Household debt in Thailand is a serious problem that poses a risk to the country’s economic recovery and stability.

Thailand’s household debt is becoming a serious problem, warns the National Economic and Social Development Council (NESDC).

Key Takeaways

  • Thailand’s ballooning household debt could become a serious problem if employment and the economy slow down, warns the National Economic and Social Development Council (NESDC).
  • Debt restructuring must continue alongside financial and fiscal discipline at both the individual and corporate level to hinder the expansion of domestic consumption.
  • Thailand needs to restructure its tax system to have enough money for welfare provision and investment to increase the country’s competitiveness.

In 4Q22, household debt was THB 15.09tn ($470bn), up 3.5% YoY, accounting for 86.9% of GDP. This means that Thai households owe more than they earn, and have less money to spend on consumption and investment.

The NESDC secretary-general, Danucha Pichayanan, says that if employment and the economy decline, household debt will hinder the expansion of domestic consumption. Debt restructuring must continue alongside financial and fiscal discipline at both the individual and corporate level.

According to the latest survey by the University of the Thai Chamber of Commerce (UTCC) conducted during April 18-24 2023, the average household debt for workers surged by 25% this year to 272,528 baht from 217,952 baht in 2022. 

About 57 percent of indebted people have more than 100,000 baht outstanding, while 14 per cent owe more than 1 million baht. The average debt is 520,000 baht per person. Household debt in Thailand has almost doubled in the last ten years.

When looking at the ratio of debt to accounts, the study found that Thais have an average of 3 debt accounts per person, while 32 percent of indebted people have more than 4 debt accounts.

The pandemic has worsened the situation, as many people lost their income or had to borrow more to cope with the crisis. The tourism sector, which accounts for about 20% of GDP, was hit hard by travel restrictions and lockdowns. Many workers in this sector are low-income and have limited access to formal credit. They often resort to informal lenders who charge high interest rates and use harsh methods to collect debts.

A “time bomb” that can explode later

Household debt is a “time bomb” that can explode later, according to Danucha Pichayanan, secretary-general of the National Economic & Social Development Council. He said that the next government needs to closely monitor and fix the problem, by supporting debt restructuring measures, promoting financial discipline, and controlling campaigns that will promote more debts.

He also warned that household debt will become more apparent when the economic recovery loses momentum, as it will affect consumer confidence and demand.

Household debt is not only a problem for individuals, but also for the whole economy. It reduces domestic demand, which is a key driver of growth. It also increases financial vulnerability, as households may default on their loans or cut back on spending if interest rates rise or income falls. This could trigger a vicious cycle of lower growth, higher unemployment, and more debt. Therefore, addressing household debt is crucial for Thailand’s long-term economic health and social well-being.

Causes of high household debt

There are many factors that contribute to the high level of household debt in Thailand. Some of them are:

  • The COVID-19 pandemic: The pandemic has severely impacted the Thai economy, especially the tourism and export sectors, which are major sources of income for many people. As a result, many households have lost their jobs or faced reduced income, and have had to borrow more money to cover their expenses.
  • The minimum wage hike: In 2012, the government raised the minimum wage by 40% across the country, which increased the purchasing power and consumption of low-income workers. However, this also led to higher inflation and living costs, and some workers borrowed more money to maintain their lifestyle.
  • The first-time car buyer scheme: In 2011-2012, the government implemented a policy that offered tax rebates for people who bought their first car. This was meant to stimulate consumer demand and support the domestic car industry after the devastating floods in 2011. However, this also encouraged many people to take out loans to buy cars that they could not afford, and some of them defaulted on their payments.

Effects of high household debt

High household debt has negative consequences for both individuals and the economy as a whole. Some of them are:

  • Reduced consumer spending: When households have a lot of debt, they tend to spend less on goods and services, and save more to repay their loans. This reduces the aggregate demand and slows down economic growth.
  • Increased financial vulnerability: When households have a lot of debt, they are more exposed to external shocks such as interest rate changes, income fluctuations or health emergencies. If they cannot repay their loans on time, they may face penalties, legal actions or asset seizures by creditors.
  • Lowered social welfare: When households have a lot of debt, they may experience stress, anxiety or depression due to their financial difficulties. This may affect their physical and mental health, as well as their family and social relationships.

Solutions for high household debt

There is no easy solution for reducing household debt in Thailand, as it requires coordinated efforts from various stakeholders such as the government, financial institutions, civil society and individuals. Some possible measures are:

  • Debt restructuring: The government and financial institutions should provide more support for households who are struggling with debt repayment, such as extending loan terms, lowering interest rates or waiving fees. This can help ease their financial burden and prevent them from falling into deeper debt traps.
  • Financial literacy: The government and civil society should promote financial education and awareness among the public, especially young people and low-income groups. This can help them understand the risks and responsibilities of borrowing money, and make informed decisions about their spending and saving habits.
  • Economic recovery: The government should implement policies that can boost economic growth and create more jobs and income opportunities for people. This can help increase their disposable income and reduce their reliance on debt.

The NESDC also noted an improvement in the employment situation, with 39.6 million persons employed, a 2.4% year-over-year gain. The centre explained the rise by the expansion of both agricultural and non-agricultural employment prospects.

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