Multi-dimensional Review of Thailand (Volume 2)

Executive summary

This second volume of the Multi-dimensional Country Review (MDCR) of Thailand builds on the results of the first one, which identified the main constraints to enable new growth by unlocking the full potential of all of Thailand’s regions (OECD, 2018). It provides recommendations in three key areas: regional development, multi-level governance, and water security. A third volume will propose a way of prioritising policy interventions and a framework for measuring policy implementation.

Thailand aspires, by 2037, to become a high-income economy enjoying “security, prosperity and sustainability” (2017 National Strategy Preparation Act). Strong growth since the 1970s enabled the country to join the group of upper-middle-income economies in the early 2010s. Economic success has brought impressive social advancement. Based on national definitions, poverty has plummeted from 60% in 1990 to 7% today, while education and health services have considerably expanded and improved. 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 three transitions that can boost its capabilities to sustain faster but also more inclusive economic growth. The first transition is from a growth path with high structural inequalities and informality to one that focuses on unlocking the full potential of all regions and builds on convergence as a driver of structural transformation. The second transition to a more effective organisation of multilevel governance. 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. The third transition pertains to water and the environment. Moving from a resource-intensive growth path with costly natural disasters to sustainable development will require a new approach. In the case of water this means moving from ad-hoc responses to effective management of water security.

A new growth path: unlocking the potential of regions

Thailand’s growth path has created large disparities that stand in the way of the next stage of development. Past approaches to regional strategies gave rise to path dependence in productivity growth and affected regional productivity potential. Taking a closer look at Thailand’s peripheral provinces and cities suggests that convergence has started Speeding it up requires building the capabilities of all regions, provinces and municipalities to make the most of their potential.

Thailand should move towards regional policies that put local innovation in the driver’s seat and balance economic, social and environmental objectives. Local discovery of potential as well as setting objectives of development require an open process that is adaptable to the needs of each region. The geographic scope of regional development policies should moreover be flexible and focus on functionality: neighbouring administrations that face specific similar issues should have room for coordination.

Data analysis should support this processes, building on best performers to profile regions and provinces, assess potential and detect bottlenecks. An analysis of provinces at the productivity frontier points to superior human capital and public services as the distinguishing attributes of high performance provinces and cities. Based on these insights, innovative regional policies will need to support secondary cities as crucial leverages of growth outside of Bangkok, and focus on skills development as a tool of regional and urban policy

Making multi-level governance work for more effective development

Decentralisation was mandated in Thailand’s Constitution in 1999; since then, several decentralisation reforms with ambitious quantitative targets have been implemented. However, Thailand’s governance system remains highly centralised. The strong central government control over subnational governments has not led to uniform service levels or harmonised revenue bases. On the contrary, there are marked fiscal disparities between Thailand’s subnational governments. Thailand’s dual multilevel governance and high number of subnational governments (LAOs) makes the governance system complex and fragmented.

There are several alternatives available for Thailand to tackle the current problems. A clear nationwide plan should be developed to prepare for reforming the subnational government structure, financing system and spending and revenue assignments. The LAOs should be empowered by enhancing their spending and revenue autonomy. Reorganising the current spending assignments between government levels should be another priority. Merger reforms or enhanced co-operation should be considered to build adequate capacity of subnational governments. A stronger own revenue base would contribute to self-rule and accountability of Thailand’s subnational governments. Reform of financing system should include property tax reform and transfer system reform, but a considerable strengthening of local revenue base would include giving LAOs at least one important tax base. One option to consider would be to allow a local surtax on the central government personal income tax. Furthermore, subnational capacities to finance infrastructure in order to contribute to regional development need strengthening, as does subnational capacity for strategic planning and territorial development.

Moving towards effective management of water security

Thailand is facing increasing water risks. A growing population, economic growth and the looming threats posed by climate change are expected to make sustainable water management significantly more difficult in the coming years. These challenges can be captured under the overarching theme of “water security”, described as maintaining acceptable levels of risk in four main areas: the risk of water shortage; the risk of inadequate water quality; the risk of excess water and the risk of undermining the resilience of freshwater systems. In the Thai context, water security particularly covers the issues floods and droughts, water use and allocation, water quality and the impacts of pollution.

As poor water security will hold back Thailand’s growth plans, the government needs to move from a crisis response to a risk-management approach. Data and information, cohesive policies, strong leadership and a clarity on roles, responsibilities and decision-making is necessary to facilitate the move to a risk-based approach to water security. In addition, better governance and coordination between local and national authorities on water management is needed. Thailand should also make better use of economic instruments, such as water charges, and ensure stakeholder management and engagement to facilitate any reform.