Thailand faces a mounting financial challenge as household debt reaches the highest levels in Southeast Asia. According to the Institute of International Finance, Thailand's household debt to GDP ratio stands at a staggering 90%, translating to approximately US$482 billion in debt. This financial burden, exacerbated by years of economic and natural adversities, poses significant hurdles to the nation's economic growth and stability. The government, led by Prime Minister Paetongtarn Shinawatra, has initiated measures to address this crisis, but experts warn that the road to recovery will be fraught with challenges.
Historically, household debt in Thailand remained manageable, hovering around 60%. However, the situation worsened following the "flood of a century," which disrupted economic stability. The average household debt has risen by 8.4% over the past year, reaching 606,378 baht, according to the University of the Thai Chamber of Commerce. While the Bank of Thailand reported a slight dip in the debt ratio to 89.6% in the second quarter of 2024, the country's economic health remains precarious.
Moreover, loans in Thailand exhibit a delinquency rate of 71.6%, as noted by the Kasikorn Research Centre. A government-initiated vehicle buying scheme aimed at boosting the automotive industry contributed to increased borrowing. This program offered tax rebates of up to 100,000 baht for first-time buyers. Although well-intentioned, the scheme inadvertently encouraged citizens to take on more debt.
"There is no other option but to buy it on a payment plan and be in debt," – Jack
The administration's recent relief package seeks to alleviate household debt pressures by targeting small businesses and retail borrowers. This package includes measures to help those with overdue debts and reduce installment payments, along with a three-year interest suspension. Despite these efforts, some analysts express skepticism about their long-term efficacy.
“Household debt is now one of the main structural economic issues in Thailand,” – Sommarat Chantarat
Pavida Pananond highlights how household debt has become a "vicious cycle" that hampers economic growth. The inability to promote sustained growth stems from financial constraints imposed by overwhelming debt levels.
“Giving money into the hands of the people” had become a political tool under both Thaksin and Yingluck, – Pavida Pananond
The government's strategy to tighten lending could lead to "short-term pain" as access to credit diminishes nationwide. Nonarit suggests that while raising public debt towards a ceiling limit might seem necessary, it is not an ideal solution.
"That's the hard way. But I don't think the Bank of Thailand will choose to let this happen." – Nonarit
Thailand's debt conundrum deepens with informal lending practices that inflate the debt ratio to 104% by the end of 2024. Pavida Pananond emphasizes that excessive household debt undermines Thailand's economic attractiveness.
"Right now it’s at the level where it's becoming unhealthy for the overall financial health of the country. It is becoming more of a concern and I think it also undermines the attractiveness of Thailand," – Pavida
Thailand's aging population and political instability compound these economic challenges. The financial landscape appears bleak without significant interventions.
“This is a country with an ageing population. Household debt is very high and political stability is not there. So it adds to a not-so-attractive dynamism that could otherwise be economic momentum to carry Thailand forward. It's a difficult state,” – Pavida
Lower income levels relative to living costs contribute significantly to rising household debt, as Mali points out. The availability of numerous financial institutions both formal and informal exacerbates this issue.
“A lot of Thais are in debt because their income is low when compared with the cost of living,” – Mali
“We have so many financial institutions that people can actually borrow from, even in the formal system, But the banks don't know if you also have loans from informal institutions and how many and so on,” – Pavida
Leave a Reply