Asian Angle | Thailand needs economic reform, not stimulus

The Covid crisis did not merely reduce the number of tourists entering Thailand, but also caused a decline in their average spending. According to Thailand’s balance of payments data, spending per tourist has dropped markedly from pre-Covid levels. In the third quarter of 2019, tourists spent 45,700 baht (US$1,235) on average. In the same period last year, it was 31,700 baht, a contraction of almost one-third, even in purely nominal terms. So it is important to note that restoring tourist numbers to their pre-Covid levels will not fully restore income from tourism.

The economic contribution of tourism is often exaggerated, with claims that it accounts for as much as 20 per cent of Thailand’s gross domestic product. These claims mistakenly treat the total revenue received from tourists as if it were value-added. In reality, the value-add of an industry is calculated by subtracting the value of all the intermediate inputs it uses from its total revenue. GDP is the sum of the value-add of all industries. The true value-add generated by tourism in Thailand is unknown. It’s undoubtedly significant, but far less than 20 per cent of GDP.

Thailand’s poor growth performance started well before the pandemic hit. During the period from 1970 and 1996 Thailand’s average growth rate of real GDP, adjusted for inflation, was above 7 per cent. GDP contracted during the 1997-99 Asian Financial Crisis, and growth has been around 4 per cent since – and falling. Soon after taking office, government representatives announced that Thailand was “crying out for economic stimulus” as a means of raising the growth rate. This is a mistake.

John Maynard Keynes, the renowned economist, believed that when a country’s productive capacity is not being fully utilised, as reflected in unemployment and unused equipment, government stimulus can be an effective way to restore demand and achieve full employment.