In recent years, Thailand has faced continuous crises, from political uncertainties and the COVID-19 pandemic to the latest conflicts with Cambodia, leading to a loss of economic competitiveness. Once known as the Land of Smiles, Thailand now finds itself in a situation where smiles are fading, and it risks becoming Thailand Unsmiled if the ongoing issues are not resolved. Today, Mr. Warut Phromboon, Managing Partner/Head of Research at Bondcritic, an expert in credit research and consulting for various financial organizations worldwide, will analyze the root causes of these problems and propose ways for Thailand to regain its smile and compete economically once again.

Economic Volatility Hindering Growth

Looking back after the Asian financial crisis, Thailand's economic growth has been unstable in the long term due to frequent political changes, resulting in economic volatility and stagnation. This has allowed neighboring countries like Vietnam, Indonesia, and the Philippines to closely catch up. Although the GDP per capita of these three countries is still significantly lower than Thailand's, this trend cannot be overlooked, especially with forecasts suggesting that Thailand's GDP will grow by less than 2% this year. Moreover, military conflicts with Cambodia and uncertainties from Trump's 19% tax measures on Thai goods will undoubtedly pose challenges for the Thai economy this year.

Persistent Corruption and Worrisome Corruption Situations

The issue of corruption in Thailand is clearly on the rise, as evidenced by the Corruption Perception Index (CPI), which has seen Thailand's ranking drop rapidly over the past 20 years, from 64th in 2004 to 107th in 2024. Thailand's corruption perception ranking is now on par with Brazil, Niger, Nepal, Malawi, and Algeria, and is lower than many countries known for corruption issues. In contrast, other countries in the region, such as Indonesia and Vietnam, have improved their rankings. Therefore, Thailand must develop a strong system of checks and balances to effectively control corruption.

Growing Aging Society and Economic Traps from Tourism

Thailand is entering an aging society, with a declining working-age population and an increasing number of elderly individuals. This means that Thailand needs to generate more income with fewer people, which requires producing higher-value goods and services. However, Thailand remains reliant on traditional export industries (such as agriculture, electronic components, and automobiles), some of which involve re-exports from countries like China, leading to intense and challenging competition.

In Thailand, the middle and lower classes have relatively low incomes, which is a primary reason why the country is a cheap tourist destination that generates substantial revenue each year. However, this significant income from tourism has led the government, stakeholders, and citizens to become complacent about improving the economic structure to increase the population's income. Consequently, Thailand is in a state of dependency on tourism revenue, or "trapped," making it highly sensitive to fluctuations in the tourism sector.

Enhancing Participation in the Economy through Inclusive Economic Concepts

With the trend of a declining labor force, Thailand needs to attract more foreign workers. Therefore, it is essential to reform policies regarding foreign labor. Additionally, Thailand must create an environment where young couples feel comfortable starting families and raising children. Public investment should focus on higher-value products, which will help increase people's incomes. Thailand also needs to ensure that "zero-sum" businesses and foreign platforms like YouTube or Lazada engage more with society by hiring Thai workers and paying fair taxes.

To achieve an Inclusive Economy, Thailand not only needs quality labor but also must provide these individuals access to guidance and funding sources. Although the middle class is growing, economic participation remains insufficient. Access to funding for SMEs and startups is challenging, while large companies benefit from low-interest rates, making it easier for them to borrow. In contrast, SMEs and individuals struggle to secure loans or face high-interest rates. Banks enjoy high net interest margins and are not permitted by the Bank of Thailand to take significant risks. While raising awareness about risks is beneficial, understanding risk is essential, not prohibiting it. Ultimately, the government's concerns about risk have limited access to funding for the middle and lower classes.

Thailand's problems are structural issues that cannot be resolved with short-term measures. The government's budget deficit results from slow growth and ineffective public spending policies aimed at stimulating the economy, stemming from corruption and a patronage system that fails to place capable individuals in positions to serve the public. Furthermore, the low returns for domestic investors allow the government and large companies to continuously issue bonds in Thai baht without incentives to improve productivity or even restructure the economy and society. Although Thailand is not yet a failed state, without reform or change, it may head in that direction in the long term.