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18 May 2023

Econ Digest

Economic challenges await to be solved by the new government


        Following the 2023 general election, there are significant short- and medium-term challenges facing the Thai economy going forward. If the new government is able to implement its economic policies as advocated during the election campaigns, which mainly focus on providing income assistance to vulnerable groups, raising wages and alleviating the burden of living expenses from high energy prices, it will require a large budget. Enacting these policies would boost GDP growth in the short-term, but at the cost of an increased fiscal burden. This is because if the source of funding comes from the allocation of new budget, it may not sufficiently meet such demand, or using the expected increase in tax revenues will have to wait for a period of further economy recovery, which may lag behind the expenses incurred. Therefore, the new government may shoulder a larger budget deficit. A higher budget deficit in order to implement short-term economic policies will lead to the increased cost of additional debt incurred, as Thailand’s policy rate is expected to reach 2.00%. In addition, a significant increase in government borrowing may exert a crowding-out effect, resulting in elevated costs for the private sector during the economic recovery. Thus, the government may have to consider such consequences and the appropriate timing of debt creation.

        Moreover, the new government is facing major economic challenges, including geopolitical conflicts leading to a more pronounced polarization, which will affect investment and possibly the trend of Thai exports. Demographic changes in Thailand, including an ageing society and a declining population have an impact on the Thai economy in terms of attractiveness as a source of investment and the government’s tax revenue collection. Moreover, other countries’ environmental measures have become a form of non-tariff trade barrier and are playing an increasingly important role in world trade. The new government needs to comprehend and view these issues holistically, develop comprehensive policies and address them sustainably while also exhibiting appropriate vision and leadership on such issues.

        This article only outlines the major economic challenges facing the Thai economy; other details are pending the announcement of the new government’s policies.

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