World Bank urges govt to invest in infrastructure, green economy

The World Bank has advised the Thai government to boost investment in reviving ageing infrastructure and strengthening the green economy, to help drive the country’s economic potential beyond 2.7% growth in the medium term.

The bank forecasts Thai GDP growth of 2.4% in 2024 and 2.8% in 2025. The government’s planned digital wallet initiative is not included in the baseline forecast, but it could potentially enhance near-term growth if implemented, Kiatipong Ariyapruchya, a senior economist for Thailand at the World Bank, told an ecnomic seminar on Wednesday.

According to Mr Kiatipong, Thailand’s potential growth for 2023-2030 is estimated at 2.7%, which is 0.5 percentage points lower than in previous decades because of its ageing population and subdued productivity growth.

This slowdown is also observed among regional peers, with average potential growth in the East Asia and Pacific region projected to average 4.8% for the remainder of this decade, down from 6.2% in the decade to 2021.

“Thailand has the potential to increase its growth to above 2.7% per year in the medium term by ramping up investment in infrastructure system, particularly ageing infrastructure, in line with the country’s ageing society. Additionally, the green economy is another key area that the government should pay more attention to investing in,” he said. 

With higher government investment, Mr Kiatipong said, Thailand’s public debt is expected to rise to 64.6% of GDP by fiscal 2025. The fiscal deficit is projected to increase to 3.6% of GDP as budget execution normalises and fiscal stimulus measures aimed at boosting consumption are implemented in line with the government’s medium-term fiscal framework.

The government projects that public debt will rise to 68.6% of GDP by 2028 due to increased spending needs. Pro-growth, consumption-stimulating measures such as the digital wallet have added to this pressure. To enhance fiscal resilience amid rising spending needs, Thailand should focus on more targeted social assistance and transfers to effectively support vulnerable households and alleviate poverty, he said.

Even though Thailand faces the mounting challenge of reconciling fiscal sustainability and short-term stimulus, Mr Kiatipong said, the government has room to raise tax revenue, promote equity, create fiscal space and accelerate investment. 

“In the long term, potential growth could be elevated through fiscal reforms to unleash multiple growth poles across the country. Implementing public infrastructure investments can connect and empower lagging regions,” said Mr Kiatipong.

According to the World Bank, Thai economic recovery faltered due to global and domestic headwinds, with growth falling to 1.5% year-on-year in the first quarter of this year. Goods exports and manufacturing contracted by 2% and 3%, respectively, due to weak external demand. Internally, budget delays led to contractions in public investment and public consumption by 27.7% and 2.1%, respectively.

“For the past three months, we were concerned about a Thai economic recession, but we now expect the economy has bottomed out and will gradually recover. Therefore, we are not currently concerned about a recession,” Mr Kiatipong said.

Public investment in secondary cities would support long-term economic growth. If local governments gain greater authority over urban planning, infrastructure development, and access to long-term financing mechanisms – complemented by robust fiscal instruments such as property taxes, income tax piggybacking, and user charges – these cities could effectively chart their own economic growth trajectories, according to the World Bank.

Nonetheless, the World Bank expects the Bank of Thailand to maintain its policy rate with no significant inflationary pressure. The central bank’s policy rate decision will partially depend on the implementation of the digital wallet scheme and its impact on the inflation rate, the bank said.