Thai Household Debt Fuels Economic Concerns, Hampers ASEAN Growth

IMF warns soaring borrowing is dragging nation's post-pandemic recovery

 

Thailand's burgeoning household debt is significantly impeding its economic recovery following the COVID-19 pandemic, placing it behind its regional neighbours, according to a recent report from the International Monetary Fund (IMF).

 

The study highlights that increased borrowing, driven by public health issues and difficulties in accessing essential resources, has curtailed the spending power of Thai citizens.

 

While household debt has seen a slight dip from its peak during the health crisis, it remains alarmingly high at 89% of the nation's Gross Domestic Product (GDP). This substantial debt burden is not only dampening consumer spending but also negatively impacting investment and the broader economic landscape.

 

The IMF cautions that this situation could trigger financial instability, particularly if the most vulnerable segments of the population and small businesses continue to grapple with debt repayments.

 

The IMF's analysis underscores the urgent need for a joined-up and comprehensive strategy to tackle this issue. To this end, the Fund has examined various debt reduction measures implemented by other nations, as detailed in its latest Article IV report, an annual assessment of the country's economic health.
  

International case studies suggest that a sustainable reduction in debt necessitates a two-pronged approach: measures to alleviate the existing debt burden coupled with policies designed to prevent further accumulation of borrowing.

 

Learning from Abroad:

Brazil: Successfully facilitated negotiations between defaulting borrowers and lenders, resulting in debt discounts and repayment plans. This initiative, with limited government expenditure, enabled over 15 million individuals to renegotiate loans valued at approximately 0.5% of Brazil's GDP.

 

Malaysia: Following a sharp rise in household debt during the 2008 global financial crisis, Malaysia implemented responsible lending guidelines, risk-based loan pricing, and stricter credit card regulations to manage personal and credit card debt, particularly concerning non-bank financial institutions.

 

South Korea: Prioritised the stability of its wider financial system by intervening in failing credit card companies and offering borrowers various debt resolution mechanisms. These actions led to a significant 75% reduction in credit card default rates within four years.

 

Ireland and the United States: Employed relatively straightforward and swift debt settlement and bankruptcy options to assist struggling borrowers. Debt relief and forgiveness have also proven beneficial for vulnerable debtors in several emerging economies, including Croatia and the Czech Republic.
  



 

Thailand's Efforts:

The IMF acknowledges that the Thai government has taken significant steps to address household debt, including offering loan repayment assistance, introducing debt restructuring schemes, improving regulatory frameworks, and promoting financial literacy.

 

A key initiative is the "You Fight, We Help" project, launched in December 2024, which enables individuals and small businesses to reduce monthly outgoings, suspend or waive interest payments, and restructure their loans.

 

The Bank of Thailand (BOT) also introduced new guidelines in January 2024 to ensure responsible lending practices, bolstering consumer protection and facilitating the restructuring of over 7 million accounts.

 

Further measures, such as capping the amount individuals can borrow relative to their assets, aim to curb additional debt and enhance its manageability.

 

Improving financial literacy is deemed crucial in preventing excessive borrowing, with the Thai government collaborating with schools to integrate financial education into the curriculum. Limiting aggressive credit card marketing is also considered beneficial.

 

Financial institutions have a role to play in providing clearer information to borrowers and offering debt support programmes.

 

Beyond these efforts, the IMF's analysis of international experiences highlights the importance of addressing existing and unpayable debt. In Thailand, borrowers who have defaulted face significant hurdles in regaining access to formal bank lending. Therefore, streamlining personal debt resolution processes and establishing a socially acceptable, simple, efficient, and fair bankruptcy system is vital.

 

The government should prioritise the most vulnerable households and collaborate with private sector entities to reduce the costs associated with managing this debt.

 

 

Addressing the Root Causes:

While managing household debt is paramount, the IMF cautions against measures that could negatively impact the broader economy.

 

Historical evidence suggests that premature action, without considering all economic interconnections, has harmed the banking sector, restricted access to credit, and slowed both consumer and business spending. Policies must strike a balance with safeguarding economic stability.

 

Crucially, Thailand needs to tackle the underlying factors contributing to persistently high debt levels. Over half of the workforce operates outside the formal employment system, resulting in job insecurity and a lack of social safety nets.

 

This makes them particularly susceptible to economic shocks that reduce their income, often necessitating borrowing to cover basic needs. Strengthening social protection measures would not only help reduce inequality but also alleviate household debt, particularly informal lending, thereby mitigating risks to financial stability.

(2025/04/10-00:00)