Display mode (Doesn't show in master page preview)

21 Sep 2021

Thai Economy

Thailand’s public debt ceiling raised… Fiscal stability to remain unaffected in the short term; additional income required in the long term (Business Brief No.3949)


The State Monetary and Fiscal Policy Committee approved a temporary debt limit increase from a debt-to-GDP ratio of 60 percent to 70 percent. The higher ceiling is to expand the government's fiscal space and would not pose a hindrance if the government has to secure a loan to implement medium-term fiscal policy. The economic crisis that has stemmed from the ongoing COVID-19 situation has prompted the government to increase its spending via its fiscal policy to mitigate the impacts from the outbreak. Funds for financing such efforts come from the budget for fiscal year 2020-2021, the THB 1-trillion loan decree, the THB 500 billion baht loan under the emergency decree and deficit financing which tends to remain at high levels. Based on these loans and a deep GDP contraction, Thailand's public debt level is expected to reach 60 percent rapidly in 2021. Nevertheless, many countries worldwide are seeing higher debt-to-GDP ratios, and almost every country has injected funds into the system via fiscal measure to provide relief to the public and reinvigorate the economy. Thus, outstanding public debt will undoubtedly surge worldwide.

KResearch assesses that the rapid increase in public debt that led to this new debt limit will not affect Thailand's fiscal stability in the short term. As the majority of the debt is long-term and derived mainly from domestic fund mobilization, the  government is still able to service debts that have reached their maturity. Therefore, external risks such as the confidence of foreign investors, exchange rates and risk from rolling over existing debts remain limited. Furthermore, the exceptionally low interest rates at present should help to keep debt service burden low in the short run.

Close attention should be paid to medium- and long-term fiscal management, wherein the government will need plans to generate additional income to reduce fiscal deficits in the forthcoming period, and ways to ensure that the budget is used with utmost efficacy. Rising public debts will continue to pose risks and much will hinge on the government's debt-servicing capacity and eventually, economic growth. After all, public debt levels should not be a cause for concern if the Thai economy posts strong growth in the upcoming period, as opposed to an economic slowdown or sluggish growth. In conclusion, future challenge lies in how to tackle structural problems to enhance Thailand's competitiveness and propel the Thai economy towards sustainable growth.​