c 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank Group. 2023. Thailand Economic Monitor: Coping with Droughts and Floods; Building a Sustainable Future. World Bank, Bangkok. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Preface The Thailand Economic Monitor (TEM) reports on key developments in Thailand’s economy over the past six months, situates these changes in the context of global trends and Thailand’s longer -term economic trajectory, and updates Thailand’s economic and social welfare outlook. Each edition of the TEM also provides an in-depth examination of selected economic and policy issues and an analysis of Thailand’s medium -term development challenges. The TEM is intended for a wide audience, including policymakers, business leaders, financial-market participants, and the community of analysts and professionals engaged in Thailand’s evolving economy. The TEM is produced by the staff of the World Bank’s Bangkok office, consisting of Kiatipong Ariyapruchya, Georges Comair, Shelley Mcmillan, Hector Pollitt, (Task Team Leaders), Warunthorn Puthong, Thanapat Reungsri, Yus Medina Pakpahan, Tanida Arayavechkit, Carl Christian Dingel, Migle Petrauskaite, Pongsak Suttinon, Ou Nie, Biying Zhu, Ratchada Anantavrasilpa, Uzma Khalil, Kwanpadh Suddhi-Dhamakit, Sonskuln Thaomohr, Buntarika Sangarun and Parichart Atcharerk. Fabrizio Zarcone, Lars Christian Moller, Madhu Raghunath, Souleymane Coulibaly and Ronald Upenyu Mutasa provided overall guidance. The team is grateful to Wael Mansour, Ergys Islamaj, Fan Zhang and Eileen Burke. for their constructive peer review comments. Clarissa Crisostomo David, Kanitha Kongrukgreatiyos, and Piathida Poonprasit are responsible for external communications related to the TEM, as well as the production and design of this edition. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The latest data that inform this report date from May 12, 2023, and include data from authorities as well as World Bank staff calculations. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Photographs are copyright of World Bank. All rights reserved. This and other reports are available for download via: worldbank.org/tem Previous editions of the TEM: ▪ December 2022: Fiscal policy for a resilient and equitable future ▪ June 2022: Building back greener: the circular economy ▪ December 2021: Living with COVID in a digital world ▪ July 2021: The road to recovery ▪ January 2021: Restoring incomes; recovering jobs ▪ July 2020: Thailand in the time of COVID-19 ▪ January 2020: Productivity for prosperity ▪ July 2019: Harnessing fintech for financial inclusion To receive the TEM and related publications by email, please email buntarika@worldbank.org. For questions and comments, please contact Kiatipong Ariyapruchya (kariyapruchya@worldbank.org). For information about the World Bank and its activities in Thailand, please visit: wbg.org/thailand twitter.com/WB_AsiaPacific, follow hashtag #wbtem facebook.com/WorldBankThailand instagram.com/worldbank linkedin.com/company/the-world-bank ABBREVIATIONS ASEAN Association of Southeast Asian Nations BCA Business Collateral Act BCG Bio-Circular-Green BIM buildings information modelling BMA Bangkok Metropolitan Administration BOI Board of Investment Thailand CE circular economy CECI Circular Economy in Construction Industry CGE Computable General Equilibrium CP Charoen Pokphand CPSD Country Private Sector Diagnostic CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership CEWT Circular Economy for Waste-Free Thailand DAE Department of Agricultural Extension DAEDE Department of Alternative Energy Development and Efficiency DDPM Department of Disaster Prevention and Mitigation DEPA Digital Economy Promotion Agency (Thailand) DGR Department of Groundwater Resources DLA Department of Local Administration DOF Department of Fisheries DOH Department of Highways DORR Department of Rural Roads DPIM Department of Primary Industries and Mines DPW Department of Public Works and Town & Country Planning DWR Department of Water Resources EAP East Asia and Pacific EAE Electrical appliance and electronics EEC Eastern Economic Corridor EEI Electrical and Electronics Institute EESD Environmental Education for Sustainable Development Partnership EGAT Electricity Generating Authority of Thailand ENSO El Niño Southern Oscillation EPR Extended Producer Responsibility ERIA The Economic Research Institute for ASEAN and East Asia ESCAP Economic and Social Commission for Asia EV Electric vehicle e-waste Electrical and Electronics waste GCR Global Competitiveness Report GDP gross domestic product GHG greenhouse gas THAILAND ECONOMIC MONITOR | June 2023 i GISDA Geo-Informatics and Space Technology Development Agency GPP green public procurement G2G Government to government HII Hydro Informatics Institute INFORM Index for Risk Management IPCC Intergovernmental Panel on Climate Change ITCZ Inter-Tropical Convergence Zone IoT Internet of the Things JJA June-July-August KPI Key performance indicator LDD Land Development Department L3F Livelihood Fund for Family Farming MD The Marine Department MDES Ministry of Digital Economy and Society MHESI Ministry of Higher Education, Science, Research, and Innovation MONRE Ministry of Natural Resources and Environment MOA Ministry of Agriculture and Cooperatives MOC Ministry of Commerce MOE Ministry of Education MOF Ministry of Finance MOI Ministry of Interior MOL Ministry of Labor MOT Ministry of Transport MRAs Mutual Recognition Agreements MSDHS Ministry of Social Development and Human Security MSMEs Micro-, small- and medium-Size enterprises MWA Metropolitan Waterworks Authority NA National Assembly NBTC Office of the National Broadcasting and Telecommunications Commission NDCs nationally determined contributions NESDB National Economic and Social Development Plan NGO non-governmental organization NSO National Statistical Office NXPO The Office of National Higher Education Science Research and Innovation Policy Council NWRC National Water Resources Committee ONWR Office of the National Water Resources PCD Pollution Control Department PDNA Post Disaster Needs Assessment PM Prime Minister PWA Provincial Waterworks Authority R&D research and development RID Royal Irrigation Department THAILAND ECONOMIC MONITOR | June 2023 ii SCG Siam Cement Group SDG Sustainable Development Goals SEA Southeast Asia SRI Science Research and Innovation SRT State Railway of Thailand TMD Thailand Meteorological Department TSRI Thailand Science Research and Innovation UN United Nations UNDRR United Nations Office for Disaster Risk Reduction UNESCO United Nations Educational, Scientific and Cultural Organisation USD United States Dollar VAT Value added tax WEEE Waste Electrical and Electronic Equipment WMO World Meteorological Organisation WRMP Water Resources Management Master Plan THAILAND ECONOMIC MONITOR | June 2023 iii Contents ABBREVIATIONS ...........................................................................................................................................i EXECUTIVE SUMMARY ...........................................................................................................................iv Part 1. Recent Economic Developments and Outlook: Recovery amid Global Headwinds ............ 1 1. Recent Economic Developments: Maintaining Recovery amid Global Headwinds....................... 1 i. The Global Economy ........................................................................................................................................ 1 ii. Growth and Real Sector Developments: Growth Rebounds but Global Headwinds Persist ......... 2 iii. The Current-Account Balance Returned to Surplus, and Reserves Remain Ample ......................... 5 iv. Inflation has Fallen Back Into the Target Range but Underlying Pressures Remain ..................... 6 v. Thailand’s Financial System Remained Stable amid Improving Profitability .................................... 8 vi. Fiscal Responses to High Energy Price Have Slowed the Path to Consolidation, while the Political Transition will Slow Public Investment Disbursement in Early FY 2024 ........................ 9 vii. Poverty Declined in 2022, Underpinned by Labor Market Recovery and Social Assistance ....... 14 2. Outlook: Recovery amid Global Headwinds ....................................................................................... 17 i. The Economy is Projected to Recover Faster-Than-Expected in 2023, While Global Headwinds and Political Uncertainty Will Weigh on the Outlook .......................................................................... 17 ii. Risk to Growth Remains on the Downside amid Global Economic Slowdown, Uncertain Political Outlook, and Prolonged Weak Economic Growth ................................................................. 23 Part 2. Coping with Floods and Droughts in Thailand ........................................................................ 25 1. Introduction and Context ....................................................................................................................... 25 2. Climate Change and the Projected Impact of Floods and Droughts ............................................. 26 i. Thailand’s Climate and Climate Variability .................................................................................................... 26 ii. Climate Change Projections ............................................................................................................................... 28 iii. Disaster and Flood-Related Exposure of Thailand .......................................................................................... 29 iv. A Repeat of the 2011 Floods in the Early 2030s Could Cost 10-15 Percent of GDP ........................ 31 3. Climate Adaptation Measures to Reduce the Impacts of Floods and Droughts ......................... 33 i. Institutional and Policy Aspects, and Progress Since the 2011 Flood ..................................................... 34 ii. Flood and Drought Management Infrastructure.......................................................................................... 37 REFERENCES .............................................................................................................................................. 44 THAILAND ECONOMIC MONITOR | June 2023 ii TABLES Table 1: Key fiscal-responsibility indicators remain well within their established parameters. ..................... 12 Table 2: Fiscal surplus/deficit and budget under medium term fiscal framework (FY 2024-2070) .............. 12 Table 3: The pace of recovery is expected to continue ............................................................................................ 18 Table 4: Selected indicators from the INFORM Risk Index for risk management for Thailand. .................. 29 Table 5: Impacts of large floods ................................................................................................................................... 31 Table 6: Estimated number of people in Thailand affected by an extreme river flood..................................... 32 Table 7: Flood preparedness and response actions planned for the wet season 2022, coordinated by ONWR .................................................................................................................................................................................... 34 Table 8: Implementation status of selected medium- and long-term recommendations for strengthen flood management following the 2011 floods (World Bank, 2012) .............................................................. 35 Table 9: Overview of flood protection works in the 10 provinces with the highest flood and drought risk scores and budget for the period 2017-2022 ..................................................................................................... 39 BOXES Box 1: Public Investment and Large Pipeline Projects amid Political Transition ............................................ 13 Box 2: Farmers, Rural Households, Poverty and WaterB.1 ....................................................................................... 16 Box 3: Key policy and infrastructure recommendations to better cope with floods and drought .................. 42 THAILAND ECONOMIC MONITOR | June 2023 iii Executive Summary EXECUTIVE SUMMARY Recent Developments Economic growth rebounded in 2023 Q1 by 4.5 percent due to domestic demand and tourism but still trailed behind peers due to external challenges. Economic reopening and the authorities’ measures to mitigate cost-of-living pressures supported the recovery. Tourism arrivals reached 70 percent of the pre- pandemic level in April, surpassing Indonesia and the Philippines following the reopening of China but remained below the global average. However, because of the economy’s heavy reliance on tourism and trade, the recovery only surpassed pre-pandemic levels in 2023 Q1 (Figure ES 1) and lagged that of its ASEAN peers, most of which returned to pre-pandemic levels by late 2021. Thailand experienced a sharp contraction in goods exports growth in 2022 Q4, similar to ASEAN peers as global demand slowed (Figure ES 2). The current account returned to surplus in line with the recovery of the tourism sector and falling oil prices. The current account surplus reached 3.0 percent of GDP in Q1 2023, its highest in more than two years, after turning positive in the previous quarter, supported by both goods and a trade surplus. The financial account in Q4 2022 was positive for the first time in three quarter as foreign direct investments continued to increase and portfolio accounts turned positive. The increased portfolio inflows were boosted by stronger confidence over Thailand’s economic outlook post-China reopening. The Real Effective Exchange Rate (REER) appreciated by 4.1 percent in the last quarter of 2022 on the positive current account and improved investor confidence about Thailand’s economic outlook but depreciated slightly in 2023 Q1 amid concerns over Fed tightening. International reserves remained ample at 47 percent of GDP, the highest among Emerging Asian economies, covering 10 months of imports. Inflation has peaked and fallen back into the central bank’s target range but underlying price pressures persist. Headline inflation slowed to 2.7 percent in April, having remained within the target range of 1-3 percent for the third consecutive month amid declines in core and raw food inflation (Figure ES 3). The government continued to impose caps on other energy prices, including electricity and cooking gas, which also helped contain inflation pressure. Core inflation declined, reaching 1.8 percent, but remained higher than its pre-pandemic average of 0.7 percent over 2016-2019. While market-based forward-looking measures of inflation expectations remain well-anchored at around 2.4 percent, continued monitoring of pass-through from producer prices to consumer prices will be necessary to determine whether core inflation will persist. The central bank has stayed the course on gradual monetary normalization to contain still- elevated core inflation while supporting the economic recovery. Fiscal responses to high energy price have supported the recovery but slowed the path to consolidation, while a long political transition may slow public investment. The central government’s deficit narrowed in first half of FY23 (Oct 2022- Mar 2023) to 6.7 percent of GDP from 9.6 percent the same period last year. A smaller deficit reflected the falling government expenditures to 22.8 percent of GDP, down from 25.8 percent last year as spending need for COVID relief waned. However extended cost-of- living support measures through social benefits, subsidies, and price controls have constrained fiscal consolidation and maintained fiscal deficit at above the 2019 pre-pandemic level. Despite recent economic recovery, revenue collection has remained relatively low at 15.8 percent in the same period. Public debt rose to 61.2 percent of GDP at the end of March 2023, 20 percentage points higher than the pre-pandemic period, and remained sustainable. Continued price controls applied to energy and public transport helped contain cost of living pressures, but such controls tend to be an inefficient method of redistributing income, are often regressive in their impact and may delay efficient reallocation of resources and distort the inflation process, thereby complicating monetary policy. THAILAND ECONOMIC MONITOR | June 2023 iv Executive Summary The financial system remains stable overall, although risks associated with high levels of household debt remain. Capital and liquidity buffers at commercial banks remain well above regulatory requirements, with profitability rising. Indicators of asset quality continued to improve. Gross non-performing loan (NPL) ratio declined to 2.8 percent as of 2022 Q4, comparable to regional peers and reflects the continued support of banks for their borrowers through debt restructuring and loan profile management. However, the continued relaxation of loan classification norms to support borrowers may mask further deterioration of balance sheets and lead to an increase in NPLs. Special mention loans stood at 6.1 percent of total loans, though lower than the peak of 7.7 percent during pandemic, remains significantly higher than the pre- pandemic levels of 2.8 percent in December 2019. High household debt– at 85.7 percent of GDP as of 2022 Q4 – stands well above major ASEAN economies and is comparable to advanced economies. The composition of household debt in Thailand warrants particular attention due to the large share of uncollateralized lending. Labor market conditions have improved due to the recovery of sectors related to tourism--trade and hospitality. Employment in trade and hospitality continued to trend up supported by a strong rebound in tourism. Manufacturing employment remained relatively stable, despite a decline in manufacturing exports for two consecutive quarters. The unemployment rate stood at 1.1 percent, down from 1.5 percent in the same quarter last year and almost returning to its pre-pandemic level at 1.0 percent in Q1 2020. The underemployment rate stood at 8.4 percent of the labor force in Q1 2023, falling to below the pre-pandemic level of 9.5 percent in Q1 2020. Poverty is expected to have declined in 2022, underpinned by the labor market recovery. Outlook and Risks The recovery momentum will strengthen in 2023 supported by tourism recovery before slowing due to global headwinds. Growth is projected to accelerate from 2.6 percent in 2022 to 3.9 percent in 2023 (Table ES 1), 0.3 percentage points higher than expected in April 2023 mainly due to tourism recovery and stronger-than-expected demand from China. However, goods exports is projected to contract due to weakening demand in major advanced economies. After rebounding in 2022 following domestic reopening, private consumption growth will slow but remain solid, supported by the ongoing recovery, with improved labor market and strong pent-up tourism demand from China. Public investment will remain weak due to the long transition towards a new government. Growth in 2024 and 2025 are expected to expand at 3.6 percent and 3.4 percent, respectively, with tourism and private consumption remaining the major drivers as external demand weakened. Long-term potential growth is estimated at 3.0 percent, slower than 3.6 percent estimated over 2010-2019. The current account balance is expected to reverse from its deficit of the past two years and return to positive territory in 2023 at 2.5 percent of GDP due to both goods and services trade. Although the goods export outlook remains weak, the lower import bill amid easing global oil prices will contribute to a stronger trade surplus. The tourism sector recovery and the normalization of shipping costs will also support the current account surplus. Headline inflation is projected to moderate to 2.0 percent in 2023, below most emerging markets amid easing global energy prices, price caps and below-potential growth. The deceleration in inflation from 6.1 percent in 2022 the previous year, reflects the lowered energy price inflation, which is projected to fall from 25 percent in 2022 to just 1.9 percent, as well as below-potential growth until 2025. Brent crude oil prices are forecasted to average USD 84 per barrel in 2023 amid weaker global demand. Continued caps on energy prices, including electricity and cooking gas, are expected to remain until Q3 2023 and will help contain inflation pressure in the rest of year. However, underlying price pressures persist as core inflation remains higher than its pre-pandemic average. Continued price controls applied to energy and public transport helped contain cost of living pressures, but such controls tend to be a costly method of redistributing income, are often regressive in their impact and may delay efficient reallocation of resources and distort the inflation process, thereby complicating monetary policy. THAILAND ECONOMIC MONITOR | June 2023 v Executive Summary Public debt is projected to peak at slightly above 60 percent in the medium term. Over the medium term, public debt is projected to remain sustainable as the narrowing fiscal deficit and recovering output would contribute to a gradually declining debt to GDP ratio. Largely denominated in local currency, Thailand’s debt is also resilient to foreign currency risk. Despite recent resurgent growth, the output level is unlikely to return to the pre-pandemic path and is expected to remain below its potential level from 2023 to 2025. This path could be dampened further by the difficult external environment and possible re-escalation of energy prices. Delays in government formation may set back public investment. Structural challenges, such as an aging population, climate change, low capital investment accumulation, declining export competitiveness, and high household debt, may further limit potential growth (Figure ES 5). The EAP region, including Thailand, is exposed to climate risks, particularly floods and droughts, in part because of the high density of population and economic activity along the coasts (see part 2 on Coping with Floods and Droughts). Unlike many other emerging markets, Thailand still has the fiscal space to meet rising spending needs associated with aging and climate change if expenditure and revenue reforms are undertaken (Figure ES 6) (see WB Thailand Public Revenue and Spending Assessment 2023). Coping with Floods and Droughts in Thailand Thailand, like many ASEAN economies, is already acutely vulnerable to floods and droughts. In recent decades, Thailand has been subjected to frequent floods and droughts. Thailand currently ranks ninth globally in the INFORM index of risks from floods, below Vietnam, Myanmar and Cambodia. The 2011 floods caused 680 deaths, affected nearly 13 million people, and resulted in damages and losses to the economy worth an estimated THB 1.43 trillion (USD 46.5 billion), equivalent to 12.6 per cent of GDP. UNDRR (2020) estimates the average annual losses related to flooding at USD 2.6 billion. Bangkok and the export industries around it remain especially vulnerable to flooding, despite the introduction of flood control measures. Thailand also frequently suffers from droughts resulting from shortage of rainfall, reduced flow in surface and sub-surface rivers, and poor land management practices (Figure ES 4). The entire country was affected by severe droughts in 1979, 1994, and 1999; the north-eastern region, which has the highest poverty rates, is particularly vulnerable to drought. Climate change will increase the frequency and intensity of floods in the coming decades. Changes in weather patterns resulting from climate change are increasing the impacts of floods. Although there remains considerable uncertainty in the modelling, current projections suggest that there will be an increase in the annual precipitation rates in Thailand. Moreover, the increases in rainfall are predicted to occur during the wet season, suggesting an increase in susceptibility to flooding. In 2017, rainfall anomalies exceeded those of 2011. Without climate adaptation measures, the potential impacts of another 1-in-50-year flood event similar to the one in 2011 could double. Climate change will also increase the intensity and frequency of future droughts. The average from a combination of future climate projections suggests that average daily temperatures in Thailand could increase by 1.8°C by 2050. Although total precipitation is expected to increase, there will be more dry days outside the wet season, leading to an increase in the frequency and severity of future droughts. Thailand will be susceptible to El Niño-related droughts and the frequency of ‘severe meteorological droughts’ will increase substantially after 2050 in high emission scenarios. Higher average temperatures will exacerbate the effects, as will rising sea levels and saline incursion. The public costs of floods and droughts are already substantial and will grow in the future. The Thai government lost an estimated 3.7 percent of tax revenues in 2011 and 2.6 percent of revenues in 2012 because of floods. The public sector faced THB 141 billion of losses to property and an estimated reconstruction bill of THB 388 billion (3.4 percent of GDP). In 2019, it was reported that the government provided THB 25 THAILAND ECONOMIC MONITOR | June 2023 vi Executive Summary billion (0.15 percent of GDP) to farmers to compensate directly for damage to crops from drought and flooding. Further measures to support affected farmers were also announced with a cost of THB 60 billion (0.36 percent of GDP). Future costs to the government in providing compensation (mainly to farmers) are expected to increase over time. The macroeconomic costs of floods will grow; a 1-in-50 year flood (i.e. the 2011 floods) in 2030 would cost more than 10 percent of GDP in lost production. As climate change increases the severity and frequency of floods, the economic costs will also grow. If floods cover wider areas, more businesses will be forced to reduce production during the flood and recovery period. Businesses that are not directly affected by the floods may still be forced to reduce production because of supply-chain problems. Loss of income could also have further demand-side effects on the economy. Overall, the effects of a 1-in-50 year flood is likely to be a loss of 10 percent of production. If supply chains are unable to adapt, the impact could be a 15 percent loss of production. Businesses can therefore offset some of the effects of floods by maintaining supply-chain flexibility. However, impacts will remain substantial without centralized adaptation measures. Progress has been made to better cope with floods and droughts but certain challenges remain. Since the establishment of the Office of the National Water Resources (ONWR), the coordination of the different entities involved in flood and drought management has substantially improved and ONWR has increasingly supported the planning of flood and drought mitigation measures. However, several other recommendations of the Post Disaster Needs Assessment of the 2011 floods still have not been addressed. The institutional and legal reform process started in 2017 with the enactment of the Water Resources Act (2018) is incomplete and the institutional landscape remains fragmented as each institution has protected its traditional mandate that it has spearheaded. Furthermore, the different ministries, departments and agencies often face funding and staffing challenges with resulting implications on fulfilling their mandate, provision of services as well as proper operation and maintenance of aging infrastructure. Robust cost-benefit assessments are needed to identify and prioritize suitable flood and drought prevention measures. This is especially important for the provinces which are most vulnerable to the risk of such events, including the Greater Bangkok area which accounts for a significant part of the population and economy. Measures should include both infrastructure investments and softer ones, such as effective early warning and community-based adaptation systems. An integrated comprehensive framework is needed for climate adaptation. The four key points highlighted in An EPIC Response: Innovative Governance for Flood and Drought Risk Management (Browder et al., 2020) include: i) an enabling environment, ii) prioritized risk mitigation planning, iii) investment in water resources infrastructure, and iv) controlling land and water use. The latest advancements to improve water use efficiency, promote a circular economy, and integrate nature-based solutions can also significantly contribute to enhancing resilience to floods and droughts. THAILAND ECONOMIC MONITOR | June 2023 vii Executive Summary Recent Developments and Medium-Term Outlook Figure ES 1: Thailand’s recovery picked up due to Figure ES 2:...weak global demand weighed on goods private consumption and tourism while… exports. (Percentage-point contribution to real GDP growth, year-on-year) (left: diffusion index; right: Percent year-on-year) 20.0 Manufacturing PMI: Global Thai Exports: Agriculture, Agro Industrial Products, YoY (RHS) 10.0 Thai Exports: Manufacturing, YoY (RHS) 60 50 0.0 55 25 -10.0 50 0 -20.0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 45 -25 2018 2019 2020 2021 2022 2023 Private Consumption Public Consumption Investment Change in inventories 40 -50 Net Exports of Goods Net Exports of Services Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 gdp growth (y-o-y) Source: NESDC. Source: CEIC; World Bank staff calculations. Note: Change in inventories include statistical discrepancies. Figure ES 3: Headline inflation declined after peaking Figure ES 4: Rainfall anomalies in Thailand are rising last August but core inflation remained elevated. (1981-2019). (Contribution to headline inflation, % change y-o-y) (Percentage of rainfall anomalies in Thailand, mm.) 8.0 Higher than normal 30 25 Core inflation 24 Normal 6.0 Raw Food Lower than normal 20 15 14 Energy 4.0 9 9 Headline inflation 10 7 7 7 6 5 5 5 4 2.0 3 1 1 0 0 0.0 -1 -1 -1 -2 -2 -5 -4 -4 -4 -10 -6 -6 -6 -7 -7 -8 -2.0 -9 -9 -9 1989 -11 1993 -12 -13 -20 2015 -15 -17 -4.0 2003 1981 1983 1985 1987 1991 1995 1997 1999 2001 2005 2007 2009 2011 2013 2017 2019 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Source: CEIC; World Bank staff calculations. Source: HII, 2019: Thailand Water Situation 2019 (ThaiWater.net) Figure ES 5: Weak global demand, aging and climate Figure ES 6: Spending needs related to aging and change weigh on the outlook. climate adaptation can be met under fiscal reforms. (THB million) (Percent of GDP) 15 180 140 13 100 11 60 20 9 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Long term baseline no reform Potential output - Pre-pandemic trend All expenditure and revenue reforms Potential output - post-pandemic trend All expenditure reforms with OAA tapered (2,000 to 0) Actual All expenditure reforms with OAA up to poverty line Baseline Forecast - TEM Jun 23 All expenditure reforms with OAA increase to 3,000 Source: Haver Analytics; World Bank staff projections Source: Ministry of Finance, Public Debt Management Office; World Bank staff projections. THAILAND ECONOMIC MONITOR | June 2023 viii Executive Summary Table ES 1: Macroeconomic Indicators 2020 2021 2022 2023f 2024f 2025f Real GDP Growth Rate -6.1 1.5 2.6 3.9 3.6 3.4 (at constant market prices) Private Consumption -0.8 0.6 6.3 3.8 3.4 3.0 Government Consumption 1.4 3.7 0.2 -2.6 1.1 2.5 Gross Fixed Capital Investment -4.8 3.1 2.3 2.1 2.1 3.7 Exports of Goods and Services1 -19.7 11.1 6.8 7.3 6.4 4.3 Imports of Goods and Services -13.9 17.8 4.1 1.5 4.2 4.0 Real GDP Growth Rate (at constant factor prices) Agriculture -2.9 2.6 0.5 1.4 2.0 2.2 Industry -5.1 6.0 -1.0 0.7 2.8 3.6 Services -5.6 -0.5 4.9 6.4 4.6 3.7 Inflation (Consumer Price Index) -0.8 1.2 6.1 2.0 1.9 1.3 Current Account Balance (% of GDP) 4.2 -2.1 -3.5 2.5 4.4 4.9 Fiscal Balance (General Government, % of GDP) -4.7 -7.0 -4.5 -2.1 -1.9 -1.9 Debt (% of GDP) 50.2 57.8 59.7 59.0 58.5 58.7 Note: 1/ Exports of goods and services accounted for 69.4 percent of GDP in 2022. See more details in the outlook section. Source: NESDC; World Bank staff calculations. THAILAND ECONOMIC MONITOR | June 2023 ix Part 1. Recent Economic Developments and Outlook Part 1. Recent Economic Developments and Outlook: Recovery amid Global Headwinds 1. Recent Economic Developments: Maintaining Recovery amid Global Headwinds i. The Global Economy The resilience that Global growth is set to slow substantially in 2023, to 2.1 percent, amid continued the global economy monetary tightening to rein in high inflation, before a tepid recovery in 2024, to exhibited earlier this 2.4 percent (Figure 1). Forecasts for most countries have been revised down, with year is expected to upgrades due to stronger-than-expected data at the beginning of 2023 more than fade. offset by downgrades thereafter. Inflation has been persistent but should decline as demand weakens and commodity prices moderate, provided longer-term inflation expectations remain anchored. Global economic activity could be weaker than anticipated in the event of more widespread banking sector stress, or if more persistent inflation pressures prompt tighter-than-expected monetary policy. Global goods trade Global goods trade slowed in the first half 2023 in tandem with weaking global growth decelerated. industrial production. Services trade, by contrast, continued to strengthen following the easing of pandemic-induced mobility restrictions. International tourist arrivals are expected to approach 95 percent of 2019 levels in 2023, an increase from 63 percent in 2022 (UNWTO 2023). THAILAND ECONOMIC MONITOR | June 2023 1 Part 1. Recent Economic Developments and Outlook Growth in the East Projected growth in China this year has been revised upward following a faster- Asia and Pacific than-expected reopening of the economy, which is bolstering near-term (EAP) region is consumer spending, including on services and tourism in Thailand (Figure 2). projected to Growth in the region excluding China is set to slow to 4.8 percent in 2023, down strengthen to 5.5 from 5.8 percent in 2022, as the boost from earlier reopening fades in several percent in 2023 from large economies. Regional trade growth will remain subdued amid weak global 3.5 percent in 2022, demand and domestic services-led growth in China. While external borrowing as a recovery in China in EAP is generally lower than in other EMDE regions, overall debt levels have offsets slowing ratcheted up over the past decade, owing to increased borrowing by activity in most other governments, households, and nonfinancial corporations and will weigh on the regional economies. recovery. Downside risks to the outlook include tighter-than-expected global financial conditions; stubbornly high inflation; protracted weakness in China’s property sector; geopolitical tensions; and climate-change-related extreme weather events. Figure 1: Global activity is projected to slow in 2023 Figure 2: Growth is projected to diverge across the reflecting a deceleration in advanced economies EAP region this year (Percentage points) (Percent) 8 10 EAP Advanced Economies EAP excl. China EMDEs excl. China China 8 6 China Thailand World (RHS) 6 4 4 2 2 0 0 2021 2022e 2023f 2024f 2021 2022 2023F 2024F Source: World Bank Global Economic Prospect (June 2023) Source: World Bank Global Economic Prospect (June 2023) ii. Growth and Real Sector Developments: Growth Rebounds but Global Headwinds Persist Economic growth GDP grew by 2.7 precent, beating expectations and rebounding from a rebounded in 2023 disappointing 1.4 percent in the previous quarter (Figure 3). Domestic demand, Q1 due to domestic particularly private consumption (5.4 percent), as well as the continuing tourism demand and tourism recovery proved to be the key drivers (Figure 4). Though private investment while goods export continued to expand with supports from the recovery of the Foreign Direct fell close to pre- Investment (FDI), it slowed slightly as investment in equipment and exports pandemic levels. weakened. Public consumption contracted due to the phasing out of COVID- related spending. Goods export continued to contract (-6.4 percent) in line with shrinking global demand. High frequency indicators show that private consumption and services continued to diverge from manufacturing, which has fallen close to pre-pandemic levels (Figure 5). The Thai recovery Major ASEAN economies such as Indonesia, Malaysia and Philippines reached continued to lag their pre-pandemic GDP levels around late 2021 to early 2022, approximately a behind major ASEAN year ahead of Thailand (Figure 6). The twin shocks of the pandemic and slowing economies due to the global trade has particularly impacted Thailand due to the country’s position as THAILAND ECONOMIC MONITOR | June 2023 2 Part 1. Recent Economic Developments and Outlook economy’s exposure a trade and tourism hub. Thai goods exports account for 50 percent of GDP in to tourism and goods 2019 while the tourism sector accounted for a large share of the economy at 13 trade. percent. While global trade in services has recovered, Thailand’s tourism arrivals has yet to do so, reaching only 70 percent of pre-pandemic levels in April. Figure 3: Growth rebounded in Q1 2023 after Figure 4: Goods exports contracted and continued faltering amid slowing global trade. to weigh on the recovery. (Percentage change) (Percentage-point contribution to real GDP growth, year-on-year) 10.0 7.7 15.0 4.6 10.0 5.0 1.92.22.5 1.42.7 5.0 0.0 0.0 -0.2 -5.0 -5.0 -2.2 -2.5 -4.2 -10.0 -10.0 -6.4 -15.0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 -15.0 -12.3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2018 2019 2020 2021 2022 2023 Private Consumption Public Consumption 2018 2019 2020 2021 2022 2023 Investment Change in inventories GDP (Y-o-Y) GDP (Q-o-Q, Seasonally Adjusted) Net Exports of Goods Net Exports of Services gdp growth (y-o-y) Source: NESDC Source: NESDC Figure 5: Manufacturing has fallen below pre-covid Figure 6: Thailand has struggled to reach pre- levels and diverged from private consumption and COVID levels of output, lagging regional peers. services. (Index, sa) (Index Q4 2019 = 100, sa) 120 Manufacturing Production Index Indonesia Malaysia Service Production Index Philippines Thailand Private Consumption Index 110 Vietnam 110 100 100 90 90 80 80 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 2019 2020 2021 2022 Source: CEIC; World Bank staff calculations Source: NESDC; CEIC; World Bank staff calculations Recovery of foreign Net foreign direct investment inflows recovered to an average 2.7 percent of direct investment GDP over 2021-2022, rebounding from the lowest among ASEAN peers but still supported private remaining below Malaysia and Vietnam (Figure 7). Applications for investment investment, including promotion, especially in Electric Vehicles (EV) and Smart Electronics in the in the Eastern Eastern Economic Corridor (EEC) area, also signaled a further pick up in FDI, Economic Corridor. going forward (Figure 8). EV and parts producers from China and Taiwan, in particular benefited from investment promotion as well as tax and subsidy measures1 to support EV usage. 1 In August 2022, the government offers a subsidy for EV producers ranging from THB 70,000 to 150,000 per unit on a THAILAND ECONOMIC MONITOR | June 2023 3 Part 1. Recent Economic Developments and Outlook Figure 7: Thailand FDI improved but remained Figure 8: Applications for investment promotions below Malaysia and Vietnam in Q1 reached a six-year high (Percent of GDP) (Percent of GDP, quarterly, year-to-date) 5.0 2011-2015, average 16 2016-2019, average 14 4.0 2020 (Pandemic) 12 2021-2022, average 10 3.0 8 2.0 6 4 1.0 2 0 0.0 Q1 Q2 Q3 Q4 -1.0 2018 2019 2020 2021 2022 2023 Thailand Indonesia Philippines Malaysia Vietnam Source: CEIC; World Bank staff calculations Source: Board of Investment; World Bank staff calculations On the supply side, A broad-based expansion in the services sector continued to be the key driver of services and growth amid resurgent tourism and employment while manufacturing faltered agriculture drove the (Figure 9Figure 9). The manufacturing sector, particularly industries associated recovery while with exports, contracted for the second quarter, in line with weak global demand. manufacturing Agriculture saw favorable weather and bountiful harvests, reaching pre- weakened. pandemic levels. However, agriculture and manufacturing are vulnerable to intensifying cycles of floods and droughts. Agriculture contracted due to droughts (2015, 2020) (Figure 10) while manufacturing supply chains, particularly hard disk drives, were disrupted due to flood (e.g. 2011).2 Figure 9: Services drove the recovery amid Figure 10: Agricultural production has recovered to relaxation of mobility and travel restrictions. pre-pandemic levels. (Percentage-point contribution to real GDP growth, year-on-year) (Base year 2005 = 100, seasonally adjusted) 8.0 170 160 4.0 150 140 0.0 130 120 -4.0 110 JAN 2019 JUL 2019 JUL 2020 JUL 2021 JUL 2022 OCT 2019 OCT 2020 OCT 2021 OCT 2022 JAN 2020 JAN 2021 JAN 2022 JAN 2023 APR 2019 APR 2020 APR 2021 APR 2022 -8.0 APR 2023 2015 Q12022 Q22022 Q32022 Q42022 Q12023 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 Agricultural Production Index Agriculture Industrial Agricultural Price Index Services GDP growth Source: NESDC Source: Office of Agricultural Economics, Ministry of Agriculture and Cooperatives purchase of battery EV passenger cars and THB 18,000 per unit for electric motercycle purchase. The measure is expected to expire in September 2023. In addition, the annual EV car tax has been lowered by 80 percent. 2 Winkler and Taglioni (2019). Making Global Value Chains Work for Development. THAILAND ECONOMIC MONITOR | June 2023 4 Part 1. Recent Economic Developments and Outlook iii. The Current-Account Returned to Surplus and Reserves Remained Ample The current account The current account surplus reached 3.0 percent of GDP in Q1 2023, the highest returned to a surplus surplus in more than two years, after turning positive in the previous quarter in line with the (Figure 11). The surplus reflected both goods and services trade surplus. The fall recovery of the in the oil import bill contributed to goods trade surplus. Services trade surplus tourism sector and was supported by improved tourism revenue and a significant decline in shipping falling oil prices. costs from the second half of 2022. The latter was boosted by the economic slowdown and the easing of port congestion post-pandemic3. The Real Effective The financial account in Q4 2022 turned positive for the first time in three Exchange Rate has quarter as foreign direct investments continued to increase and portfolio strengthened since accounts turned positive (Figure 12). The increased portfolio inflows were Q4 2022, with boosted by stronger confident over Thailand’s economic outlook after the supports from the reopening of China. The Real Effective Exchange Rate (REER) appreciated by current account and 4.1 percent in the last quarter of 2022 following the positive current account and financial account improved investor confidence regarding Thailand’s economic outlook (Figure surpluses. 13). However, in Q1 2023, the REER depreciated slightly as Thailand’s equity and bond markets recorded outflows due to expectations regarding stronger- than-expected Fed’s tightening and global risk aversion caused by the Silicon Valley bank failure. The REER depreciated similar to Malaysian ringgit, while Indonesian rupiah and Philippine peso strengthened (Figure 14). Despite rising foreign exchange volatility, international reserves remained ample at 47 percent of GDP, the highest among Emerging Asian economies, covering 10 months of imports (Figure 15). Figure 11: The current account returned to surplus Figure 12: The net financial account surplus was due to tourism sector recovery and falling oil driven by portfolio investment. prices (% of GDP) (% of GDP) 20.0 15.0 15.0 10.0 5.0 5.0 0.0 -5.0 -5.0 -10.0 -15.0 -15.0 Q1-15 Q1-16 Q1-17 Q1-18 Q1-19 Q1-20 Q1-21 Q1-22 Q1-23 Q1-15 Q1-16 Q1-17 Q1-18 Q1-19 Q1-20 Q1-21 Q1-22 Current Acct: Goods Fin Acct: Other Investments Fin Acct: Portfolio Investment Current Acct: Primary & Secondary Income Current Acct: Services Fin Acct: Direct Investment Financial Account Current Account Source: Bank of Thailand; World Bank staff calculations. Source: Bank of Thailand; World Bank staff calculations. 3 https://www.economist.com/graphic-detail/2022/09/30/global-shipping-costs-are-plunging-as-the-world-economy- slows THAILAND ECONOMIC MONITOR | June 2023 5 Part 1. Recent Economic Developments and Outlook Figure 13: The REER and NEER appreciated since Figure 14: the REER for Thai baht and Philippine late 2022 supported by the stronger economic peso appreciated. outlook (Base year 2012 = 100) (January 2020 = 100) 130 110 125 105 120 115 100 110 95 105 90 100 95 85 JUL 2019 JUL 2020 JUL 2021 JUL 2022 MAY 2020 JUL 2020 MAY 2021 JUL 2021 MAY 2022 JUL 2022 OCT 2019 OCT 2020 OCT 2021 OCT 2022 SEP 2020 SEP 2021 SEP 2022 NOV 2020 NOV 2021 NOV 2022 JAN 2019 APR 2019 JAN 2020 APR 2020 JAN 2021 APR 2021 JAN 2023 JAN 2020 MAR 2020 JAN 2021 MAR 2021 JAN 2023 MAR 2023 JAN 2022 APR 2022 JAN 2022 MAR 2022 Nominal Effective Exchange Rate (NEER) China Indonesia Malaysia Real Effective Exchange Rate (REER) Philippines Thailand Source: Bank of Thailand; World Bank staff calculations. Source: Bank for International Settlements (BIS). Figure 15: Thailand’s international reserves and forward position remain adequate at over thrice the level of external debt. (LHS: % of GDP, RHS: short-term debt) 60 6 50 5 40 4 30 3 20 2 10 1 0 0 Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Jan-17 Oct-17 Jan-18 Oct-18 Jan-19 Oct-19 Jan-20 Oct-20 Jan-21 Oct-21 Jan-22 Oct-22 Jan-23 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 International reserve and forward position (net), % of GDP International reserve and forward position (net)/Short-term external debt (RHS) Source: Bank of Thailand; World Bank staff calculations. iv. Inflation Fell Back Into the Target Range but Underlying Pressures Remain Inflation slowed to an Headline inflation slowed to 2.7 percent (year-on-year) in April, having 18-month low due to remained within the Bank of Thailand’s target range of 1-3 percent for the third broad-based price consecutive month amid declines in core and raw food inflation (Figure 16). deceleration. Energy price inflation rose slightly from 2.4 percent to 3.2 percent, as domestic gasoline price deceleration slowed. Following the fall in global oil prices, the diesel price cap was reduced for the fifth time since February, by THB 2.5 per liter, to THB 32.5 per liter. The government continued to impose caps on other energy prices, including electricity and cooking gas, which also helped contain inflation pressure. Core inflation has Core and raw food inflation continued to wane, reaching 1.8 percent and 1.1 slowed but remained percent, respectively. Core inflation also declined, reaching 1.8 percent (Figure elevated. 17), but remained higher than its pre-pandemic average of 0.7 percent over 2016- 2019. However, strengthening domestic consumption and a strong pick-up in producer prices since 2022 may exert more pressure on consumer prices. Price THAILAND ECONOMIC MONITOR | June 2023 6 Part 1. Recent Economic Developments and Outlook pressures in items and services not associated with energy and food prices are emerging (Figure 18). The Bank of Thailand In light of underlying inflationary pressure, the central bank raised the policy maintained gradual rate by 25 basis points to 2.00 percent while extending its SME soft loan facility monetary policy by one more year until April 2024 to support economic recovery. In light of the normalization. improving macro-economic fundamentals, anchored inflation expectations (Figure 19) and rising demand driven-inflation pressures, the policy rate is expected to gradually normalize to its estimated neutral rate of 2.5 percent, as the output gap closes in 2024.4 Figure 16: Headline inflation has slowed amid Figure 17: Falling prepared food and beverage easing energy prices but underlying price prices contributed to slowing, but still high, core pressures persist. inflation. (Contribution to headline inflation, % change y-o-y) (Contribution to core inflation, % change y-o-y) 8.0 3.5 Raw Food Non-food & Baverage ex. Rent 3.0 Food & Baverage Core inflation Rent 2.5 Energy Core inflation 4.0 2.0 Headline inflation 1.5 1.0 0.0 0.5 0.0 -0.5 -4.0 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Note: Headline inflation includes raw food and energy. Note: Core inflation includes prepared food and excludes Source: CEIC; World Bank staff calculations. raw rood and energy. Source: Haver Analytics; World Bank staff calculations. Figure 18: Price pressures eased mainly due to Figure 19: Long-term inflation expectations remain falling oil prices. within the inflation target range. (Percent year-on-year) (Expectations inflation index-linked bonds, percent year-on-year) Headline CPI 2.8 2.7 2.6 Electricity, Fuel, Water Supply (5.49) 11.1 2.4 Transportation Services (1.37) 6.1 2.2 Food & Beverages (40.35) 4.5 2 Cleaning Supplies (1.64) 2.3 1.8 Medical & Personal Care (5.68) 1.6 1.8 Recreation and others* (4.51) 1.4 1.5 Tobacco & Beverages (1.39) 0.7 Shelter (15.49) 0.3 Apparel & Footwears (2.23) 0.3 2022 April Communication &Equipments (4.35) 0.1 3Y Inflation Expectation 4Y Inflation Expectation Vehicles & Vehicle Operation (15.18) -0.6 5Y Inflation Expectation 10Y Inflation Expectation -5 0 5 10 15 20 25 Source: MOC; CEIC; World Bank staff calculations. Source: Puey Ungphakorn Institute for Economic Research, Bank of Thailand. 4The estimation is based on a standard Taylor rule that relates the central bank policy rate to inflation expectations, deviations from target, and output deviations from potential output. Potential output is derived from a Cobb-Douglas production function, with calibration of the function’s parameters. THAILAND ECONOMIC MONITOR | June 2023 7 Part 1. Recent Economic Developments and Outlook v. Thailand’s Financial System Remained Stable amid Improving Profitability The Thai banking As of 2022 Q4, the tier-1 capital adequacy ratio for Thai banks was 15.9 percent system remains (Figure 20), above both the minimum regulatory requirement and the Basel III resilient with a minimum requirement of 10.5 percent. This capital adequacy ratio is comparable robust level of capital to Thailand’s regional peers such as Malaysia and Philippines. Gross non- and strong asset performing loan (NPL) ratio declined to 2.8 percent as of 2022 Q4 (Figure 20), quality. which is comparable to regional peers and reflects the continued support of banks for their borrowers through debt restructuring and loan profile management. Banks also maintained an adequate level of provisions with an NPL coverage ratio of 171.9 percent in 2022 Q4. However, it is important to note that authorities have continued the relaxation of loan classification norms to support borrowers, which may increase the risk of a further deterioration of balance sheets and lead to an increase in NPLs. Special mention loans stood at 6.1 percent of total loans, though lower than the peak of 7.7 percent during pandemic, remains significantly higher than the pre-pandemic levels of 2.8 percent in December 2019. The Thai banking Liquidity assets to short-term liabilities was 32.4 percent in 2022 Q4, higher than sector has some peer countries such as Indonesia, but lower than Malaysia and Philippines. demonstrated The loan-to-deposit ratio has remained stable at 108 percent in 2022 Q4 (Figure improved 21). Liquidity coverage ratio was 197.3 percent in 2022 Q4, well above the profitability while minimum regulatory requirement of 100 percent. Profitability showed signs of maintaining adequate improvement and stabilized at below pre-pandemic levels with Return on Assets liquidity. (ROA) at 1.05 percent and Return on Equity (ROE) at 7.85 percent. These figures are higher compared to the same period in 2020 and 2021, but still lower than several regional peers such as Malaysia. Net Interest Margin stood at 2.9 percent, the highest level since the start of the pandemic. The rise of profitability is mainly driven by loan expansion that led to an increase in net interest income, paired with lower provisioning expenses. Relatively high Household debt in Thailand has historically been high (80.3 percent of GDP in household 2019 Q4 according to the Institute of International Finance (IIF)) due to a variety indebtedness remains of structural reasons related to lending practices, borrower financial literacy and a source of discipline, and debt mediation and bankruptcy process. It has been exacerbated vulnerability for the by the COVID-19 crisis due to pandemic-related policy measures and monetary financial sector. easing, and now stands at elevated level even compared with advanced economies: at 85.7 percent of GDP as of 2022 Q4, household debt in Thailand is higher than most periods (except for the several quarters during the pandemic) in terms of both the USD amount and as a percent of GDP.5 The composition of household debt in Thailand warrants attention due to a large share of uncollateralized lending (44 percent of GDP), notably higher than say China (28 percent of GDP). The difference is due to the prevalence of uncollateralized lending, including personal loans (19 percent), credit card loans (4 percent), agricultural loans (7 percent) among others. These lending were in part encouraged by COVID-related relief measures which were introduced in 2020 5 Credit to households expanded rapidly over the last decade, rising from 59.3 percent of GDP in 2010 to over 80 percent in 2019, driven by not only personal loan but also auto and housing loans, which the government incentivized by offering one-off first-car and first-home tax rebates. The growth of credit to households slowed to approximately 3 percent per year during the pandemic and borrowing likely helped smooth consumption among liquidity-constrained households. THAILAND ECONOMIC MONITOR | June 2023 8 Part 1. Recent Economic Developments and Outlook and extended once in 2022. Expiration of these measures may reveal underlying bank asset quality issues, as households have difficulty repaying these loans and banks do not hold collaterals against these parts of their portfolio. The extent of such impacts will likely be contained since NPLs and special mention loans account for a small portion of housing loans and credit card loans (3.3 percent), although the fraction is higher for personal loans (7.5 percent). Figure 20: The banking system remains resilient Figure 21: Banking sector profitability has with sufficient capital Figure 1: NPL and and CAR liquidity in the buffers Thai Financial Sector stabilized Figure 3: Selected Profitability Ratios (Percent) (In percent) (Percent) (in percent) NPL (LHS) CAR (RHS) Tier-1 Capital (RHS) 4% NIM (LHS) ROA (LHS) ROE (RHS) 16% 3.5% 3.20% 3.30% 25% 3.10% 3.10% 3.00% 3% 2.88%14% 3.0% 2.90% 2.64% 2.80% 20% 2.48% 2.45% 12% 3% 2.5% 2.51% 10% 15% 2% 2.0% 8.21% 7.51% 7.85%8% 1.5% 2% 6.26% 10% 4.86% 6% 1.11% 1.01% 1.0% 1% 1.05%4% 5% 0.87% 0.5% 1% 0.67% 2% 0.0% 0% 0% 0% 2022Q3 2022Q4 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 Source: Bank of Thailand. Source: Bank of Thailand. Note: NPL: Non-performing loans, CAR: Capital Adequacy ratio Note: Note: NPL: Non-Performing Loans, CAR: Capital Adequacy Ratio. NIM: Net Interest Margin, ROA: Return on Assets, ROE: Note: NIM: Net Interest Margin, ROA: Return on Assets, ROE: Return on Equity. Data reported Data reported is for incorporated is for domestically domestically incorporated commercial banks. commercial Return on Data reported Equity is for . incorporated commercial banks. domestically banks Source: Bank of Thailand Source: Bank of Thailand vi. Fiscal Responses to High Energy Price have Slowed the Path to Consolidation, while the Political Transition will Slow Public Investment Disbursement in Early FY 2024 The fiscal deficit has The central government’s deficit narrowed in first half of FY23 (Oct 2022- Mar narrowed as spending 2023) to 6.7 percent of GDP from 9.6 percent the same period last year (Figure needs for COVID-19 22). A smaller deficit reflected the falling government expenditures to 22.8 relief waned. percent of GDP, down from 25.8 percent last year as spending need for COVID relief waned. As of January 2023, 96.4 percent of the THB 1.5 trillion emergency borrowing for COVID-19 responses had already been disbursed, with the remainder available for disbursement in 2023. Despite recent economic recovery, revenue collection has remained relatively low at 15.8 percent in the same period (Figure 25). The authorities have These measures, including extended cost-of-living support measures through maintained measures social benefits, subsidies, and price controls have constrained fiscal consolidation to mitigate high and maintained fiscal deficit at above the 2019 pre-pandemic level. While off- prices, thereby budget spending for Covid-19 relief declined, spending on subsidies and social slowing fiscal benefits remained substantially higher than the pre-pandemic level (Figure 23). consolidation. While price controls Though some measures target vulnerable households, many measures including and subsidies can be caps on electricity and cooking gas prices and the excise tax cut on diesel are not effective in reducing targeted, costly, and regressive. The State Oil Fund remained in deficit by THB THAILAND ECONOMIC MONITOR | June 2023 9 Part 1. Recent Economic Developments and Outlook inflation and 83 billion (0.6 percent of GDP) due to the funding for cooking gas price subsidy alleviating poverty, (Figure 24). The government has borrowed THB 30 billion in December 2022 they can be fiscally (0.2 percent of GDP) to replenish the fund (Table 1), The excise tax reduction on costly, especially if diesel is estimated to have incurred a fiscal cost of 0.4 percent to GDP from not well calibrated. February to December 2022. Figure 22: The central government’s fiscal deficit narrowed Figure 23: Central government expenditures dropped in in the first half of FY23 (Oct 2022 to Mar 2023) the first half of FY 23, except for subsidies and social benefits (% of fiscal year GDP, GFS basis) (% of fiscal year GDP, GFS basis) 30 30.0 4 25 25.0 2 4.4 20 3.0 1.1 0 0.8 0.8 20.0 -2 15 7.4 7.8 7.2 8.0 6.6 15.0 -4 1.0 1.0 1.2 1.3 1.3 10 10.0 -6 5 10.9 11.1 11.0 11.5 10.9 -8 5.0 -10 0 - -12 H1 FY 2017-19 H1 FY 2020 H1 FY 2021 H1 FY 2022 H1 FY 2023 FY22 FY23 FY18 FY19 FY20 FY21 FY23 FY18 FY19 FY20 FY21 FY22 Capital spending Others (including COVID-19 emergency spending) H1 H2 Subsidies, social benefit, and grants Interest Revenue Expenditure Fiscal balance (RHS) Wage, capital consumption, and purchases Expenditures Source: Fiscal Policy Office, Ministry of Finance. Source: Fiscal Policy Office, Ministry of Finance, NESDC. Figure 24: Caps on diesel price and cooking gas price have Figure 25: Revenue collection from January to March been subsidized by the State Oil Fund dipped to a six-year low (State Oil Fund balance, THB billion) (% of fiscal year GDP, Cash basis) 60 22.0 27.5 30 20.0 0 -30 -4.5 18.0 -60 -90 -82.6 16.0 -120 -125.2 14.0 -150 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Q1 Q2 Q3 Q4 LPG Oil Total Average FY18-19 Average FY 20-21 FY22 FY23 Source: Oil Fuel Fund Office; World Bank staff calculations. Source: Fiscal Policy Office, Ministry of Finance, NESDC Capital budget Investment spending in the first half of FY23 improved, based on the cash-based disbursement government budget, as budget disbursement rose to its highest rate in six years increased in response (Figure 26). Investments from both the central government budget and State- to the government’s Owned Enterprises (SOEs)’s pipeline projects contributed to higher public efforts boost investment growth. The government accelerated public expenditure investment but disbursement before the cabinet was dissolved in March 2023, with estimated disbursement for the top 10 projects disbursement at THB 83.95 billion (0.5 delayed process of percent of GDP), including investments in the transport sector, energy sector, forming new commerce and services sector, and public utility sector. However, slow process government poses to form a new government will delay capital budget spending for FY 2024 as the THAILAND ECONOMIC MONITOR | June 2023 10 Part 1. Recent Economic Developments and Outlook risk for the next fiscal new government will likely need time to review and revise the previous cabinet’s year. budget plan (Box 1) A delayed budget The new investment projects proposed and planned for launch in FY2024 will be process is likely to most impacted. These projects will be subject to review and reprioritization based slow disbursement of on the new government’s priorities. Historical data indicates that the fiscal year the capital after the election show significantly low capital disbursement rate. Four general expenditure more elections held over 2007-2019 saw low capital average disbursement rate at 62 than current percent in the following fiscal year as illustrated (Figure 27). In order to avoid substantial disruption to the public expenditure disbursement, the government spending. can use the FY2023 budget during the interim 6 . Most of the current budget expenditures which are repetitive in nature as well as on-going multi-year investment projects are less likely to be impacted by the slow process. Figure 26: Disbursement of capital budget peaked since FY Figure 27: Capital expenditure disbursement were usually 2018 low in fiscal years following an election Public investment disbursement, % of total budget, cash basis Public investment disbursement, % of total budget, cash basis 80% FY18 FY19 Regular year Post election FY 100% 100% FY20 FY21 60% FY22 FY23 80% 80% 60% 60% 40% 40% 40% 20% 20% 20% 0% 0% 0% FY10 FY21 FY06 FY07 FY08 FY09 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY22 Oct-Dec Jan-Mar Apr-Jun jul-Sep Source: Fiscal Policy Office, Ministry of Finance, NESDC; World Source: Fiscal Policy Office, Ministry of Finance; World Bank Bank staff calculations. staff calculations. Public debt remains Public debt rose to 61.2 percent of GDP at the end of March 2023, 20 percentage sustainable due to points higher than the pre-pandemic period (Figure 28). Despite the increase, low external debt and public debt remains fiscally sustainable with low level of foreign currency prudent fiscal denominated debt at 1.6 percent of total debt and relatively low cost of funding. management. The 10-year Thai government bond yield declined from 3.0 percent at the end of FY22 to 2.4 percent in March 2023 and remains the lowest among ASEAN peers (Figure 29). The government plans to reduce fiscal deficit below 3 percent of GDP over the medium term (FY2024-2027), according to the medium-term fiscal framework. 6Budgetary Procedures Act, B.E. 2561 (2018) Section 12 states that “in the case where an Annual Appropriations Act is unable to be timely enacted for a new budget year, the preceding annual appropriations may be used for the time being, in accordance with the rules and conditions prescribed by the Budget Director with the approval of the Prime Minister.” THAILAND ECONOMIC MONITOR | June 2023 11 Part 1. Recent Economic Developments and Outlook Table 1: Key fiscal-responsibility indicators remain well within their established parameters. Key fiscal responsibility, % or Ceiling (%) FY20 FY21 FY22 H1 FY23 otherwise specified Public Debt / GDP 70 49.5 58.4 60.5 61.2 Government Debt Service / Revenue 35 6.5 8.6 8.1 7.9 External Debt / Public Debt 10 1.8 1.8 1.7 1.6 External Debt Service / Exports 5 0.07 0.08 0.15 0.07 Principal repayment / Annual budget 1.5-3.5 1.1 2.1 2.1 1.9 expenditure 9 years 10 9 years 1 8 years 9 8 years 9 Average Time to Maturity months month moths moths 10-year government bond yields 1.4 1.7 3.0 2.4 Source: Public Debt Management Office, Ministry of Finance; World Bank staff calculations. Table 2: Fiscal surplus/deficit and budget under medium term fiscal framework (FY 2024-2070). Medium Term Fiscal Framework (FY (% of GDP) Actual Budget 2024-2070) FY 19 FY 20 FY 21 FY 22 FY22 FY 23 FY 24 FY 25 FY 26 FY 27 Net revenue 15.1 14.8 15.3 14.9 13.7 13.3 13.9 13.8 13.5 13.2 Fiscal budget expenditure 18.1 20.0 20.1 18.4 17.7 17.0 16.9 16.6 16.3 16.0 of which: Capital 2.3 2.3 2.7 2.4 3.5 3.7 3.5 n.a. n.a. n.a. Fiscal budget balance -2.99 -5.19 -4.77 -3.47 -4.0 -3.70 -3.00 -2.84 -2.81 -2.79 Outstanding public debt 41.06 49.47 58.38 60.54 62.70 60.64 61.35 61.78 61.69 61.25 Source: Fiscal policy office; Ministry of Finance; World Bank staff calculations. Figure 28: Public debt remains sustainable Figure 29: Government bond yield remains the lowest among ASEAN peers (Percent of fiscal year GDP) (10-Year Government Bond Yields, Percent) 70 49.5 58.4 60.5 59.5 10.0 60 41.9 41.1 50 8.0 40 6.0 30 20 4.0 10 0 2.0 FY2018 FY2019 FY2020 FY2021 FY2022 March 23 State Enterprise Debt and agencies* 0.0 2017 2018 2019 2020 2021 2022 2023 Covid-19 borrowing decree Deficit Financing, Debt Mgt and FIDF Indonesia Malaysia Thailand Philippines Note: *includes SOEs, SFI guaranteed and agency debt. Source: CEIC, World Bank staff calculation. Source: PDMO THAILAND ECONOMIC MONITOR | June 2023 12 Part 1. Recent Economic Developments and Outlook Box 1: Public Investment and Large Pipeline Projects amid Political Transition The slow formation of a new government will likely delay capital budget spending for FY 2024 by 3 to 6 months. The Election Commission certified the results of the May 14th general elections on June 19th and the first parliament meeting must be convened within 15 days. The appointment of the new Prime Minister and cabinet could therefore be finalized by as late as August 2023. This increases the risk of a delayed budget process for FY 2024. As the regular 2024 fiscal year starts on October 1, 2023, the slow process of forming a new government could effectively delay FY2024 by 3 to 6 months depending on the budget allocation priorities of the new government. If the new government adheres to the original budget allocation priorities, less time will be taken on the appraisal and approval process. However, if the new government has significantly different priorities, capital spending will be delayed. Table B. 1: Top ten state-owned enterprises investment projects of 2023 Unit: million baht FY 2023 Operational Actual Project SOEs Sector approval Estimated disbursement limit Disbursement rate (% YTD) 1 The first phase of the Thai-Sino high-speed rail linking SRT transport 143,281 18,138 60 Bangkok and Nong Khai Bangkok-Nakhon Ratchasima 2 section The MRT purple line project: Tao Pun - Rat Burana MRT transport 91,974 10,647 74 3 Transmission system and distribution system PEA energy 28,586 10,552 13 development project, phase 2 4 The expressway linking Rama III Road-Dao Khanong EXAT transport 20,767 8,608 44 and the western Outer Ring Road 5 Railway construction project: Ban Phai - Maha SRT transport 61,273 7,499 7 Sarakham - Roi Et - Mukdahan - Nakhon Phanom 6 The government complex: Zone C area DAD commerce 17,344 6,129 14 and services 7 The twelfth power distribution system improvement MEA energy 15,494 5,864 12 and expansion plan, Year 2017 - 2021 8 Railway construction project: Den Chai - Chiang Rai - SRT transport 76,369 5,753 20 Chiang Khong 9 The 9th waterworks improvement master plan MWA public utility 28,143 5,460 41 10 Mae Moh power plant units 8-9 replacement project EGAT energy 42,557 5,296 0 Total 10 projects 525,788 83,945 35 Source: NESDC. The incoming government can prioritize the disbursement of committed projects and accelerate the investment projects that have already been approved to ensure timely implementation and smooth transition. Public investment in large projects are taking a crucial role for boosting growth in 2023 and enhancing productivity. To sustain this momentum, it is vital to closely monitor various factors. These include the disbursement of the government's capital budget, the effective implementation and disbursement of the capital budget in major investment projects by state-owned enterprises, and the promotion of Public-Private Partnership (PPP) initiatives. By focusing on these key areas, public THAILAND ECONOMIC MONITOR | June 2023 13 Part 1. Recent Economic Developments and Outlook investment can remain a significant driver of the economy throughout the year, despite late government formation. The ten largest pipeline projects, which can be prioritized, have high potential to connect lagging regions and improve household access to water and energy. For the fiscal year 2023, the total public investment budget amounts to THB 1,242 billion (6.7 percent of GDP), marking a significant 3.5 percent increase from the previous fiscal year (Table B. 1). Of this amount, state-owned enterprises are expected to be allocated a total investment budget of THB 443.35 billion. Out of the 65 significant projects slated for disbursement, the top 10 projects will receive the lion’s share of the allocation, with an estimated disbursement of THB 83.95 billion (0.5 percent of GDP or 59.5 percent of the total disbursement). These top 10 projects encompass investments in the transport sector (5 projects), energy sector (3 projects), commerce and services sector (1 project), and public utility sector (1 project). As of the second quarter of FY 2023 (January-March), the disbursement of the top 10 projects already reached THB 24.94 billion, accounting for 29.71 percent of the total budget. Hence, the accumulated disbursement (Q1+Q2) of FY2023 amounted to THB 29.44 billion (0.2 percent of GDP or 35.07 percent of the total budget). vii. Poverty Declined in 2022, Underpinned by Labor Market Recovery and Social Assistance Non-farm In Q1 2023, non-farm employment increased by 730,000 year-on-year and employment has 670,000 quarter-on-quarter.7 Employment in trade and hospitality continued to continued its upward trend up supported by a strong rebound in tourism. Manufacturing employment trend, led by job remained relatively stable, despite a decline in manufacturing exports for two creation in the consecutive quarters. The unemployment rate stood at 1.1 percent, down from hospitality and trade 1.5 percent in the same quarter last year and almost returning to its pre-pandemic sectors. level at 1.0 percent in Q1 2020 (Figure 30). Underemployment or employed workers who work less than four hours per day also declined, driven by strong labor demand in the non-farm sector. The underemployment rate stood at 8.4 percent of the labor force in Q1 2023, falling to below the pre-pandemic level of 9.5 percent in Q1 2020 (Figure 31). Wage growth Despite the minimum wage increase effective in October, nominal wage growth moderated in the fell from 3.4 percent in the first half of 2022 to 0.1 percent in the second half. second half of 2022. With year-on-year inflation reaching 5.9 percent in December 2022, the average real wage dropped by 2.4 percent. However, a few sectors saw their nominal wage gains outpacing inflation, including construction, hospitality, as well as administrative, entertainment and recreation services, thanks to a rebound in service-related economic activities. However, professional services, education and finances registered significant losses in real wages. Poverty is expected Average consumption per capita rose by 8.1 percent in 2022, and 9.7 percent for to have declined in low-income households in the bottom quintile of the consumption distribution.8 2022, underpinned by An increase in household consumption was likely underpinned by a continued the labor market recovery in the labor market and agricultural output as some of the COVID-19 recovery. relief measures and stimulus packages were discontinued. Some stimulus programs such as the half-half program and social assistance programs such as 7 Thailand National Statistics Office (2023). Labor force survey 2023 Q1, www.nso.go.th 8 Thailand NSO. (2023) The household Socio-economic survey 2022. Retrieved from www.nso.go.th THAILAND ECONOMIC MONITOR | June 2023 14 Part 1. Recent Economic Developments and Outlook the state welfare card and old age allowance remained in place to support low- income households. Poverty is estimated to have declined to 11.5 percent in 2022 (measured at the upper-middle-income poverty line of $6.85 a day in 2017 PPP) Inequality is expected to have improved, with low-income households experiencing a larger increase (in percent) in consumption per capita than better- off households. Despite declining poverty, low-income households, particularly in rural areas, face long-standing challenges and risk falling back in poverty (see Box 2: Farmers, rural households, poverty and water). Figure 30: The unemployment rate declined from Figure 31: Underemployed and unemployed its pandemic high persons have declined (Percent of labor force aged 15 and over) (Percent of labor force aged 15 and over) 2.5 5.0 Total labor force in Q4 2022: 40.1 millions 4.0 2.0 3.0 1.5 2.0 1.0 1.0 0.0 0.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0.0 2019 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Unemployment Underemployment Seasonal Inactive 2018 2019 2020 2021 2022 Source: National Statistical Office of Thailand. Source: Bank of Thailand. Note: Underemployment is defined as working less than 35 hours per week and available for additional work. THAILAND ECONOMIC MONITOR | June 2023 15 Part 1. Recent Economic Developments and Outlook Box 2: Farmers, Rural Households, Poverty and WaterB.1 Poverty is concentrated in rural areas, and the rural poor depend largely on agriculture. The rural sector is home to 60 percent of the poor. Farm households, of which all members work in agriculture, constitute 35 percent of households in rural areas, with the rate increasing to 40 percent in the North and 53 percent in the Northeast. They are the poorest and have the lowest level of education. The poverty rate among farm households is over 11 percent, compared to 6 percent for non-farm households. Over 80 percent of household heads have primary education or less. Moreover, farm households tend to have a higher risk of falling (deeper) into poverty as they face greater income volatility than non-farm households. Low agricultural productivity and a persistent decline in net farm incomes lower the chances of escaping poverty for Thai farmers. While agriculture accounts for only eight percent of GDP, it employs around one-third of the workforce and more than half of the rural population. However, when value added per worker in manufacturing and services registered a steady increase over the past two decades, the progress was minimal in agriculture. Farm income has persistently decreased since 2011, due to a decline in global agricultural commodity prices and destructive climatic events (see Chapter 2: Coping with Floods and Droughts). As Thailand is a key supplier of agricultural products to the world market, this admirable performance at a global level conceals several challenges that local farmers face across the country, especially in the North and Northeast regions. Several factors contribute to low agricultural productivity including limited and unequal access to water and irrigated land. Farm households are mostly smallholders, lacking crop diversification and secure land tenure. They also have a high debt burden and limited access to agriculture services and markets. High exposure to climate shocks as well as limited and unequal access to water and irrigated land also pose additional challenges. Only 42 percent of farm households can access water resources and 26 percent have access to irrigation systems. This constraint is most severe in the Northeast and the South. Although over 60 percent of household heads in these regions are employed in agriculture, only 10 percent of farm households in the South and 13 percent in the Northeast have access to irrigation systems (Attavanich et al. 2019). The lack of access to irrigation water severely constrains utilization of farmland for dry-season farming, growing higher value crops, and diversifying crops. This has constrained farmers’ opportunities to generate more income and make them more vulnerable to price shocks and climate variability. Improving access to irrigation water will boost farm productivity and allow farmers to diversify to more water-intensive and high-value crops. Irrigation water is an important factor in increasing agricultural productivity and crop diversification. In Thailand, high investment costs have prevented development of large- and medium-scale irrigation systems, which can provide greater access to irrigation water to a larger number of farmers who currently rely on dryland agriculture. Farm households without access to irrigation water grow crops only in the rainy season and leave their farmland fallow during the dry season. Improved access to irrigation systems offers opportunities for farmers to cultivate year-round, increase their crop yields, and diversify to horticulture and other high value crops. This would help raise farm productivity and income, increasing the chances of escaping poverty for Thai farmers. Note: B.1/ This section draws on “World Bank Group. 2022. Thailand Rural Income Diagnostic: Challenges and Opportunities for Rural farmers. World Bank, Bangkok.” The poverty rate is measured at the upper middle -income class poverty line of $5.50 a day in 2011 PPP. THAILAND ECONOMIC MONITOR | June 2023 16 Part 1. Recent Economic Developments and Outlook 2. Outlook: Recovery amid Global Headwinds i. The Economy is Projected to Recover Faster Than Expected in 2023 but Global Headwinds and Political Uncertainty Weigh on the Outlook Growth is projected Growth is projected to accelerate from 2.6 percent in 2022 to 3.9 percent in 2023, to accelerate in 2023 about 0.3 percentage points higher than was expected in April 2023 (East Asia boosted by tourism, and Pacific Economic Update April 2023) (Figure 32). The upward revision reflects while goods exports mainly stronger-than-expected growth in China, and tourism recovery. will contract. Although private consumption growth will slow from 2022, it will remain a solid contributor of overall growth, supported by the ongoing recovery, with improved labor market and strong pent-up demand from China. While inflation pressure will continue to affect living costs and weigh on consumer confidence, overall pressure has lessened as energy prices eased. Goods export growth will contract this year, reflecting the global growth slowdown, but the magnitude is expected to be smaller than previously projected. Private investment is expected to slow as business sentiment has been hit by contraction in goods exports. Public investment will remain weak with slow budget disbursement due to the protracted government formation timeline (Table 3). Growth will continue Growth in 2024 and 2025 are expected to expand at 3.6 percent and 3.4 percent, to expand in 2024 respectively, with tourism sector recovery and private consumption remaining and 2025, but slightly the major drivers of growth (Figure 33).9 Over the medium term, we project the weaker than contribution of private consumption to be a solid 1.9 percent, close to the 2.1 previously projected percent historically observed in economic upturns. However, the projections due to the dimmer were revised down mainly due to the downward revision of global demand. global outlook. 9 See Box 1: “Economic cycles: has Thailand entered a downturn?” WB Thailand Economic Monitor, January 2020. THAILAND ECONOMIC MONITOR | June 2023 17 Part 1. Recent Economic Developments and Outlook Table 3: The pace of recovery is expected to continue Share Contribution to GDP of GDP Forecast growth Percentage change (2022) 2022 2023F 2024F 2025F 2023F 2024F 2025F GDP 100% 2.6 3.9 3.6 3.4 3.9 3.6 3.4 Private Consumption 56% 6.3 3.8 3.4 3.0 2.1 1.9 1.7 Government Consumption 16% 0.2 -2.6 1.1 2.5 -0.4 0.2 0.4 Fixed Investment 24% 2.3 2.1 2.1 3.7 0.5 0.5 0.9 GFCF-Private 18% 5.1 2.2 2.4 3.4 0.4 0.4 0.6 GFCF-Public 6% -4.9 1.9 1.0 4.6 0.1 0.1 0.3 Exports of Goods and Services 69% 6.8 7.3 6.4 4.3 5.0 4.6 3.2 Exports of Goods 61% 2.5 -1.3 2.8 3.5 -0.8 1.6 2.0 Exports of Services 9% 52.8 68.1 21.6 7.3 5.8 3.0 1.2 Imports of Goods and Services 69% 4.1 1.5 4.2 4.0 1.1 2.8 2.7 Import of Goods 59% 5.3 1.3 4.5 4.2 0.8 2.5 2.3 Imports of Services 10% -1.2 2.5 2.7 3.6 0.3 0.3 0.5 Net Export of Goods and Services 4.0 1.7 0.4 Change in Inventories* -2.3 -0.7 0.0 2022 2023F 2024F 2025F Exports of Goods, USD term 5.5 -0.7 2.1 4.0 Imports of Goods, USD term 15.3 -1.4 2.7 4.1 Goods trade Balance, USD Billion 10.8 12.8 11.6 11.7 Current Account Balance, USD Billion -17.2 14.3 26.9 31.8 Current Account Balance (% of GDP) -3.5 2.5 4.4 4.9 Headline CPI 6.1 2.0 1.9 1.3 Note: *including statistical discrepancies. Source: NESDC, Haver Analytics; World Bank staff calculations. Figure 32: Growth projections were revised Figure 33: Output will be supported by private upward for 2023 but reduced for 2024 consumption and exports of services (Percent) (Percent) 5.0 TEM DEC22 MPO Apr23 TEM Jun23 10.0 Forecast 3.9 3.6 3.6 3.7 3.6 5.0 3.4 3.9 3.6 3.4 2.1 2.6 1.5 0.0 2.5 -5.0 -6.1 -10.0 2019 2020 2021 2022 2023F 2024F 2025F Change in Inventories* Net Export of Services 0.0 Net Export of Goods Fixed Investment 2023F 2024F Government Consumption Private Consumption Source: World Bank staff projections. Note: *including statistical discrepancy. Source: World Bank staff projections. THAILAND ECONOMIC MONITOR | June 2023 18 Part 1. Recent Economic Developments and Outlook Goods exports are Exports of goods are expected to contract by 0.7 percent (US dollar terms), expected to contract significantly slower than 5.5 percent expansion in the previous year. However, in 2023 as global the contraction was smaller than the previous projection of 1.8 percent due to a growth is projected better Chinese economic outlook. Activity in China is projected to rebound to slow significantly sharply to 5.6 percent in 2023, from 3 percent in 2022 and up 0.5 percentage points from the previous projection in April, following the economy’s swift amid high inflation, reopening. Stronger China growth is estimated to boost Thailand’s growth by tight monetary about 0.3 ppts (Figure 34). In contrast, advanced-economy growth is projected policy, and more to slow in 2023, largely reflecting the continued effect of considerable central restrictive credit bank policy rate hikes since early 2022. Growth in the US and Europe are conditions. projected to slow to 1.1 percent and 0.4 percent in 2023. The manufacturing purchasing index in major trading partners indicates a persistent decline in activity, albeit at a slower pace than in previous periods (Figure 35). Figure 34: Improved China outlook contributed to a Figure 35: The manufacturing purchasing index higher projection in 2023 continued to contract but points to a recovery (Impact of a 1 percentage point China GDP shock on EAP real (Diffusion Index) GDP (peak response), percentage points) Manufacturing PMI: Global 1.2 Thai Exports: Manufacturing, YoY (RHS) 60 50 1.0 0.8 55 25 0.6 50 0 0.4 45 -25 0.2 40 -50 0.0 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 MYS THA PHL IDN Source: EAP update April 2023. Source: CEIC; S&P Global; Ministry of Commerce, World Bank Note: Estimates based on Bayesian VAR model, using data staff calculation. from 2000Q1to 2022Q4, except in Malaysia for which data starts in 2005Q1. The return of Tourist arrivals are expected to be slightly higher than previously projected after tourists, particularly incorporating strong inflows of Chinese tourists in Q1. The Chinese tourists are from China, has projected to surge in the rest of 2023, following the path of tourist inflows from strengthened the ASEAN last year (Figure 36). The number of arrivals is projected to reach 28.5 tourism outlook. million (84 percent of pre-pandemic 2019 level), up from 27.1 million in the previous projection. The recovery is expected to continue into next year which will boost the number of arrivals to achieve the pre-pandemic level by the second half of 2024. As a result, the The current account balance is expected to reverse from its deep deficit of the current account past 2 years and return to positive territory in 2023 at 2.5 percent of GDP due balance is expected to both goods and services trade (Figure 37). Although the goods export outlook to return to surplus remains weak, the lower import bills amid easing global oil prices will contribute in 2023 and support to a stronger trade surplus. The tourism sector recovery and the normalization external stability. of shipping costs will also help widen the current account surplus. THAILAND ECONOMIC MONITOR | June 2023 19 Part 1. Recent Economic Developments and Outlook Figure 36: Tourism is expected to reach pre- Figure 37: The current account balance is expected pandemic levels in 2024 to return to surplus (Percent of pre-pandemic level in 2019) (Percent of GDP) 125 20.0 Forecast 100 10.5 9.6 6.9 7.0 10.0 5.6 4.2 4.4 4.9 75 2.5 -2.1 50 0.0 -3.5 25 -10.0 0 Primary and Secondary Incomes Trade in services balance Total China (28%) Trade in goods balance ASEAN (27%) The rest (46%) Current Account Balance Note: Share of total as of 2019 in parenthesis. Source: CEIC; World Bank staff projection. Source: World Bank staff projections. Projected inflation Headline inflation is projected to decline to 2.0 percent in 2023, down from 6.1 has been revised percent in 2022 the previous year, mainly reflecting the lowered energy price downward, reflecting inflation, which is projected to fall from 25 percent in 2022 to 0.5 percent (Figure the lowered global oil 38). The recent World Bank Commodity Market Outlook10 downgraded energy price projection and price forecasts sharply. Brent crude oil prices are forecasted to average USD 84 per barrel in 2023. Weaker global demand has already caused these prices to the contained drop 15 percent below the 2022 average, and they are projected to remain at that pressure on core level through the end of 2024. The government’s continued caps on energy inflation. prices, including electricity and cooking gas, helped contain inflation pressure and relieve pressure on household living costs. Raw food price inflation is expected to moderate in 2023. Consequently, inflation is expected to decline close to the lowest among emerging markets (Figure 39). Figure 38: Headline inflation is projected to return Figure 39: Markets expect inflation to fall close to to the BOT’s target range from 2023 onwards the lowest level among emerging markets (Percent year-on-year) (Percent) 10.0 8.0 8.0 2023 2024 6.0 6.0 4.0 4.0 2.0 2.0 0.0 0.0 -2.0 Jan-21 Jan-22 Jan-23 Jan-24 BOT's target range (1-3%) Headline CPI (%YoY) Core CPI (%YoY) Source: CEIC; World Bank staff projections. Source: Consensus forecast (May 2023); World Bank forecast for Thailand. 10 https://openknowledge.worldbank.org/server/api/core/bitstreams/6864d537-d407-4cab-8ef1-868dbf7e07e2/content THAILAND ECONOMIC MONITOR | June 2023 20 Part 1. Recent Economic Developments and Outlook The fiscal deficit is The fiscal deficit is projected to narrow from an estimated 4.5 percent of GDP in projected to narrow FY22 to 2.1 percent in FY23, largely on account of reduced Covid-related in FY23 and lower spending, while revenue is projected to remain relatively stable (Figure 40). pressure on the However, the path of fiscal consolidation will remain slow, owing to the public debt, but government’s energy subsidies, excise tax cut on diesel, and relief measures to delays in the budget mitigate the cost-of-living crisis, such as targeted cash transfers for low-income process poses risks to households, and targeted subsidies on electricity and cooking gas. While price the spending outlook controls and subsidies can be effective in reducing inflation and alleviating for FY24 poverty, they can be fiscally costly, especially if not well-calibrated. In contrast, public spending is projected to be lower than previously expected due to the potential delays in the budget approval process in the post-election period. The new government is expected to be appointed at the beginning of August under the baseline. This means that the budget process will be delayed, and the budget disbursement may not be able to begin in the first quarter of FY 2024 (October to December 2023). The public debt is projected to decline slightly from 60.5 percent of GDP in FY 2022 to 59 percent in FY 2023 (Figure 41). Figure 40: The general government deficit is Figure 41: … and public debt is projected to decline projected to narrow as spending wanes… slightly (Percent of GDP) (Percent of GDP) 30.0 Forecast 1.0 100 0.4 0.1 0.0 90 25.0 -1.0 80 20.0 -2.1 -1.9 -1.9-2.0 70 -3.0 59.0 58.7 15.0 60 -4.0 58.5 -4.5 -4.5 50 10.0 -5.0 -6.0 40 41.1 5.0 -7.0 -7.0 30 0.0 -8.0 20 FY2018 FY2020 FY2022 FY2024 Total Revenues Expenditures China Indonesia Malaysia Philippines Thailand* General Government Balance, RHS Source: FPO; World Bank staff projections. Source: IMF WEO; World Bank staff projections. Over the longer term, The recent surge of public debt, resulting from the fiscal response to the maintaining fiscal COVID-19 pandemic and the Russia’s invasion of Ukraine, necessitates the need sustainability will for fiscal consolidation over the medium term. At the same time, fiscal policy require actions on the will face the pressure to enhance potential growth, build climate resilience, and targeting and ensure the adequacy of social protection. Aging will also directly contribute to efficiency of increased spending requirements, including rising public pension, including Old Age Allowance (OAA) and civil service, and healthcare expenses. Fiscal policy spending. needs to strike a right balance between higher pressures and maintaining fiscal sustainability. To create the required fiscal space for additional spending in these priority areas, the policies should focus on a more targeted social assistance and transfers, while also implementing reforms to improve efficiency of public spending, such as on healthcare and education (World Bank PRSA 2023). THAILAND ECONOMIC MONITOR | June 2023 21 Part 1. Recent Economic Developments and Outlook The more targeted By implementing all reform priorities, which include (i) higher education social assistance will spending at the pre-primary and secondary level; (ii) a permanent increase in the improve spending Old Age Allowance to the poverty line11 and other social welfare benefits; (iii) efficiency while also higher investment in climate adaptation by improving water resource ensure adequate management, protecting against flood damage in Bangkok, and increasing the climate resilience of transport and other public infrastructure, public debt could social supports. reach its ceiling of 70 percent to GDP by 2028 (orange line in Figure 42). However, if a more targeted policy is implemented by raising OAA to THB 2,000 per month for the poorest beneficiaries, with the amount of the allowance tapering or being left unchanged for higher income recipients, the fiscal cost would be lower with positive progressive impact12 (blue line). In addition, if the government can successfully raise tax collection through reforms, public debt will substantially decline, instead of rising (green line). Tax revenues in Tax revenues (averaging around 16 percent of GDP) are relatively low over the Thailand are low and past two decades by the standards of upper-middle-income countries, as well as significant reforms regional and OECD comparators and tax efficiency score13 staying below that are needed to create of countries with similar levels of income (Figure 43). Enhanced revenue more fiscal space for mobilization efforts, especially in the areas where the collection remain substantially lower than its potential, such as raising VAT rate to 10 percent inclusive and climate and adjust exemptions, broadening the personal income tax base and resilient growth. streamlining allowances, and expanding property tax collections could raise overall collection by 3.5 percentage points to GDP and reduce overall spending constraints. Thailand has made efforts to implement tax reforms, such as reforms on property tax and financial transaction tax. However, implementation of the latter has been delayed and requires further considerations due to concerns about its potential impact on the liquidity of the stock market. 11Currently the OAA ranges between THB 600 and THB 1000 per month (increasing by beneficiary age) and has not been adjusted for over a decade. A benefit of THB 2000 per month is equivalent to around 86 percent of the THB 2,329 per month poverty line, based on the USD5.5/day (2011 PPP) benchmark 12The annual fiscal cost of OAA to GDP is estimated to remain low at 0.6 percent in 2025 if no reform is implemented, but the cost will rise to 2.0 percent and 2.6 percent if the OAA benefit is raised to poverty line and 3,000 per month, respectively. However, the fiscal cost will drop to 1.1 percent of GDP with tapering OAA from THB 2000 to 0 per month. 13An efficiency score of between 0 and 1 is assigned to each country based on the distance between actual tax collections and estimated tax potential. A higher number indicates higher efficiency/tax effort. THAILAND ECONOMIC MONITOR | June 2023 22 Part 1. Recent Economic Developments and Outlook Figure 42: Public debt is projected to decline under a scenario Figure 43: Thailand has low tax efficiency score compared with targeted OAA and revenue reforms to middle-income countries (% of GDP) (Log of GDP per capita vs. Tax efficiency score, 2014-latest) 180 1.0 140 KOR PHL CHN JPN 100 Tax Eficincy Score MEX 0.9 60 TUR THA 20 0.8 High Income Country MYS Long term baseline no reform 0.7 Upper-Middle Income Country VNM BLR IDN Lower-Middle Income Country All expenditure and revenue reforms All expenditure reforms with OAA tapered (2,000 to 0) 0.6 All expenditure reforms with OAA up to poverty line 6.6 7.6 8.6 9.6 10.6 11.6 All expenditure reforms with OAA increase to 3,000 Log of GDP per capita Note: World Bank staff estimates. Source: WB analysis, data from ICTD and WDI. ii. Risk to Growth Remains on the Downside amid Global Economic Slowdown, Uncertain Political Outlook, and Prolonged Weak Economic Growth Weaker-than- First, a sharper-than-expected global slowdown could occur due to monetary expected global tightening in advanced economies and geopolitical uncertainty. The growth growth and political slowdown and the effects of more restrictive global financial conditions in uncertainty are key advanced economies could deepen Thailand’s current account deficit and weigh challenges to the on portfolio capital flows. Recent events, including the failures of certain industrial country banks, Silicon Valley Bank, Signature Bank, and Credit Suisse, near-term outlook. have raised concerns about potential spillovers to Emerging markets and Developing Economies (EMDEs), including Thailand (EAP Economic Update April 2023). While Thailand’s banking sector has not so far been impacted, there are potential risks through indirect exposure to losses. Second, political uncertainty also poses risks to growth, particularly if the formation of a new government faces significant delays. Such a scenario will see further setback to budget disbursement, especially public investment in FY2024, than estimated under the baseline. In the worse-case scenario, it is estimated that a 5 ppts decline in capital budget disbursement could cut GDP growth by 0.3 ppts. Over the long term, The output level is unlikely to return to the pre-pandemic path and is expected despite recent to remain below its potential level until 2025, despite recent resurgent growth resurgent growth, the (Figure 44). This path could be dampened further by the difficult external growth path is environment and possible re-escalation of energy prices. Structural challenges, expected to remain such as an aging population, climate change, low capital investment well below the pre- accumulation, declining export competitiveness, and high household debt14, may pandemic trend further limit potential growth. The region, including Thailand, is exposed to unless productivity climate risks (Figure 45), particularly floods and droughts, in part because of the growth is revitalized. high density of population and economic activity along the coasts (see part 2 on 14High household debt, in excess of 60 percent of GDP, is associated with misallocation of resources and lower productivity growth (Lombardi 2017 The real effects of household debt in the short and long run BIS working paper #217) THAILAND ECONOMIC MONITOR | June 2023 23 Part 1. Recent Economic Developments and Outlook Coping with Floods and Droughts). 15 To support Thailand's long-term growth potential, it is essential to take the following steps: (1) enhance productivity and foster technological innovations, complemented by investment in education and human capital; (2) ensure sufficient social protection, human development spending, and public spending, while also improving spending efficiency in several areas including better targeting of social assistance, improving reforms on healthcare and education, and removing constraints on public investment; (3) strengthen efforts towards fiscal consolidation and raising revenue to create fiscal space to meet the additional spending needs such as investments in climate adaptation, and establish a fiscal buffer to tackle future shocks. Figure 44: Output will remain below its potential level until 2025 (World Bank GDP forecast, THB million) 14 Potential output - Pre-pandemic trend Potential output - post-pandemic trend Actual Baseline Forecast - TEM Jun 23 9 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: World Bank staff projections. Figure 45: East Asian Economies, including Thailand, are Highly Exposed to Climate Change Impacts Source: Germanwatch 15 EAP stands out as the region with the highest urban growth rate and the largest proportion of settlements in the highest flood risk category (inundation depth over 1.5 meters) (Rentschler et al., 2022). The World Bank Country Climate and Development Reports (www.worldbank.org/en/publication/country-climate-development-reports), give an idea of the economic and social dimensions of climate risks in EAP. In a +2°C world, EAP would see an additional 50 million people regularly exposed to coastal flooding by 2100. Without major adaptation efforts, coastal, river, and chronic flooding alone could lead to GDP losses of 5–20 percent by 2100 in Indonesia, Vietnam, the Philippines, and China (World Bank and Vivid Economics, 2019). THAILAND ECONOMIC MONITOR | June 2023 24 Part 2. Coping with Floods and Droughts in Thailand Part 2. Coping with Floods and Droughts in Thailand 1. Introduction and Context Thailand is Climate change and variability is already causing severe impacts on Thailand’s vulnerable to the economy and jeopardizing Thailand’s transition to a high-income economy. effects of climate Estimates of the damage to the economy by mid-century range from 1 percent of change because of its GDP to 44 percent of GDP (compared to a scenario with no climate impacts), long coastlines, indicating the high level of uncertainty around future climate impacts. The fragile agriculture World Bank’s recent Thailand Public Revenue and Spending Assessment (2023) system and suggested that climate change could reduce GDP in Thailand by 10-20 percent susceptibility to by 2050.16 This chapter aims to provide a focused analysis of inland flooding, storms, floods, and specifically riverine and other forms of inland flooding, without encompassing droughts. sea level rise or coastal flooding. Inland flooding is by The 2011 floods caused 680 deaths, affected nearly 13 million people and resulted far the greatest in damages and losses to the economy worth an estimated THB 1.43 trillion natural hazard facing (USD 46.5 billion)1 equivalent to 12.6 per cent of GDP at the time. Bangkok Thailand in terms of remains especially vulnerable to flooding, having suffered six other major economic and human flooding events since 1980, despite the introduction of flood control measures. impacts, followed by The manufacturing of goods for exports is concentrated in and around Bangkok droughts. and accounted for 70 per cent of all damages and losses in 2011. Changes in weather patterns resulting from climate change are increasing the frequency of droughts and water shortages, which particularly affects the agricultural sector. 16 See www.worldbank.org/en/country/thailand/publication/th-prsa THAILAND ECONOMIC MONITOR | June 2023 25 Part 2. Coping with Floods and Droughts in Thailand The impact on sectors like manufacturing and tourism, which are cornerstones of Thailand’s growth agenda has been high. The Thai government has sought to avert another major flood by investing in flood protection, water resources management and planning and disaster preparedness. 2. Climate Change and the Projected Impact of Floods and Droughts i. Thailand’s Climate and Climate Variability Thailand is largely The climate is influenced by seasonal monsoon winds, which are commonly used classified as a to describe a seasonal change in the atmospheric circulation and precipitation ‘tropical savanna related to the oscillation of the Inter-Tropical Convergence Zone (ITCZ). The climate’ whereas the southwest monsoon in May brings warm moist air from the Indian Ocean leading southern part has a to abundant rain, notably in the mountainous regions. It is further amplified by tropical monsoon and tropical cyclones. The northeast monsoon, which starts in October, brings cold in parts a tropical and dry air from the anticyclone in China over major parts of Thailand, especially rainforest climate. the northern and northeastern parts. In the south, the monsoon causes milder weather and abundant rain along the eastern coast. The highest rainfall is in September and October, with approximately 255 mm recorded during these months. The country receives a mean annual rainfall of 1,200 mm to 1,600 mm. Southern Thailand is characterized by mild weather year-round with less diurnal and seasonal variations due to maritime influences. The hottest months in Thailand are April and May and the mean annual temperature is 26.3 degrees Celsius. Climate variability: Studies have noted a temperature increase across Thailand since the middle of Data show the 20th century. Manton et al. (2001) report “a significant increase in minimum temperature increases temperatures at meteorological stations located in Thailand between 1961–1998, since the middle of as well as an increase in the number of warm nights”. Studies observe an increase the 20th century while in annual precipitation, mostly during the wet season between July and October. precipitation events Variability of precipitation in Thailand in recent decades has been driven have been less particularly by El Niño Southern Oscillation (ENSO), with years of strong El frequent but more Niño correlated with moderate and severe drought. La Niña has the opposite intense. effect of El Niño. Thailand was affected by a long-lasting La Niña from September 2020 to February 2023.With the projected El Niño impacts for 2023, the government has already started advocating water saving measures and put its contingency plans on alert17. The 20th session of the ASEAN Climate Outlook Forum (ASEANCOF-20) in May, 2023 underscored that an El Niño is highly likely to become established during June-July-August (JJA) 2023 period, with conditions prevailing until the end of the year, whereas the strengths of the El Niño remains uncertain (some models predicting it to be moderate to strong). Accordingly, for the JJA period a mix of near to above normal rainfall is predicted over large parts of the northern ASEAN region (ASMC and WMO, 2023). A 2016 study found that, while precipitation events have been less frequent across the country, they have intensified. Figure 46 illustrates the increased mean temperature between 1951 and 2020. Figure 47 depicts the long-term trend in average annual mean temperature between 1901 and 2021 for Thailand; for most 17 Bangkok Post, April 14, 2023 THAILAND ECONOMIC MONITOR | June 2023 26 Part 2. Coping with Floods and Droughts in Thailand of the period average temperatures did not change, but there has been an increase since the early 1990s (World Bank, 2023). Figure 48 highlights the observed rainfall anomaly for Thailand between 1981 and 2021 (HII, 2019). Figure 46: Change in Distribution of mean temperature in Thailand for the periods 1951 to 1980, 1971 to 2000 and 1991 to 2020 Source: World Bank, 2023; Climate Change Knowledge Portal. Figure 47: Observed Average Annual Mean Temperature of Thailand for 1901 to 2021 Source: World Bank, 2023; Climate Change Knowledge Portal. Figure 48: Observed Rainfall Anomalies in Thailand for 1981 to 2019 Percentage of Rainfall Anomalies in Thailand (mm.) 30 25 Higher than normal 24 Normal 20 15 14 Lower than normal 9 9 10 7 7 7 6 5 5 5 4 3 1 1 0 0 -1 -1 -1 -5 -2 -2 -10 -4 -4 -4 -6 -6 -6 -7 -7 -8 -9 -9 -9 1989 -11 1993 -12 1992 -13 -20 -15 -17 1987 1998 1981 1982 1983 1984 1985 1986 1988 1990 1991 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: HII, 2019: Thailand Water Situation 2019 (ThaiWater.net). THAILAND ECONOMIC MONITOR | June 2023 27 Part 2. Coping with Floods and Droughts in Thailand ii. Climate Change Projections Under different There have been different attempts to project the ongoing trends in and effects emission pathways of climate change in Thailand. Based on the comparison of different models in average daily the IPCC’s 5th Assessment Report of IPCC, four different pathways, based on temperature may varying emission levels, were created. Figure 49 illustrates the projected changes increase by 1.8oC by in the mean temperature in Thailand for each pathway up to 2100, compared to mid-century. the reference period from 1995 to 2014. Under the highest emission pathway, average daily temperatures may increase up to 1.8°C and 3.8°C in the periods from 2040-2059 and 2080-2099, respectively (Figure 50). Figure 49: Projected mean temperature for Figure 50: Projected precipitation anomaly for Thailand 2040 to 2059; (reference period 1995 to 2014) SSP1-1.9 multi-model ensemble Source: World Bank, 2023; Climate Change Knowledge Portal. Source: World Bank, 2023; Climate Change Knowledge Portal The same projections There are however only a few studies that conduct a downscaling to different also confirm an areas or river basins in Thailand that can provide more detailed insights on increase in annual climate impacts. “Downscaling studies in the upper Ping River Basin in the north of precipitation rates, the country estimate rainfall extent and frequency to vary across the catchment, with wet albeit with days increasing in frequency and extent during the wet season for some areas, and in the uncertainty between dry season for the central areas of the catchment. For the Bangkok region, one study models. suggests an increase in precipitation during the rainy season by 2100” (ADB and World Bank, 2021). Generally, model Due to Thailand's location in the tropics, its agricultural productivity is projections for particularly vulnerable to temperature rises. Higher potential evapotranspiration Thailand suggest could also lead to increased water demand in irrigated agriculture. Thailand is increased flood risks furthermore affected by sea-level rise and saline intrusion in coastal areas. during the wet season “Climate change and vulnerabilities are risks to Thailand’s future growth and shared and more severe prosperity, and climate- related risks are expected to affect the poor and bottom 40 percent water shortages disproportionately strongly” (World Bank, 2018). THAILAND ECONOMIC MONITOR | June 2023 28 Part 2. Coping with Floods and Droughts in Thailand during the dry season. iii. Disaster and Flood-Related Exposure of Thailand Thailand faces a high The INFORM Risk Index, which is a global, open-source risk assessment for exposure to natural humanitarian crisis and disasters (Marin-Ferrer et al., 2017), ranks Thailand 74th hazard risks and is out of 191 countries (Table 4). However, regarding flood risk exposure, Thailand ranked high on is ranked 9th, below Myanmar, Vietnam and Cambodia, underscoring its very different natural high exposure to floods in terms of frequency and impact. The table below hazard risk indices. summarizes the hazard-specific risk scores of the INFORM Risk Index (ADB and World Bank, 2021). Table 4: Selected indicators from the INFORM Risk Index for risk management for Thailand. (For the sub-categories of risk higher scores represent greater risks. Global average scores are shown in brackets .) Source: ADB and World Bank, 2021. The impacts of floods In 2011, Thailand was affected by its worst floods in more than 50 years. “Caused in Thailand on the by excessive and continuous rainfall from successive monsoons and subsequent, numerous economy and dam breaches, the floods inundated more than six million hectares of land in 66 of the livelihoods are country’s 77 provinces across the Chao Phraya and Mekong River basins and affected immense. more than 13 million people from July through December 2011. The 2011 floods caused USD 46.5 billion of damages” (World Bank, 2012). More than 5.5 percent of Thailand’s land mass was under water at the time. In 2011, the flooding in Bangkok was compounded from simultaneous: (i) high discharges upstream, (ii) large releases from reservoirs, i.e. Bhumibol and Sirikit dams (iii) high sea water levels in the Gulf of Thailand and (iv) heavy rainfall in the city (World Bank, 2012). Figure 51 illustrates the areas flooded in 2011 and the areas with a low, medium, and high flood risk according to LDD (2022). The risks from floods Six of Thailand’s 22 river basins have more than 40 per cent of the area with a are concentrated moderate and high flood exposure. Nine of the 22 river basins have a medium to geographically, with high exposure to drought. The Chao-Phraya, Tha-Chin, Chi, Sakae Krang, and the concentration of Phetchaburi-Prachuap Khiri Khan River basins have the highest combined assets in these drought and flood exposure. When combining flood and drought exposure with regions adding to population, Gross Provincial Product, poverty and the adaptive capacity18 of the risk. province the following 1019 provinces were found to be most at risk of floods and droughts: Nakhon Ratchasima, Bangkok, Nakhon Sawan, Chaiyaphum, Sukhothai, Roi Et, Khon Kaen, Pichit, Pathum Thani, and Si Sa Ket. During the 2011 floods, the provinces of Bangkok, Nakhon Sawan, and Pathum Thani were among the top five provinces most affected by impacts on industry and manufacturing (World Bank, 2012). The concentration of assets in vulnerable 18 The budget allocation related to flood and drought management interventions for the period 2017 to 2022 in each province were used as a proxy for the adaptive capacity of the province. 19 The result of this analysis is a normalized, weighted score on flood and drought risk for each province. THAILAND ECONOMIC MONITOR | June 2023 29 Part 2. Coping with Floods and Droughts in Thailand areas make these provinces particularly vulnerable to the impacts of droughts and floods. Figure 51: (left) Exposure to floods by DDPM (2022; (right) Exposure to drought by LDD (2022) Source: Geospatial analysis based on data from DDPM (2022) and LDD (2022) Note: DDPM data from 2009 to 2019, LDD data from 2009 to 2019 The Northeast region Thailand is affected by meteorological (precipitation deficit), hydrological (deficit has traditionally in surface and subsurface water flow), and agricultural droughts (related to local higher rates of soil and land management practices). According to ONEP (2021) “Thailand has poverty and less experienced water shortage problems, which have been compounded by a number of favorable conditions droughts, hugely impacting farmers' incomes and the country's economic output. Severe for both rainfed and droughts that occurred in the years 1979, 1994 and 1999 affected almost every part of irrigated agriculture, the country and there have been an increasing number of recurring droughts over the resulting in a higher course of the last 10 years, which have affected a total area of around 42,280 km2”. Sakae prevalence of Krang River Basin has 54.3 per cent medium and 8.5 per cent high exposure to drought. drought. Phetchaburi-Prachuap Khiri Khan River Basin has 37.2 per cent medium and 41.5 per cent high exposure to drought. The 2015-2016 UNDRR (2020) estimates that the 2015-2016 drought was one of the worst in drought resulted in the last 20 years and resulted in losses exceeding USD 2.5 billion. Widespread losses exceeding USD droughts in Southeast Asia occurred in 2020, 2018, 2016, 2005, 1997 and 1998 2.5 billion. (ESCAP and ASEAN, 2021). In 2019, it was reported that the government provided THB 25 billion (0.15 percent of GDP) to farmers to compensate directly for damage to crops from drought and flooding.2 Further measures to support affected farmers were also announced with a cost of THB 60 billion (0.36 percent of GDP). Future costs to the government in providing compensation (mainly to farmers) are expected to increase over time. South-East-Asia is El Niño-related droughts have become more frequent in Southeast Asia and are likely to experience likely to increase under all future emissions pathways. Currently Thailand faces THAILAND ECONOMIC MONITOR | June 2023 30 Part 2. Coping with Floods and Droughts in Thailand more prolonged an annual median probability of severe meteorological drought, something that, periods of drought although uncertain, is projected to severely increase by 2080–2099 under the two due to climate higher emission pathways in Figure 4 (ADB and World Bank, 2021). In the change. absence of drought research for Thailand, it is worth noting that droughts globally tend to be of longer duration and with larger economic consequences than floods. Globally, droughts not only lead to crop loss but also result in deforestation as farmers expand into nearby forests due to reduced rainfall. This deforestation further reduces water supply and worsens climate change. The economic costs of droughts are calculated to be four times higher than those of floods, with a single water outage in an urban firm causing a revenue reduction of over 8 percent.20 iv. A Repeat of the 2011 Floods in the Early 2030s Could Cost 10-15 Percent of GDP Since 1990, seven Floods in sparsely populated areas may have limited economic costs, but floods have affected production losses can mount quickly if high-value sectors are impacted. As noted more than 20 percent above, the 2011 floods caused damages worth 12.6 per cent of GDP and at the of Thailand’s land time 8.5 per cent of Thailand’s farmland was submerged21 (Table 5). However, mass with the floods 70 per cent of the recorded damages and losses were attributed to the of 2011 being the manufacturing sector, mainly from flooding in industrial estates in Ayutthaya most severe. and Pathum Thani22. Of the overall cost, 90 per cent fell on the private sector. The Thai government lost an estimated 3.7 percent of tax revenues in 2011 and 2.6 percent of revenues in 2012 because of the flooding. The public sector faced THB 141 billions in losses to property and an estimated reconstruction bill of THB 388 billion (3.4 percent of GDP). Table 5: Impacts of large floods Year Duration (days) People affected, mln (% of Economic impact population) ($ million) 1995 100 4.3 (7%) 269.8 1996 114 5.0 (8%) 0.9 2000 6 2.5 (4%) 86.7 2002 6 3.3 (5%) 58.3 2006 115 2.2 (3%) 14.4 2010 61 9.0 (13%) 445.6 2011 152 9.5 (14%) 52,041.623 2013 14 3.5 (5%) 605.5 2017 28 1.0 (1%) 366.5 2017 30 1.8 (3%) 1 193.9 Notes: Table shows floods with more than 1m people affected in Thailand since 1990. Source: EM-DAT database. 20“Damania, Richard; Desbureaux, Sébastien; Hyland, Marie; Islam, Asif; Moore, Scott; Rodella, Aude-Sophie; Russ, Jason; Zaveri, Esha. 2017. Uncharted Waters: The New Economics of Water Scarcity and Variability. © World Bank, Washington, DC. http://hdl.handle.net/10986/28096 21 From Thailand’s Meteorological Department (http://www.tmd.go.th/en/event/flood_in_2011.pdf) 22 World Bank (2012) ‘Rapid Assessment for Resilient Recovery and Reconstruction Planning’. 23 The 2011 PDNA recorded USD 46.5 billion of damages and losses. THAILAND ECONOMIC MONITOR | June 2023 31 Part 2. Coping with Floods and Droughts in Thailand As the intensity and Studies suggest flooding incidence across Thailand is likely to increase because frequency of floods of climate change, with higher frequency of intense rainfall events contributing increases, economic to riverbank overflow, flash floods in urban areas and landslides and flash floods costs will also grow. in mountain areas. Model-based predictions for large-scale river flooding (WRI, 2022; Ward et al, 2020) estimate that the population annually affected by river floods is 1.1 million with an average annual damage of USD 1.6 billion in the reference year of 2010. The Table 6 below provides an overview of the population exposed to extreme river floods for the reference period of 1971 to 2004 and the projections for 2035 to 2044 based on the average of the four emission pathways in Figure 49. Compared to 2010, climate change may increase the number of people affected by floods by a factor of 2.5 for the period 2035 to 2044. Current estimates suggest that, under a high-emission scenario, the economic impact of a 1-in-50-year flood (as a share of GDP) in the early 2030s would be double that of the 2011 floods24 (Figure 52). Such a flood could impact 500,000 people and the additional urban damage alone could be USD 6.9 billion25. Table 6: Estimated number of people in Thailand affected by an extreme river flood (Extreme flood is defined as being in the 90th percentile in terms of numbers of people affected) for 1971 –2004 and for the future period 2035–2044 (ADB and World Bank, 2021) Source: ADB and World Bank, 2021. Figure 52: Potential loss of GDP from future floods (%) Source: Staff calculations based on MINDSET model data. Notes: Supply chain flexibility is measured as length of time companies can keep production uninterrupted in the event of disruption. The range on the chart’s x-axis is zero to six weeks. The analysis suggests Figure 52 presents the potential loss of GDP for a 1-in-50 year flood in the early that production 2030s, compared to that which occurred in 2011. The grey area represents losses from a 1-in-50 uncertainty in future flood length; production losses are larger if either flood the year flood in the lasts longer or it takes longer to restart production because of repair work. early 2030s would Increasing supply-chain flexibility (moving from left to right on the chart) could 24 https://www.wri.org/aqueduct 25 The World Bank (2021) ‘Climate Risk Country Profile: Thailand.’ THAILAND ECONOMIC MONITOR | June 2023 32 Part 2. Coping with Floods and Droughts in Thailand likely exceed 10 offset some of the worst potential impacts. More than 10 percent of annual percent of GDP. production is likely to be lost. It is possible that losses could be as high as 15 percent. The value of asset damages could be equally as big. The costs of future The Bank of Thailand (BoT) found that, in 2011, 95 percent of businesses were floods could be impacted by the floods26. The impacts of floods are therefore not limited to magnified by supply- companies that are directly affected. Other companies along the supply chain will chain impacts. be disrupted, especially if there is damage to transport networks27. Loss of income will also reduce demand for some products. The net impact of future floods will thus depend on supply chain resilience, for example the ability of companies to switch suppliers at short notice or hold stocks of critical inputs to production (notable examples include back-up energy supplies in case of widespread power failures). There is a recognized trade-off between maintaining resilient supply chains and optimizing production processes (World Development Report 2020: Trading for Development in the Age of Global Value Chains). There are limits to Nevertheless, a reduction of more than 10 percent of GDP is likely in this how much businesses scenario. Actions by businesses alone will not be sufficient to avoid these can prepare; publicly negative impacts. There are, however, possible climate adaptation measures that funded adaptation the national government could take to reduce the impacts of future floods. measures are required. 3. Climate Adaptation Measures to Reduce the Impacts of Floods and Droughts There has been a Risk-informed decision making, transparent risk estimation processes, and global shift towards stakeholder consensus are key components of reducing flood risk. Successful integrated strategies should be built on a shared vision for development and consider a management of flood multi-sector perspective. Browder et al. (2020) highlight four elements for robust and drought risks, flood management: an enabling environment, prioritized risk mitigation aiming to maximize planning, investment in water resources infrastructure, and controlling land and productivity and water use. WMO and GWP (2017) recommend a cascading series of measures to minimize the impact reduce flood hazards, protect against floods, regulate land use, raise awareness, on livelihoods. and mitigate risk. Nature-based solutions and a circular economy approach are also important. Nature-based solutions involve actions that effectively address social, economic, and environmental challenges while providing benefits to human well-being and biodiversity (UN, 2022). Public spending on The analysis in this chapter has shown that there should be a priority on climate adaptation investment that reduces the impacts of climate change. If these investments were measures will place a able to halve overall damages from climate change they would generate benefits burden on public of three to six times their costs (based on a rough estimate of damages). They budgets but should would also reduce the risk of extreme high-cost outcomes, particularly relating provide a strong to the Greater Bangkok area. Many adaptation investments are public goods and would therefore require public support. Costs could be minimized if steps are 26 Bank of Thailand (2012) ‘Thailand Floods 2011. Impact and Recovery from Business Survey’. 27The analysis builds on recent academic work. See Tanoe and others (2020) ‘Estimation of Direct and Indirect Economic Losses Caused by a Flood With Long-Lasting Inundation: Application to the 2011 Thailand Flood’; Colon (2020) ‘Criticality analysis of a country’s transport network via an agent-based supply chain model.’ THAILAND ECONOMIC MONITOR | June 2023 33 Part 2. Coping with Floods and Droughts in Thailand return on initial taken to identify vulnerable infrastructure and carrying out this exercise should investments. be regarded as a priority. Some measures, including flood prevention around Bangkok, may return immediate benefits and could be prioritized. Finally, softer measures, including building early warning and community-based systems, could provide benefits with smaller public costs. i. Institutional and Policy Aspects, and Progress Since the 2011 Flood Progress has been With the adoption of the Water Resources Act in 2018 and the creation of made on stronger ONWR in 2017, the Government of Thailand implemented long-standing policy water resources recommendations aimed at increasing coordination among ministries and management policies departments responsible for water resources management. Prior to the and institutions establishment of ONWR, Thailand lacked an effective policy coordination and following the oversight body that would guide the water resources management. This has establishment of the often resulted in a series of sector plans or fragmented strategies without Office of National effective coordination (ADB, 2015). More than 30 ministries and departments Water Resources are responsible for water resources management, leading to a scattered (ONWR). institutional landscape remains, unclear mandates and overlapping responsibilities. Institutions like TMD, RID, HII, DWR, and ONWR play key roles in providing climatological, meteorological, and hydrological information. More specifically, DWR summarizes the water level information for rivers and location specific forecast on a dedicated website (http://ews.dwr.go.th). While ONWR summarizes water hazard related information on another dedicated website (https://nationalthaiwater.onwr.go.th). In addition, ThaiAware provides a new early warning and hazard monitoring system on behalf of the national government. However, challenges remain in terms of standardized risk assessments and the use of consistent hazard maps, which are being addressed to improve communication and coordination. Since the establishment of ONWR, the coordination of the different entities involved in flood and drought management has substantially improved and ONWR has increasingly supported the planning of flood and drought mitigation measures. The Water Resources Act B.E. 2561 outlines the involvement of water user organizations, river basin committees, and the National Water Resources Committee (NWRC) in water resources management. In line with the Act, ONWR prioritizes training for water user associations and advocates for equitable sharing of benefits across sectors, especially during droughts. ONWR also focuses on collecting and analyzing flood-drought statistics, developing short and long-term action plans, and promoting other measures such as ecosystem-based adaptation and community initiatives among others. The Table 7 below provides an overview of the flood preparedness and response actions taken in 2022 coordinated by ONWR. Table 7: Flood preparedness and response actions planned for the wet season 2022, coordinated by ONWR. Action Timeframe Involved entities 1. Forecasting and identifying areas at From March 2022 TMD, BMA, HII, ONWR risk of floods and reduced rainfall 2. Managing lowland areas for flood By August 2022 MOA, MOI, RID, DWR, DAE, BMA retention THAILAND ECONOMIC MONITOR | June 2023 34 Part 2. Coping with Floods and Droughts in Thailand Action Timeframe Involved entities 3. Reviewing and adjusting water By April 2022 RID, DWR, EGAT, DAEDE, DOF management criteria for medium and large reservoirs and diversion dams 4. Repairing and maintaining hydraulic By July 2022 RID, DWR, EGAT, DAEDE, DLA, DOF, TMD, HII, structures, drainage systems and BMA telemetric stations 5. Renovating and repairing water By July 2022 RID, DWR, DLA, BMA, DORR, DOH, MD), SRT obstacles 6. Dredging canals and removing water By July 2022 RID, MD, DWR, DPW, DLA, BMA, Thailand hyacinths Institute of Science and Technology Research, ONWR, GISDA 7. Preparing and planning of By July 2022 DWR, RID, DGR, BMA, DOH, DORR, Royal Thai machinery and equipment for the Armed Forces, Royal Thai Police, Department risk areas of flood and less rainfall of Royal Rainmaking and Agricultural Aviation, DDPM, DLA, GISDA 8. Increasing water efficiency and Before and through-out the RID, EGAT, DWR, DGR, MWA, PWA, DLA improving water distribution process wet season 9. Checking the security of the levees, Before and through-out the DLA, DOH, DPW, RID, DORR, ONWR, MD dams, dykes, wet season 10. Preparing evacuation areas and By May 2022 MOI, DDPM, ONWR. related agencies practicing the Incident Action Plan 11. Establishing the Incident Command Throughout the wet season ONWR, NBTC, MOI, related agencies Post before disaster 12. Raising awareness and public Before and through-out the MOI, Government Public Relations relations wet season Department, ONWR, related agencies 13. Monitoring, evaluating and adjusting Throughout the wet season ONWR, related agencies the countermeasures in accordance with the disaster Some of the Key issues that are yet to be addressed include (i) strengthening of early warning recommendations communication with the public and affected communities, (ii) enhancing from the 2011 Floods coordination among government departments in the context of preparedness and Post-Disaster Needs response, (iii) strengthening land management and flood zoning, (iv) preparing Assessment have not comprehensive risk reduction and contingency planning tools, (v) strengthening yet been addressed. hydraulic modelling, data management, and data integration, (vi) dissemination of risk information, and (vii) enabling community driven disaster prevention. An overview of the long-term recommendations for relevant sectors in available in the Table 8 below. Table 8: Implementation status of selected medium- and long-term recommendations for strengthen flood management following the 2011 floods (World Bank, 2012). Recommendations highlighted in bold have largely been implemented based on available data and expert judgement Sector Policy and institutional recommendations Infrastructure and operational (non-structural) recommendations (structural) Agriculture • Enhance the national and local • Promote alternative (paddy rice) governance systems that address cropping and production systems, land management. which are less vulnerable to flooding. • Ensure IWRM in river basin. • Promote crop diversity. THAILAND ECONOMIC MONITOR | June 2023 35 Part 2. Coping with Floods and Droughts in Thailand Sector Policy and institutional recommendations Infrastructure and operational (non-structural) recommendations (structural) • Prepare department specific DRR • Establish effective weather plans and strengthen relevant forecasting and early warning policies. systems. • Involvement of GISDA and • Promote agricultural insurance promote GIS and RS for disaster systems and ensure good statistics, planning. which could form the basis for future assessments. Industry and • Improve land use management to • Comprehensive flood protection manufacturing ensure that flood plains are kept free systems to be constructed around of further industrial development. industrial estates. • Invest in comp. water mgt. systems. Tourism • Review and update zoning and land use regulations to ensure that flood affected areas are kept free of further tourism development; Flood control and • Conduct a detailed, model-based • Immediate rehabilitation of drainage analysis hydraulic assets (including King’s • Develop an overview of dikes at risk and Ring dike) and an increase in of breaching and conduct a safety drainage capacity. audit of dams and water reservoirs. • Increase retention and reservoir • Review land use policies to ensure capacity. that areas at risk of flooding are not • Allow more space for water and developed. rivers to expand during peak water • Promote strong data management periods. systems focusing on hydrological • Investments in small- and medium- data sized water reservoirs upstream and implementing community watershed management programs. Water resources • Identify a “champion” for • Increase the water treatment management, effectively coordinating water facilities and ensure that the existing water supply and resources management. water treatment facilities are sanitation • Finalize the Water Resources protected from flooding, focusing on Management Act the smaller WSS facilities. • Formulate utility-based disaster prevention plans, so-called Water Safety Plans. • Increase monitoring and maintenance. • Establish SOP and Business Continuity Plans for the water utilities Housing • Strengthening building codes, land • Promote community led use planning, coordination with the reconstruction and recovery. RID and others on local flood mitigation measures. Education • Strengthening building codes. • Promote flood awareness education. THAILAND ECONOMIC MONITOR | June 2023 36 Part 2. Coping with Floods and Droughts in Thailand Sector Policy and institutional recommendations Infrastructure and operational (non-structural) recommendations (structural) Environment, • Strengthen water quality • Strengthen waste collection, recycling including waste monitoring. and the circular economy as an est. management 40% of municipal waste is recyclable. • Ensure climate proofing of industrial waste management facilities. • Promote afforestation. Disaster Risk • Establish a comprehensive multi- Management hazard early warning system that brings information to a joint platform accessible widely. • Strengthen collaboration between different actors, including grassroot organizations and civil-defense collaboration • Strengthen data mgt and sharing. • Conduct a risk assessment that also includes climate change projections. • Strengthen community-based DRM and enable local communities to play a stronger role in disaster response. • Mainstream DRR in plans and policies. • Clarify institutional roles and responsibilities. • Develop a flood insurance program ii. Flood and Drought Management Infrastructure Historically, the The same dams, barrages, channels, and levees constructed primarily for development of flood irrigation also serve as flood protection infrastructure, including the Bhumibol management and Sirikit dams. These two dams withhold flood waters for an area of 1.2 million infrastructure in the hectares in the lower part of the basin and together they control 22 per cent of Chao-Phraya River the runoff from the entire basin. In 1984, a masterplan for flood protection was system has been prepared leading to the construction of a 74 km long “King’s dike” around closely linked to the Bangkok, along with pumping stations regulators and a drainage network in the development of Bangkok metropolitan area. In the 1990s, the overbank flow protection scheme irrigation systems. was implemented with the construction of 300km of dikes along the Chao-Phraya River to protect agricultural land, while at the same time the “King’s dike” was heightened. Figure 53 illustrates the main dams and hydraulic infrastructure in the Chao-Phraya River basin, while Figure 54 illustrates it for the Chi and Mun Rivers (Friend and Thinphanga, 2018). THAILAND ECONOMIC MONITOR | June 2023 37 Part 2. Coping with Floods and Droughts in Thailand Figure 53: Location of major dams and water storage infrastructure in Chao Phraya River system Source: Based on RID (2019). Figure 54: Overview of water resources management infrastructure in the Chi River basin Source: Friend and Thinphanga, 2018 based on information of RID. THAILAND ECONOMIC MONITOR | June 2023 38 Part 2. Coping with Floods and Droughts in Thailand There is a need to The 2011 PDNA identified the combination of aging infrastructure and deferred conduct a design maintenance of the hydraulic infrastructure as the primary reason for the review and safety structural failure and breaches of the flood protection embankments along the audit of critical flood Chao-Phraya River. A complete redesign and reconstruction of the dikes was protection therefore recommended (estimated at THB 15 billion), which should ideally be infrastructure and combined with upstream measures for the retention of flood water and informed invest in the by basin-wide modelling and a safety audit. In conjunction, systems should be extension of the established to ensure regular review of the critical flood control infrastructure infrastructure. status, both by the operator and by independent review panels, to examine problems relating to sustainable operations and maintenance (World Bank, 2012). The Table 9 below provides an overview of the flood protection works for the 10 provinces with the highest flood and drought risk scores28 for the period 2017 to 2022. It shows that so far the budget and interventions have been selective with potentially large gaps remaining to achieve robust levels of flood protection (as for example in the Greater Bangkok area) In addition, only half of these provinces have contingency plans which are critical for minimizing economic losses and loss of life when a flood occurs. Table 9: Overview of flood protection works in the 10 provinces with the highest flood and drought risk scores29 and budget for the period 2017-2022. Province Flood Allocated Urban flood protection Dike Pumping station Contingency medium budget Projects Protected protected Length Station Benefit plan preparation and (THB area household area high risk millions) (no) (km2) (m) (km2) (km )[1] 2 [2] Nakhon 14.73 1,548 2 4 2,244 5,349 32 129 yes Ratchasima Bangkok 2.51 16,818 16 198 - n/a 5 29 - Nakhon 8.80 2,227 6 22 9,829 11,473 7 11 yes Sawan Chaiyaphum 5.53 2,424 1 4 5,174 11,062 5 11 - Sukhothai 4.43 1,645 3 13 11,560 6,120 5 12 yes Roi Et 9.01 1,708 - - - 5,871 15 349 yes Khon Kaen 8.81 1,169 4 23 10,065 9,071 2 11 - Phichit 6.20 694 - - - 2,839 4 5 - Pathum Thani 2.42 865 - - - 7,060 3 16 - Si Sa Ket 9.02 772 - - - 5,473 5 4 yes Source:.Compiled by the World Bank based on information from DDPM [1] and Bureau of Budget, 2022 [2] Increased protection Over 14 million people (about 22 percent of the total population) live within of the greater the Greater Bangkok area30 at the last census. The area also hosts important Bangkok area is historical and cultural assets and contributes close to 50 percent of total annual warranted. GDP thus making it by far the most important to Thailand’s socio-economy (Figure 55). Since the 2011 floods, several plans have been drafted to protect 28 The score was determined considering areas exposed to floods and droughts, Gross Provincial Product, poverty and budget allocated for flood management in the province with the aim to identify priority areas for interventions. 29 idem 30 The NESDC classifies the greater Bangkok area as Bangkok, Nonthaburi, Nakon Pathom, Pathum Thani, Samut Prakan and Samut Sakhon. THAILAND ECONOMIC MONITOR | June 2023 39 Part 2. Coping with Floods and Droughts in Thailand this Region including new upstream water retention, the Ayutthaya bypass, Bangkok outer ring road diversion, raising of dikes, and river improvement works, among others. RID currently proposes an investment with “nine plans” for an estimated cost of USD 9.4 billion, to achieve flood protection for a 1 in 50-year flood event. Further technical and cost-benefit analysis should be prioritized for financing this investment in the short-term. Figure 55: GDP in Thailand by region (%) 60 50 2000 2010 2021 40 30 20 10 0 Bangkok Eastern North SouthernNorthern Central Western and Eastern Vicinities Source: NESDC Another key Since much of the infrastructure was built 40-60 years ago, efforts to sustain measure is to operations and undertake major maintenance are increasingly challenging. At climate-proof and the same time, climate change demands that operating rules need to change strengthen and supplementary measures and investments may also be needed in certain operations of key cases. But only about 4 percent of the water resources budget is used for water storage maintenance of infrastructure. Sedimentation, in part driven by deforestation infrastructure. and land use changes over the years in the upstream areas of the catchments, has reduced the storage capacity of existing dams, which were mainly constructed in the 1960s to1980s. Major dams like the Bhumipol Dam, Sirikit Dam, and Vajiralongkorn Dam have sedimentation rates of about 30 per cent, substantially reducing their storage capacity. A concerted review and update of the operational rules of the major dams together with a sound decision support system was recommended after the 2011 floods because uncoordinated releases from dams was a major contributing factor to the magnitude of the flooding. Water storage Currently, Thailand has a total reservoir capacity estimated at 76,002 MCM. needs should be With an estimated reservoir storage capacity of 1,006 m³/capita, Thailand considered on a leads its neighbors such as Malaysia (710 m³/capita), Indonesia (71 provincial basis. m³/capita), Vietnam (310 m³/capita), Japan (228 m³/capita), and India (190 m³/capita), but is behind countries like USA with 6,158 m³/ capita and China with 2,486 m³ / capita (World Bank, 2023). Thailand’s water storage is also unevenly distributed, with most storage in the North-Central and Western Regions (the sub-basins of the Chao Phraya River system) than the North- East region. Furthermore, irrigation infrastructure is more developed in the sub-basins of the Chao Phraya River system. . Water storage planning should be approached from an integrated perspective, considering the demands for water resources at a system scale. It is crucial to also assess the exposure and vulnerability to floods and droughts of the population, including those THAILAND ECONOMIC MONITOR | June 2023 40 Part 2. Coping with Floods and Droughts in Thailand affected by poverty, to ensure equitable and sustainable access to adequate water resources. Given these factors, it may be necessary to give greater attention to the North East with regard to future storage planning initiatives. Opportunities for The literature on climate change adaptation shows that conventional nature-based approaches relying primarily on large scale ‘gray’ infrastructure alone are no solutions (NbS) longer sufficient to manage the impacts of climate change. Even though some should be explored. ecosystem-based practices are in limited application for specific cases in Thailand such as “monkey cheeks”, better hydrologically engineered and more widespread application of NbS and integrated gray-green infrastructure options is not considered. Examples from China’s Sponge City Initiative (USD 985 million) across 16 cities showcases how NbS can be part of the solution for both mitigating surface water flooding and enhancing water conservation. Knowledge-building of the NbS concept and the development of local and sector specific solutions should be promoted. Building capacity pertaining to the selection of potential NbS interventions, standards for assessing benefits and costs, building guidelines for integrated grey-green infrastructure and norms for designing NbS would be important. Figure 56 provides a conceptual drawing of the Sponge City. Figure 56: Application of the Sponge City concept at the site scale and at the catchment scale in Southern China. (a) classic sponge facilities with pipes and tanks to collect the water; (b) suggested sponge facilities characterized by infiltration to aquifer; (c) conceptual model with different zones for the application of the Sponge City concept. Source: Journal of Hydrology, Regional Studies, Volume 28, April 2020, 100679 THAILAND ECONOMIC MONITOR | June 2023 41 Part 2. Coping with Floods and Droughts in Thailand Support climate Browder et al. (2020) highlights four basic elements that would need to adaptation through converge for robust and successful flood and drought risk management. “An simultaneous policy enabling environment of policies, laws, agencies, strategic plans, and measures and information; planning at all levels to prioritize risk mitigation measures; infrastructure investing in watersheds and water resources infrastructure; controlling the use investments. of land and water resources to reduce exposures and vulnerabilities; and responding better to extreme events.” Similarly, WMO and GWP (2018) recommend a cascading series of infrastructure investments with corresponding policy measures that would (a) reduce the hazard, (b) control and protect against the hazard, (c) regulate and adapt land use, (d) raise awareness to and increase preparedness, and (e) mitigate risk. Box 3: Key policy and infrastructure recommendations to better cope with floods and drought • The institutional reform process that started in 2017 with the establishment of ONWR needs to be further advanced, including considering the designation of a lead agency for flood and drought management. Building upon the coordinating role of ONWR, more clearly defined roles and responsibilities among the related agencies regarding operation of infrastructure, data integration, communication, planning and response are critical. • More systematic analysis of the economic impacts of recurrent flood and drought events should be undertaken to analyse and compare the economic efficiency and flexibility of different risk management strategies and interventions. Alternatives, such as nature-based solutions (NbS), that would complement traditional grey infrastructure, should be carefully considered in this analysis. • Investments for increasing the water storage capacity should be carefully assessed and prioritized, especially in the Northeast, while maintaining and retrofitting the existing storage infrastructure. This should include addressing sedimentation through afforestation in upstream areas, where this is feasible and restoring full operating capacity of reservoirs. • NbS can also play an important role and should be considered alongside with traditional grey infrastructure. The familiar concept of “Monkey Cheeks” should be re-evaluated and better engineered for flood attenuation. • While Thailand has robust hydrometeorological services, the communication with stakeholders and affected communities when a flood event is expected needs enhancement. Flood early warning systems are widely recognized to be cost effective solutions for reducing the impact on lives and livelihoods with benefits of USD4 to USD10 for every USD1 invested in early warning systems. Strengthening early warning systems based on robust hydrological- hydraulic modelling and effective communication is important to help save lives and economic losses. • Risk financing and risk insurance are important elements for managing the residual risks of natural disasters. Probabilistic risk models can not only inform decision making on climate risks, but also inform decision making on the best possible solution regarding parametric risk insurance, contingent credit lines and catastrophic bonds. THAILAND ECONOMIC MONITOR | June 2023 42 Part 2. Coping with Floods and Droughts in Thailand Climate change To date, climate change issues remain largely addressed through separate impacts need to be climate strategies, such as the National Adaptation Plan and not well integrated better integrated into the broader national economic plans nor related sector specific plans such into water as the 20-year Water Resources Management Master Plan (WRMP) for the resources period 2017 to 2036. A rigorous climate change assessment of the WRMP with management and sector specific impacts under different climate change scenarios is needed. The the broader assessment should also consider different policy and investment scenarios economic outlook. towards informing the most effective measures for coping with floods and droughts and minimizing the impacts for the population and the economy. THAILAND ECONOMIC MONITOR | June 2023 43 REFERENCES Part 1. World Bank. 2023. Reviving Growth. World Bank East Asia and Pacific Economic Update (April). Washington, DC: World Bank. doi:10.1596/978-1-4648-1983-4. License: Creative Commons Attribution CC BY 3.0 IGO World Bank Group. 2023. Thailand Public Revenue and Spending Assessment: Promoting an Inclusive and Sustainable Future. World Bank, Bangkok. License: Creative Commons Attribution CC BY 3.0 IGO World Bank. 2023. Global Economic Prospects, June 2023. Washington, DC: World Bank. doi:10.1596/978-1-4648-1951-3 License: Creative Commons Attribution CC BY 3.0 IGO Part 2. ADB (2015). TA 8267-THA: Thailand: Strengthening Integrated Water and Flood Management Implementation (Financed by the Japan Fund for Poverty Reduction) prepared by International Center for Environmental Management (ICEM). November 2015. Available at: https://www.adb.org/sites/default/files/project-documents//46231-001-tacr-02.pdf ADB and World Bank (2021). Climate Risk Country Profile: Thailand (2021): The World Bank Group and the Asian Development Bank. Washington, DC, USA and Metro Manila, Philippines ASMC and WMO (2023). Twentieth Session of the ASEAN Climate Outlook Forum (ASEANCOF-20) 25th, 26th and 30th May 2023, ASEAN Specialised Meteorological Centre (ASMC) Consensus Bulletin for June-July-August (JJA) 2023 Season Bank of Thailand (2012). Thailand Floods 2011. Impact and Recovery from Business Survey. Browder, Greg; Nunez Sanchez, Ana; Jongman, Brenden; Engle, Nathan; van Beek, Eelco; Castera Errea, Melissa; Hodgson, Stephen. 2021. An EPIC Response: Innovative Governance for Flood and Drought Risk Management. © World Bank, Washington, DC. http://hdl.handle.net/10986/35754 License: CC BY 3.0 IGO. Colon, C., Hallegatte, S., Rozenberg, J. (2020). Criticality analysis of a country’s transport network via an agent-based supply chain model, Nature Sustainability 4, pp 209-215. Damania, Richard; Desbureaux, Sébastien; Hyland, Marie; Islam, Asif; Moore, Scott; Rodella, Aude- Sophie; Russ, Jason; Zaveri, Esha (2017). Uncharted Waters: The New Economics of Water Scarcity and Variability. © World Bank, Washington, DC. http://hdl.handle.net/10986/28096 DDPM (2022). http://110.78.23.203/in.datacenter-5.289/ (information accessed in April 2022) Era Dabla-Norris, E., Kochhar K., Suphaphiphat N., Ricka F., and Tsounta E. (2015). “Causes and Consequences of Income Inequality: A Global Perspective”. Washington, DC: International Monetary THAILAND ECONOMIC MONITOR | June 2023 44 Fund Research Department- IMF Discussion Note. https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf ESCAP and ASEAN (2021). Ready for the Dry Years: Building resilience to drought in South-East Asia Friend, R., and P. Thinphanga (2018). Urban Water Crisis under Future Uncertainties: The Case of Institutional and Infrastructure Complexity in Khon Kaen, Thailand. Sustainability 2018, 10, 3921; doi: 10, 3390/ su10113921 Government of Thailand (2018). Third National Communication to the UNFCCC. https://unfccc.int/sites/default/files/resource/Thailand%20TNC.pdf Grigoli, F. and Robles, A. (2017). Inequality Overhang. IMF Working Paper WP/17/76. file:///C:/Users/WB364987/Downloads/wp1776.pdf GWP and WMO (2017). Selecting Measures and Designing Strategies for Integrated Flood Risk Management. Associated Program on Flood Management. World Meteorological Organization, Geneva, Switzerland HII (2019). Thailand Water Situation 2019 (ThaiWater.net) Lancia, M et al (2020). Hydrogeological constraints and opportunities for “Sponge City” development: Shenzhen, southern China. Journal of Hydrology, Regional Studies, Volume 28, 100679 LDD (2022). http://irw101.ldd.go.th/index.php (information accessed in April 2022) Lustig, Nora, ed. (2018). Commitment to Equity Handbook: Estimating the Impact of Fiscal Policy on Inequality and Poverty. Washington, DC: Brookings Institution Press. Manton, M.J. & Della-Marta, Paul & Haylock, M.R. & Hennessy, K. & Nicholls, Neville & Chambers, Lynda & Collins, D.A. & Daw, G. & Finet, A. & Gunawan, Dodo & Inape, Kasis & Isobe, H. & Kestin, T.S. & Lefale, Penehuro & Leyu, C.H. & Lwin, T. & Maitrepierre, Luc & Ouprasitwong, N. & Page, C.M. & Yee, D.. (2001). “Trends in extreme daily rainfall and temperature in Southeast Asia and The South Pacific”: 1961–1998. International Journal of Climatology. 21. 269 - 284. 10.1002/joc.610. Marin-Ferrer, M., Vernaccini, L. and Poljansek, K. (2017). Index for Risk Management INFORM Concept and Methodology Report — Version 2017, EUR 28655 EN, doi:10.2760/094023 Office of Natural Resources and Environmental Policy and Planning (ONEP), 2021: Thailand Third Biennial Update Report, available at UNFCCC: https://unfccc.int/sites/default/files/resource/BUR3_Thailand_251220per cent20.pdf Ostry, J. D., Berg A., and Tsangarides C. G. (2014). “Redistribution, Inequality, and Growth”. Washington, DC: International Monetary Fund Research Department- IMF Discussion Note. https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf Pumchawsaun, P., (2018). Integrated hydrodynamic and socio-economic damage modelling for assessment of flood risk in large-scale basin: The case study of Lower Chao Phraya River Basin in Thailand. THAILAND ECONOMIC MONITOR | June 2023 45 RID (2019). The Disaster Prevention Countermeasures in Thailand 2 April 2019. Dr. Phattaporn Mekpruksawon Senior Expert on Civil Engineering (Project Planning) Royal Irrigation Department Ministry of Agriculture and Cooperatives Tanoue, M. & Taguchi, R. & Nakata, S. & Watanabe, S. & Fujimori, Shinichiro & Hirabayashi, Y.. (2020). Estimation of Direct and Indirect Economic Losses Caused by a Flood With Long‐Lasting Inundation: Application to the 2011 Thailand Flood. Water Resources Research. 56. e2019WR026092. 10.1029/2019WR026092. UNDRR (2020). Disaster Risk Reduction in Thailand: Status Report 2020. Bangkok, Thailand, United Nations Office for Disaster Risk Reduction (UNDRR), Regional Office for Asia and the Pacific. (United Nations Office for Disaster Risk Reduction) and ADCP (Asian Disaster Preparedness Center). Available at: https://www.undrr.org/media/48642/download?startDownload=true UN (2022). United Nations Environment Assembly of the United Nations Environment Programme UNEP/EA.5/HLS.1, Ministerial declaration of the United Nations Environment Assembly at its fifth session. UNEP. Nairobi, Kenya Ward, P.J., de Ruiter, M.C., Mård, J., and others (2020). The need to integrate flood and drought disaster risk reduction strategies, Water Security 11(Dec 2020), 100070. World Bank (2012). Thai Floods 2011, Rapid Assessment for Resilient Recovery and Reconstruction Planning Washington, D.C, USA World Bank (2018). Thailand - Country Partnership Framework for the Period 2019-2022 (English). Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/770551542942024490/Thailand-Country- Partnership-Framework-for-the-Period-2019-2022 World Bank (2020). World Development Report: Trading for Development in the Age of Global Value Chains. Washington, DC: World Bank. https://www.worldbank.org/en/publication/wdr2020 World Bank (2021). Towards Social Protection 4.0: An Assessment of Thailand’s Social Protection and Labor Market Systems. Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/35695. World Bank (2021b). A Catalogue of Nature-Based Solutions for Urban Resilience. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/36507 License: CC BY 3.0 IGO. World Bank (2021c). Climate Risk Country Profile: Thailand. https://www.adb.org/sites/default/files/publication/722251/climate-risk-country-profile- thailand.pdf World Bank (2022). Poverty and Shared Prosperity Report 2022: Correcting Course. Washington, DC: World Bank. World Bank (2023). Climate Change Knowledge Portal. Washington, DC: World Bank accessed May 2023: https://climateknowledgeportal.worldbank.org/ THAILAND ECONOMIC MONITOR | June 2023 46 World Bank (2023). “What the Future Has in Store: A New Paradigm for Water Storage.” World Bank, Washington, DC. WRI (2023). WRI Aqueduct. Accessed May 2023: https://www.wri.org/aqueduct THAILAND ECONOMIC MONITOR | June 2023 47 World Bank Group, Siam Piwat Tower, 30th Floor, 989 Rama I Road, Pathumwan, Bangkok 10330 E-mail. thailand@worldbank.org | Tel. 02-686-8300 www.worldbank.org/thailand | http://www.facebook.com/worldbankthailand