Jointly Building the Belt and Road towards the Sustainable Development Goals – update

by Pechnipa Dominique Lam February 2019 Jointly Building Belt and Road towards SDGs

Thailand update:

State of play: Thailand’s BRI projects

Macroeconomic accounting of BRI projects

Thailand’s BRI projects alongside SDGs and national strategies Several projects are under way to improve Thailand’s connectivity Cross-Border - Economic Zone Kunming ▪ Thai Ministry of Commerce ▪ High-speed rail from signed an MOU with the Bangkok-Nong Khai Institute. ▪ Dual track upgrade from ▪ 4 Chinese-funded projects Qinzhou port Bangkok-Nong Khai will promote trade amongst Lancang-Mekong countries. Boten Chiang Khong -Qinzhou Denchai-Chiang Khong Nong Khai ▪ Thai and Chinese ▪ Dual track construction, government MOU: aims to bidding expected in March Kanchanaburi increase the frequency of 2019 Dawei freight traffic to every day. ▪ Budget - 85 bn baht Bangkok Laem Chabang Phnom Penh Bang Yai- Thailand-Cambodia Kanchanaburi highway Railway ▪ Motorway will potentially High Speed Railway ▪ Ban Klong Luk Border connect with Dawei Dual Track Railway Padang Besar Station construction is Special Economic Zone in Motorway nearly complete and Existing Railway Myanmar expected to be Maritime Cooperation ▪ Budget - 49.1 bn baht Potential Kra Canal area Kuala Lumpur operational in 2019. Potential Cross-Border Economic Zone Singapore High-speed rail and dual track upgrade may transform Bangkok-Nong Khai route

High speed railwayrailway Dual-track upgrade (602(602 km)km) (486 km)

Nong Khai 1) Bangkok-Nakhon 1) Map Kabao-Thanon Chira Ratchasima Junction (132 km) (252 km) ▪ Budget: 29.5 bn Baht ▪ Budget: 179 bn baht. ▪ Building: construction started. Nakhon Thanon Chira ▪ Bidding: 14 contracts in total Ratchasima 2) Thanon Chira Junction-Khon Map KabaoJunction - 1 awarded, 1 bidding, Kaen (187 km) Bangkok - TORs for other 12 contracts ▪ Budget: 23.8 bn Baht expected early 2019. ▪ Building: Operation started in ▪ Building: construction for the February 2019 first contract started on 3.5 km section in Nakhon Ratchasima 3) Khon Kaen-Nong Khai (167 km) 2) Nakhon Ratchasima-Nong High Speed Railway ▪ Budget: 26.7 bn Baht Khai Dual Track Railway ▪ Building: Cabinet approval (350 km) expected in March 2019. ▪ Cabinet approval expected in March 2019 Significant investment needed to fund Bangkok-Nong Khai rail projects 300 Total: 259bn baht 250 179bn baht budget for Bangkok-Nakhon 200 Ratchasima HSR, to be debt financed 140.5 Up to 80% of train budget (38.5bn baht) i.e. 150 31bn baht, to be financed through external debt from China, USD denominated debt

billion baht billion 100 38.5 29.5 50 80bn baht budget for Bangkok-Nong Khai 23.8 Dual Track upgrade 26.7 0 Map Kabao-Thanon Chira Dual Track Bangkok-Nakhon Ratchasima HSR construction Thanon Chira-Khon Kaen Dual Track Bangkok-Nakhon Ratchasima HSR train Khon Kaen-Nong-Khai Dual Track

Source: News articles and Department of Transport Jointly Building Belt and Road towards SDGs

Thailand update:

State of play: Thailand’s BRI projects

Macroeconomic accounting of BRI projects

Thailand’s BRI projects alongside SDGs and national strategies Bangkok-Nong Khai rail projects will be a significant proportion of infrastructure investment

Infrastructure investment in Thailand ▪ Infrastructure investment remains below its peak in 30.0% 1996 25.0% ▪ ADB measure of 20.0% infrastructure using GFCF data, excludes transport 15.0% equipment i.e. trains and 10.0% rolling stock 5.0% ▪ High speed rail (Bangkok- Percentage of GDP of Percentage Nakhon Ratchasima) and 0.0%

dual track upgrade

2006 2010

2008 (Bangkok-Nong Khai)

1990 1992 1994 1996 1998 2000 2002 2004 2012 2014 2016 budgets are equivalent to 12% of total infrastructure spend, or

General government Private + SOEs 2% of GDP in 2016 Bangkok-NongKhai rail Source: NESDC, ADB, Author’s calculations High speed rail could change Thailand’s FDI profile

Thailand’s inward FDI, by country group, 3 yr moving average ▪ Japan is currently 14 Thailand’s largest 12 inward investor 10 8 ▪ In the last 5 years, 6 China’s FDI into 4 Thailand averaged 2 USD1.1bn per year, 0 roughly the same -2 size as the proposed cost of the high- speed train ASEAN EU Tax havens equipment – c. 38.5bn China (incl HK) Japan US baht/USD1.3bn ROW Source: Bank of Thailand, Author’s calculations Public debt likely to remain below limit of 60% of GDP

Government gross debt ▪ Data after 2017 is 10000 70 forecast, and 60 8000 excludes planned 50 infrastructure 6000 40 investment after

4000 30 2017 % of of % GDP baht, billions baht, 20 ▪ IMF Article IV 2018: 2000 10 ‘Thailand should 0 0 use…fiscal space…to

spur domestic

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 1996 demand and support Government gross debt potential output’ Government gross debt % GDP (RHS)

Source: IMF High-speed rail purchase should have low impact on Thailand’s external debt profile ▪ Since 2009, Thailand’s official creditors interest rate has been between 0.3-4%. China’s suggested interest rate of 2.3-2.6% is within the range ▪ The current purchase price of the high-speed train from China is c. 38.5bn baht/USD1.3bn. Current plans are for 80% of the purchase price to be financed through external debt Interest rate External debt 160 4 140 3.5 3 120 2.5

100 % 2 1.5 80 1 0.5 USD bn USD 60 0 40 20 0 2014 2015 2016 2017 HSR purchase Official creditors interest rate Public sector Private sector Private creditors interest rate Source: World Bank, IMF Article IV 2018 High passenger uptake needed to finance the investment costs of high speed rail Daily passengers needed to cover investment costs Assumptions: 5000baht @5% 8,293 ▪ total budget, 179bn baht 5000baht @3% 6,523 ▪ interest on debt 5000baht @1% 5,063 accumulates for 4 years 1000baht @5% 41,465 during construction. ▪ total debt cost paid off 1000baht @3% 32,614 during remaining 16 1000baht @1% 25,313 years of debt schedule, using passenger fees 500baht @5% 82,929 ▪ inflation rate = 2.5% 500baht @3% 65,228 500baht @1% 50,626

- 20,000 40,000 60,000 80,000 100,000 Source: Author’s calculations Note: Operational costs not included Ministry of Transport’s assumptions for suggest financial loss for high speed rail Ministry of Transport assumptions: Daily passenger projection 2021 2031 2041 2051 5,310 16,620 22,600 26,830

Ticket price, baht 533 +15% every 5 years Inflation rate 2.5% Author’s calculations: Profit/loss (passenger revenue 10 years 20 years 30 years 40 years minus capital cost), bn baht, real @1% -155.29 -122.99 -79.14 -27.41 @3% -169.06 -136.76 -92.91 -41.18 @5% -183.65 -151.35 -107.51 -55.78 Ministry of Transport economic NPV is -59bn baht, suggesting economic benefits will not outweigh financial losses

Source: Author’s calculations, Ministry of Transport Jointly Building Belt and Road towards SDGs

Thailand update:

State of play: Thailand’s BRI projects

Macroeconomic accounting of BRI projects

Thailand’s BRI projects alongside SDGs and national strategies Thailand’s BRI projects are directly relevant to 7 UN Sustainable Development Goals

➢ Goal 1 – eliminating poverty: Thailand aims to become a high-income economy by 2036, under the 20-year National Strategy Framework

➢ Goal 8 – decent work and economic growth: increased transport connectivity could enable more efficient matching in Thai labour markets

➢ Goal 9 – infrastructure: under the 20-year Transportation Development Strategy, 2017-36, the Thai government aims to provide effective, green and safe, inclusive and innovative transport for all, and increase connectivity of the 5 Special Economic Zones along the border

➢ Goal 10 – reduced inequalities: affordable public transport could help to reduce inequalities, particularly public service access inequalities Thailand’s BRI projects are directly relevant to 7 UN Sustainable Development Goals

➢ Goal 15 – forestation: Thailand’s 12th National Economic and Social Development Plan aims to increase forest cover area to 40% of total land area

➢ Goal 16 – peace, justice and strong institutions: delivery of Thailand’s infrastructure projects involves many public organizations. Good governance and strong institutions will help this process

➢ Goal 17 – partnership: delivering Thailand’s BRI projects requires partnership with China and neighbouring countries including Myanmar, , Cambodia Summary messages

▪ Thailand has 6 potential BRI projects, with largest budget on Bangkok-Nong Khai rail route

▪ Macroeconomic data suggests Thailand has fiscal space to invest in infrastructure

▪ Economic analysis of High Speed Rail project needs to be looked at in more detail

▪ SDGs framework is important to understanding impact of High Speed Rail on Thai population, and ensuring good outcome for all