A vision for Thai growth

Bank of Thailand governor says the central bank is becoming a leader in addressing structural challenges, writes Somruedi Banchongduang

Strong growth, weak stability

Between 1985 and 1995, Thailand experienced what he described as a golden era of economic development, marked by rapid industrialisation and a transition from an agriculture-based economy to a manufacturing hub.

The transformation was driven largely by foreign direct investment, particularly from Japan, in the automotive and electronics industries.

“During that period, Thailand saw an influx of Japanese automobiles and electrical appliances from virtually every major brand. This wave of industrialisation lifted GDP growth to around 5-7% annually,” Mr Vitai said.

Despite the impressive growth, however, the economy was built on a fragile foundation characterised by weak macroeconomic stability.

The governor pointed to several vulnerabilities, including a significant external imbalance. At the time, Thailand’s international reserves tallied only US$30 billion, compared with external debt of $70 billion, more than half of which consisted of short-term borrowing.

Thailand also operated under a fixed exchange-rate regime during that period, with the baht pegged at 25 baht per US dollar. According to Mr Vitai, the arrangement became unsustainable as the dollar strengthened and Thailand’s economic fundamentals weakened.

Yet financial institutions remained fragile and the financial system suffered from weak corporate governance. More than 50 finance companies and numerous commercial banks engaged in aggressive lending practices, earning interestrate spreads of 15-16% annually while lacking adequate risk-management frameworks.

Mr Vitai said these weaknesses ultimately contributed to the 1997 Asian financial crisis.

Following the crisis, Thailand adopted what he described as a “stability-first” mindset, a philosophy that also shaped the Bank of Thailand’s policy approach.

Over the past two decades, the central bank has focused heavily on strengthening financial resilience. As a result, Thailand’s international reserves have risen to about $300 billion now, enough to cover more than nine months of imports.

The banking sector has strengthened significantly, with a capital adequacy ratio of around 20%, well above the regulator’s minimum requirement of 11%, while the non-performing loan coverage ratio remains robust at roughly 180%.

Addressing stagnation

Despite these achievements, Mr Vitai said Thailand now faces a different challenge: a prolonged period of stagnant growth.

Over the past several decades, GDP growth has steadily slowed from around 7% to 5%, then 3%, and currently hovers at about 2% in the post-pandemic period.

“More concerning is the decline in potential growth — the maximum rate of growth that can be achieved when all resources are fully utilised — which has fallen to around 2.7-2.8%. Thailand’s potential growth should be closer to 3.5-4%,” he said.

Mr Vitai said the slowdown reflects deep-rooted structural challenges.

One major factor is demographic change. Thailand’s ageing population is creating what he described as a “double squeeze” on the economy by reducing labour supply while simultaneously constraining consumer spending.

In addition, Thailand has fallen into a productivity trap due to decades of insufficient investment, resulting in low productivity growth and limited innovation. At the same time, the country’s competitiveness has continued to decline.

Traditional economic strengths are also facing increasing pressure. Export-oriented manufacturing and tourism, long regarded as key growth engines, are losing momentum as regional competitors such as Vietnam and emerging tourism destinations capture market share previously dominated by Thailand.

Given these structural constraints, Mr Vitai said economic reform is necessary, but it should take the form of gradual, sustained changes rather than abrupt and sweeping reforms.

“The Thai economy does not need a ‘big bang’ reform, which is often politically unfeasible. What it needs is gradual reform — consistent, long-term implementation of structural changes. More importantly, the challenge is not a lack of ideas, but a lack of doers,” he said.

To strengthen future growth, Mr Vitai said Thailand should focus on developing higher value-added industries that align with global trends, evolving supply chains and the country’s competitive advantages.

He suggested shifting from basic agricultural production to higher-value food processing and agribusiness, while transforming tourism into a broader care economy encompassing healthcare and wellness services.

Thailand should also accelerate its green transition in line with global sustainability trends to maintain its export competitiveness and attract future investment, said Mr Vitai.

Core mandate

Maintaining an inflation-targeting framework remains a core mandate of the central bank, seeking to preserve both economic and financial stability through monetary policy management.

Under the regulator’s accommodative monetary policy, low interest rates are expected to support Thailand’s economic recovery, lift household income, and improve well-being, he noted.

The Monetary Policy Committee has reduced the policy rate six times since October 2024, lowering it from 2.5% to the current level of 1%.

Amid Thailand’s structural challenges and heightened global uncertainties, Mr Vitai said stability alone is insufficient to address issues such as declining productivity, weakening competitiveness, an ageing population, elevated household debt, the vulnerability of households and small and medium-sized enterprises (SMEs), inequality, and governance concerns.

“The central bank is moving away from being purely an analyst and is becoming a leader in addressing structural challenges. Beyond monetary policy, the central bank has implemented various targeted measures to help tackle the country’s structural problems,” he said.

Since assuming office as governor in October 2025, Mr Vitai said the central bank has launched six targeted measures to address specific economic pain points.

These include the debt restructuring programme, “Clear Debt, Move Forward”, which aims to improve the repayment capacity of vulnerable borrowers and help alleviate Thailand’s household debt burden.

The regulator also introduced SME Credit Boost and SME Secured Plus to support liquidity for vulnerable SMEs.

He said these measures would help SMEs withstand economic headwinds arising from both domestic structural challenges and external shocks. The targeted programmes are also intended to enhance SME competitiveness and support long-term business expansion.

Structural issues

The central bank has also expanded its oversight to include gold trading as part of efforts to reduce currency volatility.

In Thailand, the correlation between gold prices and movements in the baht is relatively high. As a result, the regulator imposed a limit of 50 million baht per person for gold trading conducted in baht via digital platforms.

Following the implementation of the measure in March 2026, the correlation between gold prices and baht movements declined from 0.8% to 0.4%, said Mr Vitai. The gold trading measure is also expected to help curb illicit transactions conducted through gold trading platforms.

In addition, the regulator introduced measures to monitor large cash transactions in an effort to combat money laundering, including enhanced supervision of cash transactions exceeding 5 million baht per day.

“Some view certain measures as falling outside the central bank’s core mandate. However, these issues are part of the structural challenges the regulator seeks to help address, within the scope permitted by law, alongside its responsibility to maintain economic and financial stability,” he noted.

Regarding fairness and equality, the central bank standardised banking sector fees to improve price transparency and reduce inequality, particularly for individuals and SMEs. The central bank plans to standardise fees for 19 financial services, with implementation continuing in phases.

The central bank is also in the process of introducing regulatory oversight for buy now, pay later lending as part of its efforts to contain household debt.

“Through the combined use of monetary policy and targeted measures, we expect to support economic recovery, increase potential growth and improve people’s well-being over the long term,” said Mr Vitai.