IMF suggests public investment, monetary easing

IMF suggests public investment, monetary easing

The Laem Chabang port in Chon Buri province is located in the government's Eastern Economic Corridor scheme. A delegation of the International Monetary Fund has proposed Thailand implement an expansionary policy mix that includes a scaling up of public investment projects to boost domestic demand. (File photo by Pattarapong Chatpattarasill)
The Laem Chabang port in Chon Buri province is located in the government's Eastern Economic Corridor scheme. A delegation of the International Monetary Fund has proposed Thailand implement an expansionary policy mix that includes a scaling up of public investment projects to boost domestic demand. (File photo by Pattarapong Chatpattarasill)

An IMF delegation has recommended Thai policymakers use an expansionary policy mix to boost domestic demand while the economy stutters, according to preliminary findings of the fund staff team after an annual visit to Thailand.

The expansionary policy mix includes a scaling up of public investment projectscombined with fiscal reforms and monetary easing consistent with a data-dependent approach, accompanied by macroprudential policies to preserve financial stability, said the findings, which will be presented to the IMF's executive board.  

Structural reforms would also contribute to addressing the large economic imbalances and promoting inclusive and sustainable growth, it said.

"The authorities are making steady progress on implementing the medium-term fiscal framework to support the fiscal responsibility law, increasing the efficiency of the tax structure, and preparing a bill to improve the pension system. Going forward, the mission recommends a front-loaded increase in public investment in fiscal 2020, including through public-private partnerships [for example, Eastern Economic Corridor projects], supported by stronger public investment management, which can catalyse private investment and raise productivity growth," said the IMF.

With an absence of fiscal stimulus for the remainder of this year because of delays in the 2020 fiscal budget following the new government's transition and the moderation of the financial cycle, monetary easing would help support domestic demand and external rebalancing, the findings said.

The exchange rate should remain flexible to serve as a key shock absorber in response to volatile capital flows, while using macroprudential policies to address possible financial stability risks and  foreign exchange intervention should be limited to avoid disorderly market conditions.

The findings referred to a recent Financial Sector Assessment Program conclusion that financial vulnerabilities appear to be contained, while household indebtedness is relatively high and there are signs of weaknesses in some corporates and small and medium-sized enterprises. Stress test results suggested the banking sector is resilient to severe shocks and that systemic and contagion risks stemming from interlinkages are limited.

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