, but improvements are required to boost enrolment in pre-primary education with as many as one-quarter of three to five year olds not enrolled. Improvements to the quality of education are also needed as basic education performance falls short of global benchmarks. Inefficient and inequitable allocation of resources has undermined investment effectiveness and ultimately hampered learning outcomes. The 2015 results of the OECD Programme for International Student Assessment (PISA) show that the performance of Thai students trails most comparator countries and is far below the OECD average. Moreover, compared with PISA 2012, Thailand’s scores declined significantly in science and reading. Reading performance is particularly worrisome, with only around half of Thailand’s 15 year-olds demonstrating reading skills that would classify them as functionally literate. Inequalities in educational outcomes are high, and students from poorer, often rural, backgrounds are less likely to have access to quality schools with adequately-trained teachers. On one estimate, around one-fifth of Thai schools do not meet minimum quality standards, the majority of which are in rural areas (OECD, 2014a).
The government recognises the shortcomings of the education system and has put into place various strategic plans. A recent policy review by the OECD and UNESCO offered recommendations to support the development of a high-quality education system in Thailand, centred on four priority areas: curriculum reform, improved testing procedures, investment in teacher quality, and enhancing digital learning and ICT use, particularly in rural schools (OECD and UNESCO, 2016).
Higher education and lifelong learning outcomes remain wanting
Upgrading human capital is crucial for the success of Thailand 4.0 and managing the transition to an ageing society. Thailand’s higher education and vocational educational institutions are not fully equipping individuals with the skills required by industry. In tertiary education, enrolment is comparatively high, but graduate numbers in the science, technology, engineering and mathematics fields are lower than industry requires. Moreover, the quality and relevance of university programmes needs to be raised. In this regard, the government is pursuing a reform strategy that grants universities more autonomy to develop courses in line with industry and student demands.
Technical and vocational education do not attract enough students, even though skills shortages are more acute for graduates with vocational training. In 2015, only 34% of upper secondary school students were enrolled in vocational programmes – down from 36% in 2011 and well below the government’s 45-55% target (MOE, 2017). Moreover, the quality of training programmes needs improvement to better equip graduates with the skills needed by industry. Under the aegis of the 12th Education Development Plan, the government is seeking to increase the quality and attractiveness of vocational programmes by expanding industry input into the design of courses and providing financial incentives to students and medium-sized workplaces to participate in the Dual Vocational Training Programme.
Lifelong skills training will also be important to ensure Thailand’s labour force can readily adapt to evolving industry requirements and prepare them for a digital economy. To this end, the 2002 Skills Development Promotion Act requires enterprises with more than 100 staff to provide training to at least half of employees once a year. Nevertheless, additional efforts are needed, as over 90% of employees are not interested in further developing their skills (NSO, 2016).
Prosperity: Boosting productivity
Over the past decade, limited structural reform and capital investment have held back productivity growth and improvements in well-being, and Thailand has lost ground vis-à-vis regional comparators. More recently, however, economic growth has started to regain momentum, helped by a pick-up in global trade which has supported exports, and by a substantial public infrastructure investment programme. Moving forward, Thailand will need to boost productive capacity in the face of intensified competition with regional peers and rapid demographic ageing, and productivity gains will be increasingly necessary to drive growth. This will require improving human resource development, encouraging technology diffusion via cluster development policy, promoting innovation and digitalisation, improving the SME policy framework and expanding regional integration, as emphasised in the 12th Plan and Thailand 4.0.
Growth has recently picked up
While Thailand’s growth remained sub-par in recent years (Figure 5), lately it has regained momentum, propelled by higher electronics exports, buoyant tourist arrivals and public investment. Growth is projected to increase to 4.0% in 2018 and 4.1% in 2019 (Table 1), with support from a cyclical uptick in global demand. Headline inflation is below target. On the external side, Thailand has sizeable buffers with the current account surplus close to 11% of GDP in 2017. Overall, the financial sector is sound, notwithstanding the risks posed by high household debt, rising non-performing loans and possible vulnerabilities in the expanding shadow banking sector.
Figure 5. Growth has been picking up, but investment has been lacklustre
Note: ASEAN-6 is the weighted average growth rates of Indonesia, Malaysia, Philippines, Thailand, Singapore and Viet Nam.
Source: OECD (2017d), National Accounts database; Datastream and Bank of Thailand.
Table 1. Macroeconomic indicators and projections
Annual percentage changes unless specified
1. This figure is a projection. Final outcome was unavailable at the time of publication.
2. As of the end of the fiscal year. Includes general government and state-owned enterprises debt.
Source: CEIC; NESDB; Bank of Thailand; and Public Debt Management Office.
For trend GDP growth to approach the 5-6% targeted rate, a revival in investment is needed (Figure 5). The government’s extensive public investment programme, particularly in infrastructure, may help lift the anaemic private investment rate. Although it is important that Thailand remain fiscally prudent, undertaking targeted public investment in productivity-enhancing infrastructure is necessary to increase economic potential. Even with a timely implementation of the government’s investment programme, in the near-term the fiscal outlook remains sound. Subsidies have been reduced substantially, in line with the government’s commitment to rationalise non-productive subsidy programmes, via fuel subsidy reform and the replacement of the rice pledging scheme. Moreover, ongoing tax reforms to boost collection efficiency and introduce new inheritance and land and building taxes will help raise revenue.
Boosting productivity and creating higher value-added industries
To attain high-income country status, Thailand’s economic growth needs to be driven by productivity gains, rather than by the sheer accumulation of capital and labour inputs. Accordingly, Thailand’s 12th Plan and Thailand 4.0 are pursuing an economic transformation where productivity improvements resulting from increases in innovation, human capital development, regulatory reform and infrastructure development drive growth.
Traditionally, labour reallocation from the agricultural sector in rural areas to more advanced sectors in urban areas supports productivity improvements and is a key feature of catch-up growth and structural transformation. However, over the past 30 years, the contribution of labour reallocation to overall labour productivity growth has declined in Thailand (Figure 6). To remedy this, the government should encourage such reallocation by narrowing skills mismatches through lifelong learning and skills training. In addition, productivity gains can be achieved by more effectively promoting innovation, and by upgrading management skills and encouraging greater ICT use in agriculture.
Figure 6. Labour reallocation has not boosted productivity substantially in Thailand
Note: The “within effect” refers to the contribution to total labour productivity growth from productivity growth within sectors. The “labour reallocation effect” refers to the contribution of the movement of labour from lower to higher-productivity sectors, where sectors are disaggregated into nine categories: (i) primary; (ii) mining; (iii) manufacturing; (iv) construction; (v) electricity, gas and water supply; (vi) wholesale and retail trade, and hotels and restaurants; (vii) transport and communications; (viii) financial intermediation, real estate and business activities; and (ix) community, social and personal services.
Source: OECD calculations based on Asia Productivity Organization (2017), Productivity database 2017 Version 1, www.apo-tokyo.org/wedo/measurement.
To foster the development of more productive and higher value-added industries, the government aims to improve industrial value chains by strengthening linkages among firms, researchers and academic institutions, and public organisations within a geographical area. In particular, the government is targeting a set of priority sectors selected from those that have recorded strong export performance. The sectors are comprised of “First S-Curve” industries where the industrial base of pre-existing sectors would be upgraded (e.g. next-generation automotive, smart electronics, agriculture and biotechnology, and affluent, medical and wellness tourism), and “New S-Curve” industries that can be developed through increased technological sophistication (e.g. robotics, aviation and logistics, biofuels and biochemicals, and digital and medical hubs). To this end, the government has launched a range of investment promotion measures and incentives in designated Special Economic Zones, which include the flagship Eastern Economic Corridor project.
Toward innovation-led and digitalisation-driven productivity gains
Improving innovation in existing sectors is critical to boosting competitiveness and productivity, and to producing higher value-added products. However, Thailand’s innovation performance has either fallen behind or lost ground vis-à-vis some comparator East Asian countries. Governance issues including poor co-ordination and lack of clarity around institutional roles and responsibilities have hindered innovation. To address these issues, the government established the National Research and Innovation Policy Council in late 2016 as a single body to set the direction for research and innovation policy.
Access to talent is also a major barrier to innovation. Weak collaboration between academia and industry limits the flow of researchers between the two sectors. To help foster mobility, the government has established a Talent Mobility Programme, which enables industry and/or the government to reimburse universities for access to talent. It also launched the Eastern Economic Corridor of Innovation project to create a regional innovation hub that attracts international talent and fosters R&D in the public sector, the private sector, academia and local communities.
Digitalisation can boost productivity and efficiency, as well as broader socio-economic development. It allows for better governance arrangements and a more inclusive society through improved access to and quality of key services such as health, education and banking. It aids innovation and helps countries move up value chains (OECD, 2017a). Promoting digitalisation also goes hand in hand with Thailand 4.0 (Box 2).
Box 2. Digitalising Thailand
Digital technologies can play an important role in promoting inclusive economic growth. They are also disruptive and are changing familiar structures and expectations of government, business and broader society. Thailand has developed a 20-year Digital Master Plan and is pursuing a bold digital transformation strategy as part of Thailand 4.0. However, a number of challenges must be addressed to ensure Thailand is ready to embrace the digital revolution and all Thai citizens are well placed to participate in the digital economy.
Thailand has made progress in the provision of reliable and affordable networks, but has room to improve. According to the 2016 Network Readiness Index, Thailand’s ICT infrastructure is in the middle of the pack vis-à-vis comparator countries (Figure 7), while the number of internet users is on the low side. Regarding skills, further efforts are needed to increase ICT literacy across the economy including through school education and established Digital Community Centres. Finally, Thailand needs to boost cyber-security to nurture confidence and encourage greater ICT use.
Figure 7. Thailand has room to improve in digital infrastructure and skills readiness
Source: World Economic Forum (2016), Network Readiness Index, http://reports.weforum.org/global-information-technology-report-2016/networked-readiness-index.
Under the 20-year Master Plan, Thailand aims to maximise the use of digital technology across all socio-economic activities. It seeks to leverage off digital technologies to increase capacity and competitiveness in all economic sectors with a strong focus on SMEs, reduce inequality by providing better access to health and education services, and improve the provision of government services. Indeed, a number of initiatives are already underway.
Thailand is facilitating e-commerce to help people run their businesses online, with a National e-Commerce Master Plan (2017-21) that includes measures to improve ICT access and promote an SME e-payment service for cheaper and easier transactions. In addition, the Bank of Thailand has eliminated charges on electronic transfers of less than THB 5 000 (about USD 150) to encourage uptake. The government is helping to address the shortfall in ICT literacy by providing coaching to SMEs on online trading. It is also establishing a digital park to support the development of digital businesses, offering a range of tax and non-tax incentives (e.g. simplified visa and work permit procedures). In the agricultural sector, digital technologies are being used to increase efficiencies and value-added. For instance, a digital “Agri Map” has been developed to help farmers identify which crops are most suitable for their farmland.
In healthcare, Thailand plans to consolidate its ICT infrastructure to promote better management, performance and increased savings on operational expenditure (Estospace, 2016). A number of pilot projects are underway to monitor the health of the elderly using smart devices and sensors in residential accommodation. Looking ahead, Thailand should build on its broadband investment programme and promote digital primary care consultation, in order to boost affordable access and improve the efficiency of the healthcare system.
In education, Thailand aims to provide broadband access to all schools and free Wi-Fi access to non-formal and informal schools. The government should further increase access to distant learning and open education resources, as a means to address teacher shortages and improve access to quality education for remote students.
Thailand is also boosting the uptake of digital technologies in the public sector, which to date has been slow. The Digital Government Development Plan (2017-21) foresees greater access to government data, more transparency and civic participation, and integration of back-office infrastructure. The government is developing a mobile government communication system (G-Chat), introducing digital laws to build confidence in online transactions, rolling out a shared ICT platform for government agencies and building a one-stop portal to access government services. It is also piloting a ‘GovLab’ programme to experiment with new technical solutions to public service delivery challenges.
SMEs need to be better financed and properly incentivised
Small and medium enterprises (SMEs) generate about 42% of Thailand’s GDP, mostly in services. Promoting SMEs is crucial for economy-wide growth and reducing inequality between regions and individuals (Lee et al. 2017). SMEs face a number of interrelated problems including inadequate financing, insufficient upgrading of capital stock and slower adoption of technology, as well as inadequate regional integration (Charoenrat and Harvie, 2017). The government has developed an SME Promotion Masterplan (2017-21) with the objective of increasing the SME share in GDP to at least 50% by 2021. Its priorities include streamlining licensing procedures, promoting skills training with an emphasis on ICT, and providing entrepreneurship education and finance.
Better access to financing is key, as Thai SMEs often struggle in this area. Even though collateral requirements for SME loans are much stricter, the share of non-performing loans has been rising for SMEs. The bulk of SME loans are disbursed through specialised financial institutions, which may affect the degree of credit access between sectors and regions. To address this issue, Thailand could broaden the appeal of the Small Business Credit Guarantee Corporation by boosting its funding and offering more targeted guarantee-related products. Additionally, reliance on bank financing could be reduced by allowing SMEs to access the capital market via the creation of a special lower-cost bourse in the Thai Stock Exchange. Financial measures, however, need to be complemented by non-financial measures for SME development and promotion.
Furthering global value chain participation and regional integration
Trade and foreign investment have long been major drivers of Thailand’s industrialisation. Foreign trade amounted to 123% of GDP in 2017, more than double the OECD average, reflecting active participation in GVCs. Making the best of opportunities brought about by participation in GVCs calls for efficient and cheap access to imported intermediate and capital goods. In this regard, Thailand has made substantial progress, almost halving the weighted applied mean tariff rate for manufacturing goods over the past decade. During the same period, a series of free trade agreements (FTAs) were concluded, either bilaterally or regionally through ASEAN, with major trade partners such as Australia, China, India, Japan, Korea and New Zealand. Trade costs can also be reduced by streamlining trade-related procedures and enhancing the quality of related infrastructure and services.
Trade liberalisation and facilitation has lagged somewhat in the services sector, which accounts for close to 60% of GDP in Thailand, but is key for productivity and competitiveness. Open and well-regulated services markets are the gateway to GVCs, ensuring access to information, skills and technology, reducing costs and improving service quality (OECD, 2017b). This is true in particular for digital, logistics and professional services used in high value-added activities. However, a pilot project to compute the OECD Services Trade Restrictiveness Index for Thailand shows that the country’s regulatory framework creates international trade impediments in both the construction and architecture service sectors. These impediments result from both economy-wide and sector-specific regulations. The former include residency requirements for boards of directors, foreign land acquisition restrictions and a 49% cap on foreign ownership for companies without a foreign business license. In public procurement markets, preference is given to local suppliers. Sector-specific restrictions are present in both sectors, notably in the form of requirements with respect to the recognition of foreign qualifications.
FDI has played an essential role in Thailand’s industrialisation and export growth through the provision of capital, technology and managerial skills, contributing substantially to productivity gains. In recent years, Thailand has become a major source of FDI to other Southeast Asian countries, notably Cambodia, Lao PDR and Myanmar, thereby contributing to regional integration. Nevertheless, the rules governing inward FDI remain comparatively restrictive in Thailand (Figure 8).
Figure 8. FDI is still subject to substantial restrictions
Note: The OECD FDI Regulatory Restrictiveness Index covers only statutory measures discriminating against foreign investors (e.g. foreign equity limits, screening and approval procedures, restrictions on key foreign personnel and other operational measures). Other important aspects of the investment climate (e.g. the implementation of regulations and state monopolies) are not considered. Data for Brunei Darussalam, Thailand and Singapore are preliminary.
ASEAN 10 comprises Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam.
Source: OECD (2017i), FDI Regulatory Restrictiveness Index database, www.oecd.org/investment/fdiindex.htm.
The furthering of regional integration is helping to promote trade and investment liberalisation, as well as reform in areas related to trade and investment facilitation, such as more efficient customs procedures, streamlining and digitalisation of formalities, and regulatory reform on entry into the services sector. In addition to the ASEAN Economic Community and FTAs with major trade partners in Asia, further progress could be achieved by concluding FTAs with the European Union and the United States.
Partnerships: Sustainably financing development
Over the past ten years, Thailand’s public debt has averaged 40% of GDP and the general fiscal balance has averaged a surplus of 0.1% of GDP. Moving forward, Thailand is seeking to strengthen fiscal discipline through a Fiscal Responsibility Bill. The Bill imposes a requirement on future governments to prepare medium-term economic forecasts of up to five years, as well as projections for public debt, revenue, expenditure and contingent liabilities. Despite Thailand’s strong fiscal position, its rapidly ageing population and shrinking workforce will exert pressure on public finances over the medium term. To meet future social, environmental and infrastructure requirements Thailand will therefore need to reform the tax system to boost both revenue and competitiveness, reduce costs in the provision of infrastructure through greater private sector participation, and increase the efficiency and effectiveness of the healthcare and pension systems.
Increasing tax revenues to fund foreseeable expenditure pressures
Over the past five years, Thailand’s total public revenues and tax collections averaged 21.7% and 17.7% of GDP, respectively. This is broadly in line with regional comparators, but much lower than the OECD average (Figure 9). Recognising the need to boost revenues, the government has set a target of raising total tax collection to 20% of GDP by 2020.
Figure 9. General government revenue is broadly in line with regional comparators
Source: Datastream; OECD Revenue Statistics (2017).
Direct taxes, which account for 41% of total tax collections, have undergone reform in recent years. The corporate tax rate was cut by a third to 20% pushing it to the lower end of the range and leading to a fall in corporate tax collection. Thailand also adjusted personal income tax settings, with the top rate cut from 37% to 35% and thresholds and deductibles raised. Given the higher thresholds and high rates of labour force informality (56% in 2016), only one-fifth of the working age population (15-64) pay income tax. Gradually reducing informality is key not only to improving revenue collection, but also to ensuring people enjoy better social protection.
Indirect taxes are an important source of revenue for Thailand, with the value-added tax (VAT) accounting for a third of indirect taxes. The statutory VAT rate is 10%, but it has been set at 7% since 1999 making it one of the lowest rates in the world. Moreover, high rates of exemptions and non-compliance undermine collections with an estimated VAT revenue ratio of 38%, below the OECD average of 56%. Thailand should consider gradually broadening the VAT scope and raising its rate, using additional revenues to fund targeted increases in social protection.
Improving tax efficiency and compliance also offers opportunities to increase revenue. In this regard, the government is pursuing a multipronged approach that includes easing compliance through technological innovation, providing incentives to discourage tax avoidance and informality, and strengthening enforcement on tax evasion.
Identifying potential efficiencies in the provision of public infrastructure will also be important to reduce the public expenditure burden. Thailand could consider additional infrastructure financing sources to reduce costs of investment and optimise risk allocation. In particular, infrastructure bonds priced in Thai baht can be less costly than bank financing and better match the long-term nature of such investments. Another way forward is to reinvigorate private sector involvement through improved public-private partnership (PPP) processes. In this regard, the government has sought to reduce red tape and improve bureaucratic efficiency, reforming PPP legislation in 2013 with the introduction of time limits and standardised contracts. Furthermore, Thailand has set up a Future Fund to provide additional instruments to finance major transportation infrastructure.
Improving the sustainability of the healthcare and pension system
With a rapidly ageing population, the burden on public finances to provide healthcare and social security for the elderly will continue to grow. In 2014, government health expenditure accounted for 3.2% of GDP. Though manageable, costs are bound to rise. In 2015, public expenditure on pensions accounted for 2.2% of GDP. While this is below regional comparators, future liabilities will likely grow faster, particularly if the government seeks to improve the very low replacement ratios for social pension recipients. Although some cost escalation is inevitable, improving the design of both the health and pension system can deliver efficiency gains and cost containment.
In healthcare, Thailand should avoid near-term regressive and often ineffective blanket cuts to the health budget and instead implement targeted structural reforms that will be beneficial over the longer run. For example, to prevent overburdening of hospitals, Thailand could increase health provision through preventive and primary care by boosting the number of family physicians and general practitioners, particularly in rural areas. Healthcare financing could be reformed by reducing the exemptions on co-payments and allowing greater private contributions from those able to afford it.
In relation to pensions, Thailand’s shrinking labour force and longer retirements mean there are fewer work years available to support the burgeoning number of retirees. Thailand’s private pension scheme has a pensionable age of 55, while the public sector scheme and the social pension both have a pensionable age of 60. OECD research suggests that postponing retirement is an efficient way to both boost retirement income and improve the financial sustainability of the system (OECD, 2013). Thailand could align the pensionable age of the private pension scheme with the public sector and social pension scheme, and progressively increase the official retirement age in line with life expectancy. Moreover, the government could slowly increase the private sector contribution rate, which is currently below most comparator countries and the OECD average.
Planet: Conserving nature
Thailand’s natural environment is a vital asset and underpins key economic sectors and millions of livelihoods. As in many emerging economies, rapid economic growth has been achieved through intense use of natural resources, which has exerted a heavy environmental toll. Greater attention to environmental issues began in the 1990s, and resulted in the adoption of a framework law that established the Ministry of Natural Resources and the Environment, and introduced instruments such as Environmental Impact Assessments.
Today, renewed commitment to environmental concerns is warranted, as progress on this front has slowed or even reversed in some cases. Thailand’s sustainable development rests on wise management of its natural resources, minimisation of pollution to protect the health of people and ecosystems, and a transition to a low-carbon, climate-resilient future.
The new environment bill, which is under discussion, represents an opportunity to modernise the policy mix and ensure a path towards sustainable development. The introduction of Strategic Environmental Assessments would further enhance environmental protection by integrating environmental concerns into government plans, policies and programmes.
Thailand can improve its management of natural resources
Thailand is exposed to cycles of flooding and drought that cause loss of life and economic disruption. While natural climatic variables are important drivers of these phenomena, other policy-amenable factors are also at play. Poorly planned urban expansion, the intensification of agriculture, and the deterioration or loss of watershed forests have led to the decline of flood-retention areas and flood plains, while water consumption behaviours, agricultural and industrial land development, urbanisation and population growth have contributed to droughts.
A lack of integrated water management hinders an effective response to these challenges. Water management in Thailand is characterised by a highly fragmented institutional framework leading to overlapping responsibilities, conflicting interests and a lack of co-ordination. The government has also tended to focus on hard infrastructure, supply-side solutions, while demand-side measures have received less attention. Thailand would benefit from a more holistic approach to water management and flood defence, complemented by a disaster risk management approach that is sufficiently funded and ensures that local levels have the capacity to prepare and respond to natural disasters.
Compared to other middle-income countries, Thailand performs poorly on several indicators of biodiversity, such as the number of threatened species (Figure 10). Deforestation also remains a problem in the North and Northeast regions, notwithstanding progress at the national level over the past decade.
Figure 10. Thailand performs poorly on several indicators of biodiversity
Note: The blue line represents Thailand’s performance when benchmarked against other middle-income countries. The grey line represents expected performance given the country’s level of income per capita. Places where the blue line lies inside the grey line represent poorer than expected performance on a given indicator.
Source: Authors’ calculations based on World Bank (2017a), World Development Indicators (database); and World Bank (2017b), Deforestation and Biodiversity.
Policy responses will need to address the diverse sources of pressure on biodiversity. Irrigation, farmland encroachment and the invasion of alien species threaten wetlands. Illegal logging, the development of resorts for tourism, and the expansion of agricultural land due to the promotion of cash crops (e.g. rubber and oil palm) lead to deforestation. Pollution affects freshwater systems, and illegal fishing, ocean acidification, tourism and industrial activity impact marine and coral reef ecosystems.
Challenges remain in securing environmental quality of life
Levels of some air pollutants, such as PM2.5 particles, have been creeping up since 2010, after modest improvement since 1990. The problem is particularly acute in pollution hotspots such as the country’s major industrial zones, where air pollution frequently exceeds safe limits. Water quality has been improving incrementally, but 23% of surface water is still assessed as poor quality. Greater progress is being held back by a lack of wastewater treatment facilities (only 15% of municipal wastewater is treated), poor compliance with existing regulations and the absence of financial disincentives to pollute.
Finally, solid waste generation is a growing problem, like in many countries in the region. The quantity of solid waste has increased by 80% since 2000, and 43% of waste is disposed of inappropriately through open burning or illegal dumping. The composition of waste, however, shows a high potential for reuse: up to 60% could be composted, recycled or used for energy generation. Appropriate pricing mechanisms are also needed to provide incentives to reduce the absolute quantity of waste generated.
Addressing climate change requires both mitigation and adaptation
Thailand has set ambitious greenhouse gas reduction targets – intending to cut emissions by 20-25% from the projected business-as-usual level by 2030 – and has identified energy and transport as key sectors for mitigation efforts. Some features of current energy plans, however, may be inconsistent with international commitments that are set to become increasingly stringent. In particular, the planned increase in the share of coal in the energy mix will raise the absolute level of carbon emissions. On a positive note, the share of renewables is also slated to rise under current plans. Thailand could be even more ambitious in its adoption of renewables by exploiting untapped potential in the solar photovoltaic sector. It could also consider higher environmental taxation.
As one of the countries most exposed to the impacts of climate change, mitigation efforts need to be complemented by adaptation. The 12th Plan and the National Climate Change Master Plan 2015-2050 aim to enhance Thailand’s ability to adapt to climate change – a welcome move as adaptation is largely neglected in current sectoral plans. The true test will be whether these high-level plans translate into awareness, mainstreaming and implementation of adaptation measures across all sectors from national to local levels. Implementation will require effective central co-ordination that involves all relevant stakeholders, a strong evidence base (e.g. for climate projections), capacity building (especially at local levels), sufficient financing, and mechanisms for monitoring, evaluating and adjusting approaches.
Peace: Strengthening governance
Reforming the public sector has long been an important government priority, but involves a number of challenges. The gap between planning and implementation of policy objectives remains large; insufficient public participation in policy making is undermining the efficient allocation of resources toward public needs and development goals; under-development of evidence-based regulations hampers the creation of a business-friendly environment essential to high value-added activities; and high levels of perceived corruption weaken business confidence and public trust in the government.
The gap between policy planning and implementation needs to be narrowed
In Thailand, the existence of several ministries and agencies competing in similar policy spaces, across central government bodies and local administrations, often leads to conflicting policy agendas and impedes implementation. Indeed, Thailand does not compare favourably with respect to the implementation of reforms (Figure 11). Co-ordination issues among ministries and agencies, as well as institutional inflexibility in adapting policies to evolving economic and social conditions, also represent a challenge. Such inefficiencies, together with poorly allocated government spending, can undermine competitiveness.
Figure 11. Thailand’s capacity to implement reforms lags behind most comparator countries
Notes: Capacity for State reform measures the “authorities’ ability to decide and actually implement reforms” (scores range from 0 for very low capacity to 4 for strong capacity). Long-term strategies indicate whether “the public authorities have a long-term strategic vision” (scores range from 0 for very weak strategic vision to 4 for strong strategic vision).
Source: CEPII (2016), Institutional Profiles Database.
Thailand is moving towards greater stakeholder engagement for better policy making
Governments need to balance expectations for faster and continuous adaptation with calls for more inclusive policy making, offering information and broader access to stakeholders at earlier stages of decision making (OECD, 2017c). In this regard, Thailand needs to improve stakeholder engagement during policy formulation and the overall coherence of public policies. To help address these issues, Thailand has released Public Consultation Guidelines designed to help government officials carry out public consultations with relevant stakeholders. These take into consideration the OECD Guiding Principles for Public Consultation (NESDB, 2016b). Ensuring the guidelines are actively followed across ministries and agencies will be key to progress in this area.
Improving evaluations of policy implementation will lead to better resource allocation
The 12th Plan stresses the importance of monitoring and evaluation of policy programmes to ensure efficient implementation and consistency with socio-economic development goals. In particular, it strengthens the evaluation framework for key performance indicators (KPIs), which often include indicators developed for international benchmarking (Table 2). With respect to cross-sectional issues across government, joint KPIs are set to evaluate the country’s overall development efforts. Policy evaluations based on KPIs are also carried out at the local government level.
Table 2. Selected KPIs for the Ministry of Digital Economy and Society, FY 2017
Source: Office of the Public Sector Development Commission.
Enhancing competition policy and promoting regulatory reform will foster more efficient markets
With the adoption of the 1999 Trade Competition Act, Thailand became one of the first ASEAN countries to introduce competition policy. The Act covers both anti-competitive practices (agreements, abuse of dominant position and mergers) and some forms of restrictive/unfair trade and commercial practices. However, despite nearly a hundred complaints submitted since its enactment, there have been no findings of infringement.
A revised Trade Competition Act was adopted in 2017, against the backdrop of the ASEAN Economic Community Blueprint 2015, which called for harmonised competition policies. It strengthens alignment with international best practice, including through the introduction of a prior approval merger control regime. It also covers commercial operations of state-owned enterprises to ensure a more level playing field between public and private firms. Moreover, some anti-competitive practices are now subject to administrative rather than criminal penalties, simplifying enforcement.
Efforts have also been deployed to reform the Trade Competition Commission (TCC) to a more independent legal institution, with its own budget and staff separated from the Ministry of Commerce. For the new legal framework to work effectively, the government should endow the TCC with adequate financial and human resources together with sufficient autonomy to use them. This will require substantial training of all staff, including decision makers and case handlers.
Improving regulatory impact analysis will promote good regulatory practice
More generally, good regulatory practice helps effective resource allocation, promotes fair and robust competition and minimises the compliance burden on business. The Recommendation of the OECD Council on Regulatory Policy and Governance recognises that a good regulatory management system requires a whole-of-government approach underpinning how it develops, implements and evaluates regulation (OECD, 2012). Thailand’s quality of regulation has not improved significantly over the past decade, in contrast with some of the other regional comparators such as Malaysia.
The government launched a “Regulatory Guillotine” project in 2017 to streamline unnecessary regulations that hinder socio-economic development. The first phase aims to improve Thailand’s ranking in the World Bank’s Ease of Doing Business Index, with aim of becoming one of the top 20 countries by 2019. The focus here is on access to credit, trading across borders and the insolvency regime. The second phase, from late 2017 onwards, involves a further extensive review of existing regulations and licensing, with a view to creating a more business-friendly environment.
Despite efforts, corruption holds back development
Thailand has long recognised the need to address corruption, which undermines trust and efficiency. Anti-corruption laws have increased and broadened over time, improving the independence and effectiveness of the National Anti-Corruption Commission (NACC). Over the years, several other agencies have been set up that complement and support the efforts of the NACC, including the Constitutional Court, the Administrative Court, the Office of the Auditor-General and the Public Sector Anti-Corruption Commission (PACC). Even so, the perception of corruption remains higher than in the average of OECD and ASEAN countries, and over 40% of surveyed citizens report having to pay bribes, offer a gift or perform a favour for somebody when accessing public services.
To intensify anti-corruption efforts, the third phase of Thailand’s National Anti-Corruption Strategy (2017-2021) includes bold strategies to fight corruption and to mitigate corruption risks. In this context, the Thai Government asked the OECD to undertake an Integrity Review of Thailand (OECD, 2018), to provide in-depth analysis with reference to the recently-adopted OECD Recommendation on Public Integrity. The Review shows that Thailand could consider streamlining the anti-corruption mandates of various institutions, particularly the NACC and the PACC, in order to enhance the coherence of integrity and anti-corruption policies. Thailand could also benefit from further elaborating civil servants’ ethical obligations and ethics training. Setting high ethical standards would help restore trust in the public sector and the proper use of public funds. In order to strengthen accountability and manage possible conflicts of interest of public officials, the scope of asset disclosure could be expanded to include senior public officials and other at-risk officials, while also strengthening the online auditing capacity of the NACC. In addition, Thailand could develop a dedicated whistle-blower protection law to clearly define the scope of whistleblowing, wrongdoings and retaliation, and offer protection to whistle-blowers. This would foster an open public organisational culture where integrity concerns can be discussed, leading to effective detection of ethical violations.
Key constraints on development and necessary transitions for Thailand
In summary, the multidimensional analysis in this report identifies numerous constraints on development that span the economy, society, government and the environment in Thailand (Figure 12).
Figure 12. Key constraints on sustainable development
Mapping these constraints across all areas points to four cross-cutting development challenges (Figure 13): high structural inequalities, resource-intensive growth with costly natural disasters, a fragmented social protection system in the context of informality and an ageing population, and fragmented management and delivery of public services.
Figure 13. Thailand faces four transversal development challenges
Thailand needs to transition from a growth path with structural inequalities to one that provides quality jobs for all. The share of basic agricultural and precarious urban employment remains disproportionally high given the level of GDP per capita. Informality impedes productivity growth, entrenches inequality and reduces the tax base. Better public services, especially in education, infrastructure and business facilitation, reaching all parts of the country, will be key to reinvigorating economic transformation and creating new activities that provide income and security for the whole population. The forthcoming OECD Country Programme will include a number of thematic reviews that can help Thailand tackle obstacles related to structural inequalities and the country’s growth path.
A more accessible and better financed social protection system is essential in the face of an ageing population and continuing high informality. Thailand’s age profile is more in line with high-income countries such as Korea and Singapore than regional comparators like Malaysia or Viet Nam. Accordingly, the country has struggled to ensure universal social protection coverage, notwithstanding successes in healthcare. A rapidly ageing population makes it harder to strengthen social protection while maintaining long-term fiscal sustainability. Thailand will need to widen social protection and implement skills upgrading to enable productivity growth to compensate for declining labour input.
Thailand needs to transition from resource-intensive growth against a backdrop of costly natural disasters to more sustainable development with better-managed natural resources, enhanced disaster risk management and reduced pollution. Rapid urbanisation, industrialisation and intensive agriculture have put pressure on water resources and water quality. The government therefore needs to strengthen water resources management and limit the negative effects of natural disasters. Attention also needs to be paid to improving air quality and reducing waste generation.
Finally, the organisation of government and public service delivery lie at the intersection of the previous three development challenges. Levels of government in Thailand need to overcome co-ordination issues and integrate more effectively. Under the current system, the complex organisation and uneven distribution of power and resources across central government bodies and local administrations contribute to co-ordination problems and poor institutional capacity. Political participation and accountability should therefore be coupled with reforms that aim to fiscally empower local municipalities, such as building local capacity to raise revenue and determine expenditure, and guaranteeing transparent and fair access to intergovernmental grants.
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