The World Bank in Thailand 51608 Development in Partnership April 2009 the Wor ld Bank 's ac tivities in Thailand a nd other news related to development THAI ECONOMY FALLS MORE THAN EXPECTED BANGKOK, April 2009 ­Thailand's economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade. As a result, the World Bank has revised its forecast for the country's gross domestic product in 2009 to a 2.7 percent contraction, down from the 2 percent growth projected in the previous forecast. The contraction would be Thailand's first since 1998, said Mathew A. Verghis, the World Bank's Lead Economist in Bangkok. It would follow a decade of growth averaging nearly 5 percent each year. "Countries like Thailand that have been dependent on manufacturing exports are most affected," said Verghis, who covers Thailand and four other Southeast Asian countries. The World Bank released its latest forecasts for Thailand and other economies in East Asia and Pacific on Tuesday. The global economic slump shut down what has been, for the past three Frederico Gil Sander, the lead author of the decades, the main engine for Thailand's economic growth: exports. As a April 2009 edition of Thailand Economic result, the manufacturing sector has been badly hit. Monitor The Thai government estimated that one million or more this package focuses on public investment in workers would lose their jobs this year due to the slowdown. infrastructure projects, which the government In January, the unemployment rate stood at 2.4 percent of hopes will help create 1.6 million jobs. the total workforce ­ a full percentage point higher than the "The infrastructure investments, if implemented, 1.4 percent recorded in December 2008. will help generate growth and improve Thailand's "With unemployment on the rise, the number of people living competitiveness," said Verghis. "However, it is under the poverty line will likely increase," said Frederico Gil worth noting that financing for infrastructure has Sander, the lead author of the April 2009 edition of Thailand been available for the past few years. What has Economic Monitor, the World Bank's bi-annual review of suppressed investment was not funding, but rather the Thai economy. political and institutional constraints." "Employment opportunities for workers in the urban informal While the impact on the real sector has been sector, such as contract workers in manufacturing, in larger than expected, the global crisis has not construction, and in tourism are shrinking, and it is unclear shaken the Thai financial sector. The World Bank if they can go back to agriculture. As the government plans attributed this to Thailand's strong macroeconomic another economic stimulus program, considerations should be fundamentals; low external debt coupled with given to measures that will boost employment and specifically high international reserves; and a sound financial target these workers," he said. sector, which has undergone a series of reforms following the 1997 crisis. In January, the Thai government announced an economic stimulus program totaling 117 billion baht ($3.34 billion). The So far, the Thai government has enough capacity program included a host of short-term measures to boost to finance the first economic stimulus package and household consumption and assist lower-income families. the three-year public investment plan. In the face The government is now preparing a second stimulus package of shrinking revenues, the government estimates worth 1.6 trillion baht ($45 billion). Among other initiatives, its budget deficit to be about 525 billion baht, or Continue on page Page 1 Continued from page 1 6 percent of Thailand's said Senior Economist, Kirida Bhaopichitr. gross domestic product, The World Bank has recommended that the in the fiscal year ending government and the private sector work closely September 2009. It is together to explore new markets for Thai also seeking loans from exports and increase the value-added content domestic and external of Thai products. Investment to improve public sources to shore up the infrastructure and the skills of Thai workers will budget and support also be instrumental to Thailand's success, she planned investment. added. However, the World "It is also important that the government develop Bank cautioned that, for a comprehensive social protection framework to public debt to remain ensure that, in the future, it will be easier to increase manageable, budget assistance where needed and avoid duplicative deficits will need to be programs," Kirida said. reduced over the next few years and growth needs to return its long-term average, highlighting the importance of using the crisis as an The April 2009 Thailand Economic Monitor is available opportunity to enhance growth prospects. for download at www.worldbank.or.th Thailand also must be prepared for changes in the global economic landscape that will come after the crisis subsides, CHANCE OF A BOTTOMING OUT IN CHINA PROVIDES RAY OF HOPE ON AN OTHERWISE GLOOMY HORIZON, SAYS WORLD BANK'S REVIEW OF EAST ASIAN AND PACIFIC ECONOMIES TOKYO, April 2009 ­ As countries in the East Asia and percent in 2007. (Last month, in its China Quarterly Pacific region prepare themselves for an expected surge Update, the Bank downgraded its forecast for in joblessness resulting from the global slowdown, a ray China's growth to 6.5 percent this year from 13 of hope may be emerging with signs of China's economy percent in 2007.) bottoming out by mid-2009, says the World Bank's latest The region's low income countries are expected half-yearly assessment of the region's economic health. to be among the worst affected by the slowdown The latest East Asia and Pacific Update, titled Battling the and the limited room for government intervention Forces of Global Recession, says a recovery in China to help those in need. Cambodia is likely to ­ fueled largely by the country's huge economic stimulus experience the strongest decline in growth package ­ is likely to begin this year and take full hold in because of declines in the garment and tourism 2010, potentially contributing to the region's stabilization, sectors, while Lao, Mongolia, Papua New Guinea and perhaps recovery. and Timor-Leste will be especially hard hit due to lower commodity prices. But with China still heavily reliant on exports to world markets that continue to contract, the Update warns that a On departing for the 13th ASEAN Finance Ministers' truly sustainable recovery in the East Asia and Pacific region Meeting in, Pattaya, Thailand later this week, the ultimately depends on developments in the advanced World Bank's Vice President for the East Asia and economies. Pacific region, Jim Adams, applauded the region's governments for responding quickly to the In the face of much weaker exports and a slowing down financial crisis with multi-pronged policy efforts in domestic demand, the World Bank is forecasting that ­ from fiscal stimulus packages to monetary policy real GDP growth in developing East Asia1 will reach only interventions to social safety net programs. 5.3 percent in 2009, down from 8 percent in 2008 and 11.4 Developing East Asia includes China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Lao PDR, Mongolia, Papua New 1 Guinea and the island economies of the Pacific. Page "The measures the authorities have taken to counteract the crisis across the region are helping to cushion the impacts on the most vulnerable people," Adams said. "With unemployment likely to increase ­ especially as jobs in manufacturing and construction disappear - social protection efforts will have to expand to meet very real human needs." Weaker growth is expected to slow the pace of poverty reduction in the region, with over 10 million more people likely to stay below the poverty line this year compared to estimates of a year ago, the Update says. Cambodia, Malaysia, Thailand and Timor-Leste are projected to see absolute increases in poverty this year. Jobs in manufacturing are likely to disappear quickly as the sharp decline The report says the region is stepping-up efforts to in global trade continues support the region's poor and vulnerable people, especially in the middle-income countries. In late longer-term priorities will likely emerge better placed after the 2008, China provided a one-time cash transfer to crisis to resume growth." 74 million people, including to millions of rural householders, and introduced tax cuts as well As the world economy slowly recovers, East Asia and Pacific as a major health reform package to increase countries can achieve high rates of growth if they boost their access to healthcare for the poor. Indonesia has competitiveness, penetrate new markets and support their reached out to 19 million poor households by companies to innovate rather than imitate, Nehru said. reviving a targeted cash assistance program The World Bank is supporting East Asia and Pacific countries and the Philippines is boosting the number of as they face the impacts of the financial crisis through poor people covered by its recently introduced increased financing and stepped-up policy advice on ways conditional cash transfer program. to protect the poor and vulnerable. "There is no doubt that the East Asia and Pacific region is confronting very difficult times," said For the full report, please visit www.worldbank.org/eapupdate Vikram Nehru, the World Bank's Chief Economist for the region. "The countries that are able to tackle For more information about the World Bank's work in East Asia & short-term challenges while staying focused on Pacific, please visit www.worldbank.org/eap WHAT'S ON Consultations on Thailand Interim Country Partnership Strategy Since 2002, the Bank's relationship with Thailand has been focusing on knowledge sharing and policy advice on issues central to the national development agenda. Although there was a small lending component, World Bank support to Thailand has been given primarily through the knowledge-sharing program called Country Development Partnership (CDP). Recently, however, changes in Thailand's social and economic context argued for updating the focus and nature of Thailand-World Bank partnership. Continued on page 4 Page Continud from page In February, the Bank held a series of consultations on its Interim Country Partnership Strategy (2009-2011). The Bank sought assessments on the theme of the new partnership and on whether the issues the Bank identified appropriately reflected Thailand's short- and medium-term concerns. The consultations garnered opinions from government officials at the national and the provincial levels; representatives of the private sector and the academia; and community leaders as well as non-governmental organization workers. The meetings were held in Bangkok, Chiang Mai, and Nakhon Ratchasima. Small-Scale Livestock Waste Management Project In March, the World Bank and the Energy Research and Development Institute (ERDI) organized public consultations on the Thailand Small-Scale Livestock Waste Management Program. Once implemented, the program will help Thailand reduce methane emissions from pig farms; generate renewable energy for the participating farms; and earn revenues from the certified emission reductions (CERs) ­ better known as "carbon credit." ERDI, based at Chiang Mai University, has been selected to implement this program under the Bank's supervision. Thailand Infrastructure Annual Report (2008) Thailand is facing a number of infrastructure challenges. There is a need for infrastructure services to catch up with economic development and international competition, manage the growth in urban areas, respond to global energy prices, and ensure basic services for the poor. Availability and accessibility appear to no longer be a challenge. The next step for Thailand is to put more emphasis on quality of service delivery, management, and sound regulation. The Thailand Infrastructure Annual Report (2008) is a product of collaboration between the Office of the National Economic and Social Development Board (NESDB) and the World Bank. It is an output under the Country Development Partnership for Infrastructure (CDP-Infra), a three- year cooperation program launched in 2007. The full report is available for download on our country website. Page 4