The Pheu Thai Party-led government has pursued aggressive fiscal policies, building on the work of the previous administration led by Gen Prayut Chan-o-cha, which navigated the challenges of the Covid-19 pandemic. During Gen Prayut's tenure, two special emergency loan decrees were enacted, resulting in total borrowing of 1.5 trillion baht and prompting an increase in the public debt ceiling from 60% to 70% of GDP.
Prime Minister Paetongtarn Shinawatra has continued these financial stimulus policies, such as the distribution of cash handouts through the digital wallet programme. So far, up to 175 billion baht has been disbursed to welfare and disability cardholders.
The next phase of handouts is expected to commence in April, raising concerns among economists that fiscal space is shrinking while the economic recovery inches forward, decelerated by both domestic and external factors.
Arthid Nanthawithaya, chief executive of SCB X, recently proposed raising the public debt ceiling beyond 70% to stimulate Thailand's economy, citing structural economic issues, as household debt is at 89% of GDP.
A large budget is required to support the government's stimulus and relief packages to bolster the economy and support lower-income earners to survive the ongoing vulnerabilities, said Mr Arthid.
Amonthep Chawla, chief economist at CIMB Thai Bank (CIMBT), said a 5-10 percentage point increase in the rate of public debt, now standing at 70% of GDP, is unlikely to cause any problems, noting the additional debt should contribute to higher growth over the longer term.
Finance Minister Pichai Chunhavajira did not endorse this proposal, but refused to rule out the possibility of raising the public debt ceiling. He said effective management of revenue and expenditure must come first, with any expansion of the debt ceiling being considered only as a last resort.
Q: What are the origins of setting a public debt ceiling relative to GDP?
In 1992, 12 European countries -- Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, the Netherlands, and the UK -- signed the Maastricht Treaty, which established the European Union (EU).
The treaty stipulated that maintaining a public debt-to-GDP ratio of no more than 60% was one of the conditions that each prospective member state must adhere to in order to join the EU.
However, this figure was not calculated based on an optimal level of public debt for sustainable economic growth. Rather, it represents the median value, or the midpoint of all data points, of the public debt levels among the countries seeking to join the EU, according to Anand Kiatsanpipop, a legal expert of the National Assembly.
This requirement was established in order to help maintain currency stability among EU member states, Mr Anand noted.
Q: Does a public debt level exceeding 60% of GDP harm the economy?
Although it remains unclear at what level public debt becomes harmful to a country's economy, the International Monetary Fund (IMF) said in 2011 that if the public debt-to-GDP ratio exceeds 60%, a thorough assessment of fiscal sustainability risks should be conducted.
However, this does not mean that exceeding this threshold will necessarily lead to debt repayment issues or national insolvency. Many countries currently have public debt-to-GDP ratios exceeding 60% without facing repayment difficulties. For instance, Japan has the highest public debt-to-GDP ratio in the world at around 260%. Since the pandemic, Japan's debt has risen by more than 20 percentage points of GDP due to the country's significant fiscal stimulus policies.
Q: What is the outlook for Thailand's public debt?
Over the past two decades, the Thai government has been required to implement deficit budgets continuously, resulting in an increase in the public debt level, particularly during periods of economic slowdown.
In fiscal 2006, Thailand's public debt was 39.2% of GDP, rising to more than 40% from 2012 and beyond. The precise public debt to GDP ratio for 2012 stood at 41.9%.
The debt ratio remained in the 40% range for nine years until the pandemic caused public debt to surge to 58.3% in the 2021 fiscal year and exceed 60% in 2022, eventually reaching 60.5%. As of December 2024, the public debt to GDP ratio was 63.9%.
According to the medium-term fiscal framework approved by the Financial and Fiscal Policy Committee, chaired by the prime minister, in December 2024, it was projected that the government's public debt-to-GDP ratio would reach 65.6% in fiscal 2025. The ratio is expected to continue rising, and by 2029 the public debt to GDP ratio is forecast to reach 69.3%, nearly hitting the current debt ceiling.
There are also projections for the level of the debt servicing budget relative to the annual budget, which is expected to rise as well. In fiscal 2024, the rate was 9.61% and this year it is projected to reach 10.9%, rising to 15.2% by 2029.
The growing debt servicing budget is putting pressure on the government's budget planning, as it needs funds to stimulate the economy and allocate welfare for the public.
More importantly, credit rating agencies that assess the creditworthiness of Thai government bonds have established a reference criterion for the government's interest payment burden relative to government revenue, with a ratio not exceeding 10%. This ratio is considered equivalent to an A- rating or upper-medium investment grade. If the ratio increases, it could impact the government's rating. In fiscal 2022 this ratio stood at 8.29%, and the current government rating is BBB+.
According to internal projections by the Public Debt Management Office, the debt servicing-to-revenue ratio is expected to exceed 10% by 2025, following the government's full-scale implementation of the digital wallet stimulus programme as pledged during the election campaign.
Q: What are the government strategies for debt management?
Under the medium-term fiscal plan, the government aims to maintain economic stability while strengthening fiscal capacity to enable the process of reducing the budget deficit. This requires increasing revenue by enhancing tax collection efficiency, expanding the tax base, and ensuring efficient allocation of the expenditure budget.
However, due to the prolonged economic downturn, government borrowing has increased in recent years. Over the next five years (2025–2029), the government plans to borrow up to 4.82 trillion baht, including loans for state agencies and state enterprises. Of this loan amount, 3.9 trillion baht will be borrowed to cover the budget deficit (in the event that government expenditure exceeds revenue).
