Lighting spark of growth through digitalisation

Thanks to its longstanding record of prudent macroeconomic management, Thailand entered the Covid19 pandemic from a position of strength. Ample fiscal space allowed the authorities to swiftly deploy a bold package of policy support that, together with the rapid rollout of vaccines, helped cushion the impact of the pandemic.

The economic recovery that began in 2021 has taken hold with the elimination of travel restrictions and a rebound in private consumption. While the near-term outlook continues to be uncertain given the persistent weakness in external demand, overall growth is projected to accelerate in 2023 as tourism, including from China, continues to recover.

Over the longer term, Thailand will need to address its forward-looking growth challenges. In the recent past, Thailand’s competitiveness has been declining partly because the country has not yet moved at a large scale to higher value-added manufacturing. In addition, exports of the existing but small high-value-added manufacturing and services sectors remains stagnant. Tourism, still one of Thailand’s primary growth drivers, generates much-needed employment, but is also relatively less sophisticated and hence provides less added value compared to other service subsectors such as information and communication technologies. The pandemic brought to the fore the urgency of identifying new growth drivers to support Thailand’s economic resilience and reverse declining productivity growth.

Against this backdrop, one area that offers a promising path to boost long-term economic growth is digitalisation. Empirical analysis by staff at the International Monetary Fund (IMF) suggests that digitalisation is positively associated with higher export sophistication, which in turn is linked to greater productivity growth.

Thailand has made significant progress in digital development, including through its industrial transformation policy (Thailand 4.0). It expanded internet access to nearly 78% of its population in 2022, from less than 4% in 2000. As in countries across the region, the pandemic accelerated the rise of the digital economy.

E-commerce sales in Thailand grew from less than 1% of GDP in 2017 to around 4% in 2021. Just between 2019 and 2021, they grew by over 140%, the highest among the major Association of Southeast Asian (Asean) economies. This acceleration may very well continue, supported by a conducive digital environment and growth in digital payments that have thrived since the launch of PromptPay.

Broader adoption of digital technologies can boost productivity and growth even further. For instance, while its usage of digital technologies is in line with regional emerging economies, the digital skills of Thailand’s workforce remain inadequate — only about 40% of businesses report adequate skills to use and maintain their digital systems. Compared with Asian peers, Thailand also has a low share of scientific and technical employment.

In fact, innovation and technology diffusion across Asia, a new IMF paper finds, is hampered by uneven access to digital infrastructure, trade and FDI restrictions (particularly in services), regulatory burdens for business licencing, and weaknesses in the legal environment. Small and mediumsized enterprises face key barriers to access and use of digital technologies. Low levels of digitalisation and difficulties in accessing and adopting new technologies made it hard for these firms to telework or sell online amid the pandemic.

POLICY ROADMAP FOR THAILAND

Further improving digital literacy and reducing digital gaps across firms, industries, and workers will help close productivity gaps in Thailand. The government can play a catalytic role in promoting investment in advanced technologies and digital solutions.

Policy priorities to steer these efforts include enhancing digital infrastructure to improve access to information and technology. Upskilling and reskilling workers to increase digital literacy and meet employers’ demands will be key to building a digitalsavvy workforce.

Streamlining regulation in line with the evolving digital industry, enhancing the legal environment— including on data protection — and facilitating digital trade and FDI in services will be essential for innovation and technology diffusion. Facilitating equal access to technologies across firms, industries and workers will help the country benefit from the economic boost digitisation offers.

The good news is that the government already sees the digital sector as one of the country’s engines of growth over the next decades: Thailand’s 4.0 strategy and the Eastern Economic Corridor initiative aim at boosting productivity by accelerating the digital transformation. We are confident that the continued focus in this area and ensuring effective implementation of existing plans will give Thailand the spark its needs to reach higher income status.