GETTING BACK ON TRACK: REVIVING GROWTH AND SECURING PROSPERITY FOR ALL NOVEMBER 7, 2016 EACTF | EAST ASIA AND PACIFIC STANDARD DISCLAIMER This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank 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. COPYRIGHT STATEMENT The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, USA Telephone: 978-750-8400 Fax: 978-750-4470 http: //www.copyright.com/ All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher. The World Bank : 1818 H Street NW Washington, DC 20433, USA Fax : 202-522-2422 E-mail : pubrights@worldbank.org ACKNOWLEDGEMENTS This report was prepared by a World Bank Group team led by Lars Sondergaard (Program Leader), Helen Han (IFC) and Daniel Street (IFC) with the much appreciated contribution of Minna Hahn Tong (Consultant) in drafting and editing. The team comprised: Getting Back on Track: Reviving Growth and Securing Prosperity for All 4 The report relied on three main “building blocks”: analytical Peer reviewers for the report were: Ejaz Ghani (Lead Economist) work on poverty and inclusiveness of growth (prepared by and Somchai Jitsuchon (TDRI). a team lead by Xubei Luo and consisting of Reena Badiani- Magnusson; Theepakorn Jithitikulchai; Cecilia Poggi and Dilaka Useful inputs and comments were provided along the way by Lathapipat); analytical work on growth and trade (prepared by a several people, including Elise Vanormelingen, Ricardo Alfredo team consisting of Smita Kuriakose; Miguel Eduardo Sanchez Habalian Fattal, Christina Popivanova (from UNICEF) on the Martin; Kazi Matin, Dilaka Lathapipat, Thanapat Reungsri and child grant and Hugh Delaney (from UNICEF) on early child Shabih Ali Mohib); and analytical work on the environment and development. energy (prepared by a team consisting of Rome Chavapricha, Tijen Arin and Pajnapa Peamsilpakulchorn). The team also received valuable feedback on preliminary findings and messages at seven meetings (held in Bangkok, Consultations were organized with much guidance and support in Pattani; Udon Thani and Chiang Mai). Many thanks to the from our communications team consisting of Leonora Aquino more than 400 people who participated in these meetings and Gonzales; Ben Alex Manser; Yanawit Dechpanyawat; Buntarika provided their thoughts and suggestions on the storyline, and Sangarun; and Kanitha Kongrukgreatiyos. proposed priorities. Excellent administrative and report production assistance was Finally, the team benefitted from the guidance and insights of provided by Noppakwan Inthapan and Pimon Iamsripong. a technical government counterpart working group established to guide this work. The group was chaired by Boonchai Overall guidance was provided by Ulrich Zachau (Country Charassangsomboon and was comprised of members from Director), Salman Zaidi (Practice Manager, Poverty), Catherine the Bureau of the Budget, Fiscal Policy Office, NESDB, Bank Martin (Advisor, IFC), Daniel Street (IFC), Constantine Chikosi of Thailand, Public Debt Management Office, and the National (Operations Manager), Lou Scura (Program Leader) and Shabih Statistical Office. Ali Mohib (Program Leader).The team is grateful for their ongoing support and guidance provided. Thailand Systematic Country Diagnostic 5 EXECUTIVE SUMMARY THAILAND HAS ACHIEVED THESE GAINS DESPITE HIGH POLITICAL INSTABILITY. Since becoming a constitutional monarchy in 1932, Thailand has experienced 18 coups (the most recent on OVER THE PAST FEW DECADES, THAILAND HAS MADE May 22, 2014, as well as a few additional attempted TREMENDOUS PROGRESS TOWARD THE TWIN GOALS coups), with 18 different constitutions and 35 different OF ELIMINATING EXTREME POVERTY AND BOOSTING prime ministers (Malesky and Samphantharak, 2011). SHARED PROSPERITY. Nonetheless, Thailand maintained high growth rates and For more than a quarter century prior to the 1997 Asian continued to attract sizeable amounts of FDI, thanks financial crisis, Thailand’s economy grew at an average in large part to a strong bureaucracy that served as a annual rate of 7.5 percent, creating millions of jobs that buffer against political turmoil and to factors such as helped pull millions of people out of poverty. Extreme its hub location in Southeast Asia that made it relatively poverty as measured by the international extreme poverty attractive to foreign investors compared to its neighbors line (USD 1.90 per day, 2011 PPP) is no longer a concern in earlier years. for Thailand as a whole, falling from a rate of 14.3 percent in 1988 to less than 0.1 percent in 2013. Gains along multiple dimensions of welfare have been impressive: GROWTH HAS BEEN SLOWING, AND CONTINUED INSTABILITY COULD AFFECT FUTURE GROWTH AND PROSPECTS FOR per capita income has risen by 4.2 percent per year on SHARED INCOME GAINS. average in 2000-2013, many more children are now getting There are now indications that continued political many more years of education, and virtually everyone is instabilitymay start hurting Thailand’s growth prospects. now covered by health insurance while other forms of First, while Thailand’s governance indicators—most social security have expanded. Access to safe water and notably, voice and accountability and political stability— basic sanitation is almost universal, and mobility and have worsened in the past decade, they have improved connectivity have increased remarkably (UNDP, 2014b). among many of its neighbors. Second, the quality of the bureaucracy has worsened, while it has improved in neighboring countries. The “shock absorber” against political shocks is no longer as effective as it was. Getting Back on Track: Reviving Growth and Securing Prosperity for All 6 shared prosperity, despite low agricultural productivity MOREOVER, POVERTY AND INEQUALITY CONTINUE TO POSE SIGNIFICANT CHALLENGES. growth, is unlikely to be sustainable because agricultural As of 2014, 7.1 million Thais were still living in poverty (based prices have declined in 2015 and 2016 and are projected on the current national poverty line, or about USD 6.20 in to remain subdued in the years ahead. At the same time, 2011 PPP). Moreover, in 2013, an additional 6.7 million the manufacturing sector has stopped creating new jobs. were living within 20 percent above the national poverty Services have experienced the fastest pace of job growth, line and remained vulnerable to falling back into poverty.1 but have failed to show rapid productivity growth. Both household data and provincial-level data also paint a picture of non-income gaps between the poor and non- ANALYSIS UNDERTAKEN FOR THIS SCD SUGGESTS THAT THE poor, often persisting over time despite the rapid economic SIGNIFICANT SLOWDOWN IN THAILAND’S EXPORT GROWTH IN growth. Inequality has declined over the past three decades, RECENT YEARS IS DUE IN PART TO A LOSS OF MARKET SHARE IN but remains high compared with many countries in East LABOR INTENSIVE MANUFACTURING. Asia. Significant spatial disparities in household income Many labor-intensive and resource-based manufactured and consumption can be seen across and within regions of exports (20 percent of total exports) have become less Thailand. Pockets of poverty remain concentrated in lagging competitive, a trend that accelerated in 2010-14. In the regions such as the Northeast, North, and Deep South. face of rising wage rates, export items like textiles, footwear, leather products, and wood products have been losing export markets. This is also reflected in manufacturing value added SLOWER GROWTH THAN IN THE PAST, IF IT CONTINUES, WILL where laborintensive and resource-based subsectors have CONSTRAIN FURTHER PROGRESS IN REDUCING POVERTY AND declined, contributing in part to stagnating manufacturing PROMOTING INCLUSION. employment in recent years. Historically, economic growth has been the key driver of poverty reduction in Thailand. More recently, growth has fallen from an average annual rate of more than 9 percent in THAILAND HAS LOST THE COMPETITIVE EDGE IT ONCE ENJOYED the boom years of 1986-96 to less than 3 percent a year in OVER ITS PEERS AND OTHER COUNTRIES IN THE REGION. the last two years. Looking ahead, the World Bank forecasts Comparing Thailand’s Global Competitiveness Score growth of 3.2 percent for 2016-18, and the IMF projects (compiled by the World Economic Forum) in 2006/07 and that growth will dip to 3.0 percent by the year 2021 (WEO, 2016/17 is telling (Figure 1). Ten years ago, Thailand looked October 2016)—well below the projected growth rates of strong and healthy on all the dimensions tracked by the other upper middle income countries in ASEAN as well as World Economic Forum. It stood out relative to ASEAN, upper- China and India. middle-income countries, as well as its structural peers, and it even looked impressive relative to high-income countries.2 Today, however, Thailand no longer stands out—the pack THE KEY ENGINES THAT DROVE PAST GROWTH HAVE LOST STEAM OR ARE UNSUSTAINABLE. of other countries has caught up with it on virtually all The engine that delivered most of the productivity gains in dimensions. Over the past decade, mega projects that could the past—the movement of people from the low-productivity have relieved infrastructure constraints and made Thailand agricultural sector into higher-productivity jobs, particularly the hub of ASEAN did not get off the ground. Thailand also in the manufacturing sector—lost steam almost a decade did not seize its “head start” to invest in its institutions and ago. Furthermore, recent progress in creating shared in innovation to make its universities the envy of the region prosperity is largely related to temporarily record-high and its businesses world-class. agricultural prices, caused by both a global commodity price boom and domestic policies, which have helped raise farm wages but without the corresponding productivity 1 Official aggregate poverty numbers for 2014 are available but not the growth. The contribution of rising farm incomes to boosting household level poverty numbers which the World Bank team behind this report uses to analyze trends, and regional variations. As such, this report has only been able to analyze trends through 2013. 2 The structural peers selected for this report are: Bulgaria, China, Colombia, Malaysia and Mexico. Thailand Systematic Country Diagnostic 7 FIGURE Global Competitiveness, score (7=best) 1: 2006/07 2016/17 Source: World Economic Forum’s Global Competitiveness database.3 TOGETHER, ANALYTICAL WORK FOR THIS SYSTEMATIC COUNTRY workforce; implementing effective policies to boost productivity DIAGNOSTIC (SCD), A LITERATURE REVIEW, AND FEEDBACK in the agricultural sector, where approximately half of the FROM CONSULTATIONS INFORMED THE PRIORITIZATION OF TEN bottom 40 percent of the population and the poor continue to “DEVELOPMENT PRIORITIES” FOR ENSURING STRONG, SHARED, be employed; and providing a smarter social protection system AND SUSTAINABLE GROWTH IN THAILAND. focused providing a safety net for poor people. One of these priorities is cross-cutting while the remaining 9 are grouped into three “pathways”. As the table below shows, four of (iii) Making growth greener and more sustainable, which these priorities have been singled out for their likely high impact includes efforts to manage Thailand’s natural resources and on improving the lives of the bottom 40 percent. All of the priorities environment; reduce vulnerability to natural disasters and aim to address some of Thailand’s most pressing challenges and climate change; and promote energy efficiency and renewable make the most of its opportunities, while mitigating some of the energy. identified risks that could undermine future progress. FINALLY, THESE THREE PATHWAYS COULD BE SUPPORTED BY IN MORE DETAIL, THE THREE PATHWAYS ARE: CROSS-CUTTING EFFORTS TO STRENGTHEN THE INSTITUTIONAL (i) Creating more and better jobs through improved infrastructure, CAPABILITY OF THE PUBLIC SECTOR. WITHIN EACH PATHWAY, more competition, and increased firm-level competitiveness. POLICY PRIORITIES AND SPECIFIC INTERVENTIONS ARE PROPOSED, AS LAID OUT BELOW. (ii) Providing more targeted support to the bottom 40 percent of the population by improving the education and skills of the 3 www.weforum.org/gcr, accessed on October 7, 2016. Getting Back on Track: Reviving Growth and Securing Prosperity for All 8 TABLE Development priorities for ensuring strong, shared, and sustainable growth 1: Thailand Systematic Country Diagnostic 9 PATHWAY 1 : CREATING MORE AND BETTER JOBS IN PARTICULAR, MORE AND BETTER INFRASTRUCTURE IS NEEDED TO PROVIDE ADEQUATE INPUTS AND CONNECTIVITY TO THE PRODUCTIVE SECTOR. Thailand has had difficulty preparing and implementing major infrastructure investment programs, and improving the capacity to foster both public and private investment in infrastructure will be important. The Government could focus on its infrastructure development plans to attract private sector investments in a more concerted manner. As discussed in the 11th and 12th National Economic and Social Development Plan, Thailand’s new infrastructure and logistics development plans could cover the following: encouraging the development of multimodal transportation, facilitating cross-border trade, enhancing the efficiency of logistics and transport management systems, improving railways, modernizing the public transportation network, and introducing high-speed communication and egovernment services. The Government has recognized that Public Private Partnerships should play a more important role in infrastructure delivery going forward. The introduction of the A NEW AND IMPROVED ENGINE IS NEEDED TO GENERATE NEW 2013 Private Investment in State Undertaking Act B.E. 2556 SOURCES OF GROWTH AND CREATE MORE AND BETTER JOBS. (PISU Act) has improved the regulatory environment to foster Thailand needs to find a new engine that can deliver results like infrastructure investment through Public Private Partnerships, the locomotive that drove the boom in 1986-1996—an engine though progress in project implementation has been slow. A five that sustainably and consistently creates opportunities for year Strategic Plan for Public Private Partnerships was approved millions to improve their livelihoods. This will involve restoring the in 2015 4, with 66 projects in the pipeline worth THB 1.41 trillion, competitive edge Thailand has lost, through better infrastructure, the majority in the transport sector, five of which have been more competition, and an emphasis on 15 boosting firm-level approved for fast track implementation. competitiveness. Creating lots of low-skilled jobs is no longer an option (nor would it be a desirable option for Thailand); those jobs will increasingly be created in places such as Cambodia, Vietnam or Myanmar. Instead, Thailand needs to upgrade its industries and service sector and create high value-added jobs that require more skills. This will be challenging and require substantial investments in terms of physical capital as well as investments in improving the business and institutional climate. 4 http://www.unescap.org/sites/default/files/PPP%20Thailand-sent.pdf Getting Back on Track: Reviving Growth and Securing Prosperity for All 10 POLICIES AIMED AT INCREASING THE LEVEL OF COMPETITION GREATER TECHNOLOGY ABSORPTION AND INNOVATION TO WILL ALSO BE IMPORTANT FOR ENSURING STRONG AND BOOST FIRM-LEVEL COMPETITIVENESS IS ALSO KEY. SUSTAINED ECONOMIC GROWTH. In particular, Thai enterprises could leverage greater spillovers Although Thailand has a relatively open economy overall, from FDI to help them upgrade and innovate. Building the some subsectors—particularly in services—are more capabilities to enable Thai firms to upgrade and innovate is now a protected from import and domestic competition. Deeper priority, which calls for a strengthening of the national innovation trade integration will be critical for fostering competition, system, greater emphasis on developing a skilled workforce, facilitating innovation and technology spillovers, and and increased investment in research capital and institutions opening up new opportunities, such as through the ASEAN that would promote the deepening of the knowledge economy. Economic Community (AEC) or the new mega agreements Thai firms also need to build their competencies in higher- currently being introduced in Asia (such as EU-FTAs, TPP, value-adding niche sectors, taking advantage of their existing RCEP, and FTAAP). Ensuring more access to finance capabilities. Moving up the value chain will entail undertaking will also help increase competition—if firms face fewer more complex functions such as design, research and obstacles in getting credit and capital, and if there are development, and branding. It requires moving from the export good mechanisms for resolving financial distress, firms of low-value parts and components to higher-value products are better placed to improve productivity and maintain and services and also to final manufactures. This would be sustained levels of private investment. Introducing particularly relevant for Thai SMEs which, while dominating competitive neutrality in Thailand’s SOEs will also be the landscape of firms, have seen a continuous decrease in important for providing a level playing field, avoiding their contribution to GDP during the past 12 years from 41.3 crowding out of private firms, and improving the efficiency percent of GDP in 2002 to 37.4 percent in 2013. Moreover, the of the SOE sector. productivity gap between SMEs and larger firms has widened. As the gap in productivity between small and large firms is significant, improving productivity in smaller firms will take extra effort because their turnover rates are high (70 percent fold up after a few years). Thailand Systematic Country Diagnostic 11 PATHWAY 2: PROVIDING MORE SUPPORT TO THE BOTTOM 40 PERCENT THAILAND’S LAGGING REGIONS PRESENT RISKS TO SOCIAL IMPROVING ACCESS TO HIGH-QUALITY EDUCATION IS A TOP COHESION AND POLITICAL STABILITY. PRIORITY FOR ENABLING THE POOR AND BOTTOM 40 PERCENT The tensions in Thai society - that culminated with the coups TO BENEFIT FULLY FROM GROWTH, AS WELL AS IMPROVING in 2006 and again in 2014 - reflect a deeply divided society. THAILAND’S ECONOMIC GROWTH PROSPECTS. These divisions, in part, reflect growing regional disparities. For individuals, having the necessary skills and competencies The lagging regions are falling further behind. Empowered to obtain productive employment can help them secure by more education, by broader horizons gained from labor a better future and, for those who are poor, help them migration, and supported by a strong and vocal network of break out of the cycle of poverty. A better-educated and civil society organizations, people from these lagging regions skilled workforce is also critical to Thailand’s economic have become a far more potent force in Thailand than in the growth prospects, as the strong growth Thailand needs in past. They can point to their regions falling further behind; competitive skillintensive exports will depend on having a and to a system of government that is Bangkok-centric - in stronger human capital base. A recent firm survey shows terms of both the centralization of decision-making power; as that manufacturing firms are considering the lack of skilled well as the distribution of budgetary resources. Unless more workers a top constraint for further growth. Worrisomely, efforts and resources are directed to narrowing Thailand's according to the Global Competitiveness Indicators, the regional gaps, the underlying tensions will likely persist or quality of Thailand’s education system is perceived to have worsen, fuelling discontent and political divisiveness. worsened relative to its upper middle income peers (and ASEAN neighbors). Given its poor performance, virtually all dimensions of Thailand’s education system need further MORE TARGETED SUPPORT WILL BE CRITICAL TO IMPROVE THE attention and reforms. Still, three reforms areas seem of LIVELIHOODS OF THE BOTTOM 40 PERCENT OF HOUSEHOLDS, critical importance in the immediate future: first, investing AND IT CAN ALSO TO HELP FOSTER SOCIAL COHESION AND more in the early years of children’s lives with an effort to STABILITY MORE GENERALLY. dramatically improving access to quality ECD services for International evidence shows how inequality and social the poor. Second, addressing Thailand’s problems with tensions can lead to political conflict and unrest. Likely, the small schools where approximately 1 million (mainly poor) current sharp political divisions and tensions in Thailand have children, on average, are currently getting an inferior quality their roots in a growing sense that economic prosperity has education. Three, broader and sustained education reforms not been widely shared and/or everyone does not have equal along multiple dimensions are also needed to improve opportunities in society. More targeted support for the bottom outcomes, including: increasing school autonomy and 40 percent—namely, through improved education; better strengthening the use of information to hold teachers and agricultural policies; and building a smarter social protection schools accountable for performance. system which focuses on providing a safety for poor people — is thus an important priority in terms of having a large impact on the bottom 40 percent as well as helping to strengthen social cohesion and maintain greater political stability. Getting Back on Track: Reviving Growth and Securing Prosperity for All 12 A KEY PRIORITY IS TO BUILD A SMART SOCIAL PROTECTION SYSTEM THAT MEETS THE NEEDS OF THE POOR AND THE MOST VULNERABLE, WHILE ENSURING FISCAL SUSTAINABILITY. Thailand stands out in contrast to many upper middle income countries by not having a generalized safety net program for the poor.5 Developing a backbone national social safety program for the poor – incorporating design lessons from international experience – would go a long way in terms of providing support to vulnerable groups and, likely, help reduce social tension. In more detail, such a program would be based on a number of principles: first, a targeting method would be needed to identify who are poor (and near poor) households using their key income and non-income characteristics. Second, the information collected from households could be consolidated into a social RAISING LABOR PRODUCTIVITY IN THE AGRICULTURAL registry which would be the basis for identifying beneficiaries SECTOR REMAINS OF CRITICAL IMPORTANCE, NOT ONLY FROM for any safety net benefit and other targeted programs. Third, THE PERSPECTIVE OF BOOSTING INCOMES OF THE BOTTOM 40 design of a national safety net program for poor households PERCENT BUT ALSO FROM A GROWTH PERSPECTIVE, GIVEN THAT AGRICULTURE STILL ACCOUNTS FOR ABOUT 11 PERCENT would be important, including “graduation pathways” to promote OF GDP. program exit and sustainable livelihoods where possible. Finally, Higher agricultural growth would not only increase GDP directly, to ensure that any safety net programs is fiscally sustainable, but it would also provide positive spillovers to agribusinesses and it will be important to re-examine the broader social protection the food processing industry and stimulate regional development. system, including revisiting the generosity of existing contributory Agricultural growth can also help reduce rural poverty, often pensions, matching pension schemes and social pensions more than any other sector, would appropriate policies and in order to see how fiscal space might be created for such a programs be put in place. Higher pro-poor agricultural growth program. depends on improvements in agricultural policy, including: (i) the development of a better-functioning land rental market, (ii) increased efficiency and sustainability of irrigation investments, and (iii) more and better funding of agricultural research and extension programs, and (iv) the move away from commodity support programs such as for rice and rubber toward broad- based agricultural and food policy. More effort is also merited in the hotspots of rural poverty, especially in northeast of the country, where agricultural programs need to be better designed (including around strong partnerships with civil society) to lift a large number of smallholders farmers out of poverty. 5 E.g. all of the “structural peers” selected for comparison purposes throughout this report have such generalized social safety nets targeted at poor people. Thailand Systematic Country Diagnostic 13 PATHWAY 3: MAKING GROWTH GREENER AND MORE RESILIENT ENSURING THE SUSTAINABILITY OF GROWTH AND THE REDUCING VULNERABILITY TO NATURAL DISASTERS AND LIVELIHOODS OF THE BOTTOM 40 PERCENT WILL DEPEND TO A CLIMATE CHANGE WILL BE IMPORTANT FOR CONTINUED GROWTH LARGE EXTENT ON THAILAND’S ABILITY TO IMPROVE ENERGY AND SHARED PROSPERITY. EFFICIENCY, AND MAKE GROWTH GREENER AND MORE RESILIENT. The 2011 flood clearly showed the extent of damage natural Green growth decouples growth from heavy dependence on disasters can inflict on Thailand’s economy and the bottom resource use, carbon emissions, and environmental damage. 40 percent. As a low-lying country, Thailand is expected to It also promotes growth through the creation of new green suffer from more frequent coastal flooding—with the impact product markets, technologies, investments, and changes in area including central Thailand and Bangkok—as well as consumption and conservation behavior. Green growth will more pronounced droughts around the agriculturally important be critical for ensuring the availability of resources to power Mekong region and saline intrusion as a result of climate future growth while protecting Thailand’s wealth of natural change.6 Thailand recently took a number of steps to identify resources for future generations. For instance, Thailand’s a policy agenda for enhancing climate resilience, including a ability to attract nearly 30 million visitors annually (providing National Adaptation Plan under development. Further work in a 12 percent of annual GDP) hinges on its ability to conserve its number of areas will be important: first, better land zoning and beautiful coastal areas and coral reefs. management is needed to reduce the flood-drought prone areas. Specifically, deforestation in the upper reaches increases the risk of flash floods and sediment loads in rivers, while reducing IMPLEMENTING EXISTING OR PROPOSED PLANS CAN GO A LONG WAY TOWARD PRESERVING THAILAND’S NATURAL RESOURCES storage and drainage capacity. Lack of careful planning for public AND ENVIRONMENT. infrastructure (roads, floodways, etc.) and urban/industrial Forest and fishery depletion is continuing, water shortages on the areas exacerbate the risk of flooding. Second, to achieve its one hand and floods on the other hand are increasing concerns. commitments to reduce carbon emissions, timely and effective To manage “brown” environment (air, water, waste) problems, policies, market-based instruments, and cooperation with the Thailand can draw on the plans and regulations it has already private sector will all be important. in place. Pushing forward with the implementation of the plans is now key. Importantly, flood and drought risk management could be strengthened by being less reactive. In addition, understanding and mitigating the potential environmental and health impacts arising from necessary large-scale public investments in an inclusive manner will be important to ensure the viability and sustainability of such investments. 6 For more details, please see Intergovernmental Panel on Climate Change’s fifth assessment (available at http://www.ipcc.ch/report/ar5/wg2/). Getting Back on Track: Reviving Growth and Securing Prosperity for All 14 SEVERAL CONCRETE EFFORTS COULD ACCELERATE THE SHIFT TOWARD MORE ENERGY EFFICIENCY AND CLEANER ENERGY First, targeted efforts in the major energy-consuming sectors, i.e. manufacturing and transport, could contribute significantly to the government’s goal. In the transport sector, key measures will involve improving vehicle fuel efficiency and expanding infrastructure investment to promote greater use of rail transport. Other efforts will include more stringent regulations of large factories and buildings, strengthening the capacity of the industry to adopt low global warming and energy efficient technologies, improving energy efficiency standards for buildings and appliances and their enforcement, and greater use of demand side management measures. Moreover, adopting new and innovative measures – such as energy efficiency resource standards among power producers, performance-based EE incentives – will also help induce new investment and adoption of new and more efficient technology. Second, avoiding energy price and demand distortion by maintaining the current pricing/ subsidies policies. By March 2016, subsidies for most petroleum MAKING GROWTH GREENER WILL INVOLVE IMPROVING ENERGY products have been lifted, excise taxes have been largely EFFICIENCY AND RELYING ONCLEANER SOURCES OF ENERGY. reinstated for petroleum products, subsidies for electricity are The best fuel for improving green growth is energy efficiency. limited to very small “life line” consumption for households. Thailand is growing on an energy-intensive path, and high Third, given that Thailand will increasingly have to import its energy demand growth is expected to continue in the electricity, Thailand could take a leading role in power grid code future. Making the economy more energy-efficient will be harmonization and take a leading initiative in the design of power important for coping with energy supply constraints. It has market rules to facilitate commercialization of power trade both been estimated that in 2012, 73 percent of Thailand’s bilaterally and multilaterally in the Greater Mekong Subregion emissions came from the energy sector. In 2015, Thailand and ASEAN. Similarly, for natural gas, Thailand energy authorities pledged to reduce its carbon emissions by 20-25 percent could take an active role in optimizing and collaborating on from their 2005 levels7, while the Power Development Plan natural gas procurement among the current regional gas trading (PDP) for 2015-2036 pledges to increase renewable energy countries such as China, Malaysia, Myanmar, Singapore and so it comprises up to 20 percent of overall power supplies. Thailand. Thailand can also help bring global good practice in Nevertheless, the PDP also proposed to build 7,390 MW developing power infrastructure projects in countries with less of coal-fired power plants and 2,000 MW of nuclear, which experience than Thailand. raised strong environmental and social concerns. 7 Thailand made the commitment at the twenty-first session of the Conference of the Parties (COP-21) as part of the United Nations Framework Convention on Climate Change Conference (UNFCCC). Thailand Systematic Country Diagnostic 15 CROSS-CUTTING PRIORITY: STRENGTHEN THE INSTITUTIONAL CAPABILITY OF THE PUBLIC SECTOR TO IMPLEMENT REFORM PRIORITIES FINALLY, STRONGER INSTITUTIONAL CAPABILITY OF THE PUBLIC SECTOR TO IMPLEMENT REFORMS WILL BE ESSENTIAL TO MAKING PROGRESS ON THE THREE PATHWAYS DESCRIBED Thailand will need to ensure that it has the institutions (and people) to help provide an environment in which more and better jobs are created. It will also need strong institutions that can deliver the new programs to improve Thailand’s infrastructure, provide more targeted support for the bottom 40 percent, and implement politics and programs for cleaner growth. THE THAI AUTHORITIES HAVE LAUNCHED SEVERAL PROMISING INITIATIVES TO REVIVE ECONOMIC GROWTH. THE IMPACT OF THESE INITIATIVES WILL DEPEND ON SUCCESSFUL IMPLEMENTATION. Successful implementation, in turn, will not only take political will; it will also require improving the institutional capacity of the public sector to formulate and implement multiyear infrastructure programs. A few examples include: the government may consider comprehensively revamping and modernizing the Public Investment Management (PIM) system. Further strengthening of the procurement system would also help ensure efficient GETTING THAILAND BACK ON TRACK WILL ALSO INVOLVE OVERCOMING THE GOVERNANCE CHALLENGES THAT LED TO implementation of public projects and the achievement THE POLICY AND IMPLEMENTATION STALEMATE OVER THE PAST of savings for public finances. In light of the planned DECADE. mega projects that could resuscitate growth, reviewing The gridlock among political groups in Thailand has its public procurement systems and allowing for innovative roots in the widening gaps in Thai society; a perception approaches such as turnkey contracting would be useful. that a ruling elite has benefitted from significant levels Stronger capacity to deliver new programs will also be of corruption, an unfair judicial system has favoured needed for successful delivery of more targeted support those with money, and government regulations (and for the bottom 40 percent and for the implementation of concessions) that have protected vested interests at environmental policies and programs. the expense of encouraging growth and job creation. This gridlock has impeded decision-making, prevented the effective implementation of public investment, and blocked efforts to liberalize key sectors, especially the service sector. Getting Back on Track: Reviving Growth and Securing Prosperity for All 16 OPPORTUNITIES TO GET BACK ON TRACK THESE INITIATIVES ARE PROMISING SIGNALS THAT THAILAND IS EDGING BACK ON TRACK, BUT THEIR IMPACT WILL DEPEND ON THE QUALITY OF IMPLEMENTATION. Launching good policy initiatives is a first important THAILAND IS WELL-POSITIONED TO REVIVE GROWTH AND step; successfully implementing the initiatives is what is ENSURE PROSPERITY FOR ALL. required to transform Thailand’s economy. Only time will The country is strategically well-located, surrounded by tell whether Thailand will seize the opportunity to revive countries with rapidly growing economies and an ample growth and secure prosperity for all. supply of labor. The ASEAN Economic Community (starting on Jan 1, 2016) is strengthening trade and other linkages. As the second-largest economy in ASEAN (after Indonesia), Thailand has a strong starting position in terms of an agile business sector, a historically strong civil service, and a large cohort of young people in their 20s and 30s with a tertiary education. Importantly, analysis shows that Thailand has considerable potential to increase productivity in the future: the differences in labor productivity across sectors and subsectors in manufacturing and services (see Klyuev, 2015 and Figure 2) are higher than for many countries in the region, indicating significant potential for increasing aggregate productivity. Similarly, high differences in productivity levels across manufacturing and across service subsectors (Klyuev, 2015; Dheera-aumpon, 2014) indicate considerable scope for increasing within-sector productivity through intra-sector reallocation of capital and labor. A NUMBER OF RECENT POLICY INITIATIVES GIVE RISE TO SOME OPTIMISM. These include a focus on 10 industries as “new engines of growth” (so-called “S-curve industries”); the creation of an Eastern Economic Corridor; and the launch of a major push for the creation of an electronic payment system. Thailand also introduced a child grant for poor families with newborns in 2015. There has also been a major push to bring more SMEs into formal economy by providing them with incentives to move towards a single financial account. Moreover, the Government has transferred responsibility of supervision and regulation of State Financial Institutions to Bank of Thailand. And, finally, a number of large-scale infrastructure investments – many of which have been on the drawing boards since the early 2000s – have gotten underway. Thailand Systematic Country Diagnostic 17 FIGURE The differences between labor productivity FIGURE Thai labor productivity is comparable to 2 : in agricultural and nonagricultural sectors 3 : ASEAN-5 countries but only half of the level are much bigger in Thailand than elsewhere in Malaysia and Turkey (USD’000/worker) , reference Note: GDP at constant basic prices per worker, using 2011 PPP year 2013. , reference Note: GDP at constant basic prices per worker, using 2011 PPP 1/ Calculated using total number of workers year 2013. 2/ Calculated using World Bank calculations of fulltime equivalent Source: APO Productivity Database 2015. workers Source: APO Productivity Database 2015 and Labor Force Survey (for calculation of “Thailand 2/”). Getting Back on Track: Reviving Growth and Securing Prosperity for All 18 CHILDREN’S DREAMS FOR THAILAND As part of the government’s consultations for their 12th National Economic and Social Development Plan, it organized a drawing competition for school children from across the country. The children were asked to draw under the title “Your Dream for Thailand”. Some of the common themes in the drawings were the wish for Thailand to be united and peaceful though there are differences in nationality, culture and religion; to take better care of the environment; and for children to be educated for a brighter future. Below are two of the winning drawings and the comments from the artists who drew them. RAKPLOY MAMUI AGE: 10 I GRADE: 4 JUTHAMANI KAMDAM AGE: 10 I GRADE: 6 “Children are reading books eagerly and going to the library, “The Thai way of life is close to nature, culture, and tradition. which is a source of knowledge. They will help drive Thailand’s Though we are diverse in religion and culture, everyone still lives development in the future.” together in harmony and peace. These values will unite all Thais together to cooperate for a prosperous and developed Thailand.” Thailand Systematic Country Diagnostic 19 World Bank Thailand 30th Floor, Siam Piwat Tower 989 Rama I Road, Pathumwan Bangkok 10330 Tel: +662 686-8300 Email: thailand@worldbank.org www.worldbank.org/thailand facebook.com/worldbankthailand