By Skye Ferguson
The COVID-19 pandemic sent shockwaves through Thailand’s economy, exposing vulnerabilities in its heavy reliance on tourism and external demand. With the number of visitors falling from a record 39.9 million in 2019 to 428,000 in 2021, the nation faced a 6.1% fall in GDP in 2020, the largest contraction since the Asian financial crisis. Tourism, which accounts for about a fifth of GDP and 20% of employment, ground to a halt, leaving millions without income and exacerbating existing inequalities. Now, as Thailand navigates the path to recovery, questions remain: can it overcome the economic scars left by the pandemic and chart a course toward resilience? And more importantly, how can it reduce its dependence on volatile sectors to ensure sustainable growth in the future?
Thailand’s current economic landscape
The nation’s economy is now showing signs of recovery, but it remains fragile. Growth is projected to accelerate from 1.9% in 2023 to 2.4% in 2024, supported by sustained private consumption as well as tourism and goods exports recovery. However, following the removal of Prime Minister Sretta Thavisin in August this year, investors were stunned and forced to put their investments on hold, at a time when it is crucial for the country to quickly restore confidence and attract new investments. Kriangkrai Thiennukul, chairman of the Federation of Thai Industries, said that “frequent changes in political parties have disrupted the continuity of government policies”, underscoring the detrimental impact of Thailand’s unstable political environment on the country’s economic recovery.
Thailand spent heavily on relief measures during the Covid-19 period, hiking public debt from 42% of GDP in 2019 to almost 60% of GDP in 2021. In 2020, the government announced a $71.2bn Covid response package representing almost 13% of GDP that focused primarily on providing relief to the most vulnerable households and small to medium-sized enterprises. This heaving spending has both costs and benefits to the economy, as shown by the rise in public debt but also that the relief programme prevented millions from slipping into abject poverty and assisted many who had been neglected under former pro-poor policies. This approach, though, has left Thailand with limited fiscal space to address emerging challenges, such as aging infrastructure and labour shortages, while also managing the rising costs of debt servicing. As such, this may pose issues to the country’s long-term, sustainable growth, as I will discuss later.
Thailand’s informal sector, which comprises 62.6% of the workforce, remains particularly vulnerable. Many workers in this sector have yet to return to income levels seen before the crisis, perpetuating inequality and limiting domestic consumption. In a survey of workers in Bangkok, home-based workers, motorcycle taxi drivers, massage therapists, street vendors, and waste pickers were all earning less than 40% of their pre-pandemic median earnings. The struggles of the informal sector exemplify the uneven nature of Thailand’s recovery. Addressing this requires a strategic and inclusive approach, which balances immediate relief with long-term reforms. As Thailand charts its path to recovery, the government must implement policies that not only stabilise the economy but also build resilience against future shocks. From fiscal measures that support vulnerable sectors to structural reforms aimed at diversification and innovation, targeted actions will be essential.
Policy measures: steering the recovery
Thailand’s government has already taken several steps to address the economic fallout of the pandemic and lay the groundwork for recovery. As mentioned previously, the $71.2bn Covid response package including cash transfers for low-income households and support for SMEs has indeed been successful in supporting many Thai households and enterprises, throughout the pandemic downturn. But this was not the only measure taken, with a major one, the “Phuket Sandbox” program, targeting the revival of tourism in 2021. It allowed fully vaccinated tourists from low to medium risk countries to visit without mandatory quarantine, by staying in Phuket for at least 14 days before being allowed to visit other Thai destinations. This allowed a gradual revival of tourism, which was hugely beneficial to the at least 7 million workers dependent on tourism in the country. This demonstrates as I have outlined earlier, how tourism is a huge contributor to Thailand’s GDP, and so the program has been hailed a success. However, even though immediate challenges were addressed, the need for the “Phuket Sandbox” initiative underscores the nation’s reliance on tourism, emphasising the need for economic diversification moving forward.
Looking to the future, though, the government has laid out ambitions plans to drive longer-term, sustainable economic growth even beyond a full recovery from the pandemic. The Thailand 4.0 economic development plan aims to transform Thailand into a high-income country by 2030, focusing on digitalisation and innovation. The Eastern Economic Corridor (EEC) is a special economic zone in eastern Thailand that is intended to be developed into a hub for high-tech industries and innovation. The plan is focussed on attracting foreign direct investment, and as highlighted investment is crucial to complete the country’s economic recovery, but also for building a more resilient and diversified economy that is less vulnerable to global shocks. If successful, the Thailand 4.0 plan stands a chance to emerge as a more innovative and resilient economy, but this does not come without challenges.
Addressing key challenges
Thailand’s recovery strategies are ambitious and have the potential to transform the economy, but addressing structural challenges is essential to achieving long-term growth and resilience. The political instability that has plagued the nation in recent years continues to deter foreign investment and disrupt government policy continuity. Without a stable political environment, plans like Thailand 4.0 risk delays or incomplete execution, which could undermine their intended impact.
Another pressing issue is the country’s labour market. Those in the informal sector have arguably been the hardest hit workers in the country, with approximately 95% of them indicating that they faced economic insecurity because of diminished income during the pandemic. Integrating these workers into the formal sector is not only crucial for improving incomes and reducing inequality, but also for strengthening domestic consumption as a driver of growth. However, achieving this integration remains a complex hurdle. Investing in education and upskilling initiatives, particularly in digital and technical skills, will be important to ensure that the workforce can adapt to the demands of high-tech industries and innovation-led growth strategies.
To realise its vision, Thailand must balance fiscal discipline with the need for public investment in critical areas like infrastructure, education, and innovation. While high public debt constrains the government’s ability to fund these initiatives, efficient policy implementation and careful prioritisation of resources can help overcome this limitation. By focusing on long-term goals and leveraging its existing strengths, Thailand can position itself for a more resilient economic future.
Conclusion
Thailand’s journey toward economic recovery is marked by both promise and challenges. While significant strides have been made through targeted relief measures, tourism revival initiatives, and ambitious plans like Thailand 4.0, the nation’s path forward depends on its ability to address structural weaknesses. Political stability, labor market reforms, and investments in innovation and education will be critical to ensuring sustainable and inclusive growth.
The pandemic revealed Thailand’s vulnerabilities but also provided an opportunity to reimagine its economic trajectory. By diversifying its economy, embracing innovation, and building resilience, Thailand has the potential not just to recover but to thrive in a post-pandemic world. With strategic focus and effective implementation, the nation could transform its challenges into stepping stones for a more robust and prosperous future.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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