Thailand needs a new growth pathway

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Unemployment. Bankruptcy. Rising inequality and a deteriorating environment. Can Thailand, weighed down by its ageing population, recover from the Covid-19 economic and public health crises to build a more secure future?

No, if policymakers still pursue an economic growth strategy that weakens the people and destroys the environment to serve the rich few.

Yes, the country can bounce back if we recognise past development errors, mend the damage, fix the system to restore our social and economic health, allow the environment to heal, and pursue a new development path to rebuild an inclusive and resilient society that can better withstand future crises.

“Restore, Reform, and Reimagine” is the theme of the annual conference of the Thailand Development Research Institute (TDRI) this year because we believe Thailand must pursue sustainable development after the country’s worst economic crisis in recent history.

How to do it? By putting people’s quality of life and efficiency at centre stage with environmentally friendly development.

Here are the must-dos: Reduce unnecessary deaths, revamp the education system, restore the natural environment for sustainable tourism, invest in local infrastructure, streamline production, improve research and development, and more innovation.

Equally important, cut the red tape, eliminate outdated laws and regulations, and create a digital government.

Pandemic impacts

As of October 2021, official Covid deaths were below 20,000. But the “excess deaths” could reach 48,000-64,000, according to The Economist, if we include deaths from lack of medical care and other causes during the pandemic.

According to the Credit Bureau, more than 20,000 SMEs are in non-performing loan status, even after the Bank of Thailand relaxed the definition of NPLs. Apart from 0.7 million becoming “fully unemployed”, nearly two million people are “effectively unemployed”, having been forced to cut work hours to under 20 a week, according to the National Statistical Office.

As a result, household debt has skyrocketed to 90% of GDP. The government’s public debt has also risen to 57% of GDP.

The poor are hit the hardest. Disparity is worsening. Political frustrations are growing as people cannot see a future.

According to the Equitable Education Fund, 130,000 students have become the new poor while 43,000 students had to drop out.

It’s clear that the old development model cannot cope with the deep economic scars from the pandemic.

With an ageing population, Thailand will face a low growth rate of 2.6% during 2036-2040. Stuck in the middle-income trap for the next 20 years, Thailand will not have enough money to pay for pensions, health care, and welfare. The poor will suffer greatly.

But we can reverse this.

New development path

To recover, we need to restore and invigorate our human resources and the environment. We need to fix many fundamental problems including bureaucratic hindrances and outdated laws to increase productivity and people’s participation in economic activities.

The inclusive and environmentally friendly development will reduce disparity, improve the environment and people’s quality of life while preventing economic growth from dipping too low.

Keep people healthy and alive

Thailand has been losing precious human resources through non-communicable diseases, accidents, air pollution, and conscription every year. The economy will grow just by reducing these unnecessary losses.

Of the top 10 causes of death in Thailand, nine are non-communicable diseases and road accidents.

The number of years all Thais lost due to premature death, disability, and poor health from these nine causes amounts to four million years per year.

For example, about 30,000 people die from cardiovascular or respiratory problems caused by PM2.5 particles while about 20,000 people die from road accidents each year.

Mandatory conscription also wastes human resources. Each year, nearly 100,000 young men aged 21 are conscripted and lose two productive years in military camps.

If Thailand can halve the death toll from road accidents in five years, reduce the deaths from non-communicable diseases by 25% in 10 years, and cut conscription by 50%, annual economic growth will be 0.62% higher.

Raise educational quality

According to the Equitable Education Fund, over 1.1 million children are not in school. Those who do have poor literacy. Half of the students aged 15 are in Levels 1-2 of the Pisa test in maths, science, and reading, which means they cannot functionally use those skills in real life.

Thailand must address education reform, starting from preschool level. If all children are in school and have at least Level 1 of basic literacy, Thai economic growth will increase further by 0.21% per year for the next two decades, according to our model.

Reduce waste and increase productivity

For starters, the government should immediately restore the natural environment and tourist destinations for sustainable tourism. It should also invest in small-scale infrastructure such as community reservoirs to strengthen the grassroots economy and to reduce the damage from droughts and floods.

State support for “lean production” in the private sector is necessary to cut down energy use, waste, and thus production costs. Research and development also need more investment for innovative products and services.

Research and development should answer local needs too. For example, the know-how to tackle soil salinity and the development of new rice varieties that command higher prices.

With a 0.5% per year increase in productivity, Thailand could raise its average economic growth by 0.91% for the next 20 years.

Reform the bureaucracy

Another way forward is to create a digital government. In addition, the government must undertake a “regulatory guillotine” exercise to get rid of outdated rules and laws.

For example, the hotel law hurts small hotel businesses by requiring them to renew licences too frequently, leading to unnecessary regulatory costs. Also, the law does not recognise new forms of accommodation like Airbnb-style services.

Change is certainly possible. PromptPay, initiated by the Bank of Thailand (BoT), has shown how digital transformation initiated by the government can boost economic activity when financial transactions are quick and easy.

The BoT’s regulatory guillotine related to foreign exchange also helps the government and businesses save over 1.8 billion baht a year. The Securities and Exchange Commission, by cutting red tape, saves 153 million baht a year, including 48,000 work hours and 1.8 million pieces of paper.

The government must learn from these success stories.

According to our previous study, a regulatory guillotine exercise to amend 43% of outdated rules and eliminate 39% of unnecessary rules related to 1,094 licensing procedures will save up to 1.3 trillion baht a year, or 0.8% of GDP.

Our model estimates that digital governmental services and a continuous regulatory guillotine of outdated laws and rules can lift economic growth by 0.25% per year for the next two decades.

With all the measures combined, the Thai economy can grow 2% above the current trend. With this additional growth rate for the next 20 years, Thailand can become a high-income country and raise the quality of life of its people.

Despite the odds, the Thai economy can still grow. The key is being pro-people, pro-environment and pro-efficiency.

We need to invest in people and promote sustainable development to maintain growth. These are complementary, not competing goals. We need change. The time to act is now.

By Somkiat Tangkitvanich

Somkiat Tangkitvanich, PhD, is president of the Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.

First Published: Bangkok Post on November, 10 2021

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