Thailand, like many other countries, has found itself caught in a challenging economic cycle. The combination of low GDP growth and high household debt has become a persistent issue that policymakers and citizens alike grapple with.
- Thailand continues to face a concerning level of household debt, reaching nearly 91 percent of the country’s gross domestic product (GDP) by the third quarter of the previous year.
- This is primarily attributed to an accumulation of debt following the impact of COVID-19 on the country in 2020.
- The central bank is cautious about lowering interest rates to avoid further debt accumulation and instead focuses on debt restructuring to support debtors.
- Vulnerable groups are encouraged to join debt restructuring programs, but concerns linger over the potential degradation of special mention loans into non-performing loans, particularly for middle and lower-income groups.
The Household Debt Challenge
Thailand has a significant debt problem, with about one-third of its population owing a total of 16 trillion baht to regular lenders and an additional 1 trillion baht borrowed from loan sharks. This official total is nearly as large as the country’s annual output and the the central bank views this burden as a hindrance to economic growth and a risk to financial stability.
Household debt in Thailand has reached alarming levels. According to statistics compiled by the Bank of Thailand, it reached 95 percent of GDP in the fourth quarter of 2021. This high level of debt is not solely a result of the COVID-19 pandemic; it predates the global health crisis. Even before the pandemic hit, household debt stood at 78.8 percent of GDP in the first quarter of 2019.
Thai borrowers are facing a situation of high debt and low ability to pay back. According to data from the National Credit Bureau at the end of March, late payments for car and housing loans were on the rise, possibly due to many borrowers using up their savings during the pandemic.
The central bank has raised interest rates to combat inflation, but some argue for a rate cut to support the economy. Debt restructuring programs have been introduced to assist struggling borrowers, especially those in lower income brackets. Despite efforts to reduce debt burden, concerns remain about the high volume of non-performing loans, particularly among middle and lower-income groups.
Structural Features and Trade Surpluses
Around 2010-2011, debt levels in Thailand began to rise significantly. During this period, household debt increased from 68 percent of GDP at the start of 2012 to 81 percent by the end of 2015. Interestingly, this coincided with a depreciation of the Thai baht and a substantial export boom. Thailand was running a surplus in its current account, exceeding 10 percent of GDP, thanks to robust exports.
However, the gains from this export boom were not evenly distributed. While exports mainly came from manufactured goods and tourism, wages for factory and service workers did not experience significant increases during this period. Despite accumulating large surpluses in the current account, wage growth remained modest.
The lowest 20% of income families currently have to borrow money to cover their expenses. 44% of their debt is for consumption, while only 3% is for mortgages. In contrast, the top 20% of families have up to 27% of their debt for mortgages and 20% for consumption, according to the central bank.
The Way Forward
High household debt threatens economic recovery and financial stability. It constrains consumer spending and investment, impacting domestic demand and growth. It also exposes households and financial institutions to default and insolvency risks, potentially triggering a systemic crisis.
The government and Bank of Thailand have implemented measures like extending debt moratorium programs, providing soft loans and subsidies, promoting financial literacy and discipline, and strengthening credit market supervision. However, these measures may not fully address the root causes of the problem.
