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International Monetary Fund. Asia and Pacific Dept

IMF Country Report No. 25/45

International Monetary Fund. Asia and Pacific Dept

IMF Country Report No. 25/46

International Monetary Fund. Asia and Pacific Dept

1. Household sector over-indebtedness has been a critical issue in Thailand in recent years. Household debt started to increase in the 2000s and reached its pre-pandemic peak in 2015 at 85.9 percent of GDP, then slightly eased to around 82 percent of GDP before the pandemic. However, driven by the sudden shock from the pandemic, the household debt-to-GDP ratio surged to 95.5 percent in 2021Q1 and remained elevated at around 90 percent afterward (Figure 1), making Thailand one of the countries with the highest household debt-to-GDP ratio compared with emerging markets peers (Figure 2). The household debt overhang poses large risks to financial stability, in addition to being a drag on investment, consumption, and growth (IMF 2022a, IMF 2019, IMF 2022b, IMF 2023).2 In recent years, the Thai authorities have implemented a number of measures to support orderly household debt deleveraging. However, in the context of a weak post-pandemic recovery, household debt has remained elevated, declining only slowly from its pandemic peak. Existing studies show that, historically and on average, deleveraging episodes could last for 5 to 7 years (Bouis, 2013). A larger and faster unwinding of non-financial sector debt overhangs could be associated with sizeable medium-term output gains (Chen et al., 2015).

International Monetary Fund. Asia and Pacific Dept
The 2024 Article IV Consultation discusses that Thailand’s economy is gradually recovering, but at a slower pace than peers. Growth is projected to accelerate moderately, reaching 2.7 percent in 2024 and 2.9 percent in 2025, supported by the rebound of tourism-related activities and fiscal stimulus. A well-coordinated near-term policy mix and structural reforms would help firmly entrench the recovery and boost potential growth and inclusiveness over the longer term. A further reduction in the policy rate would support the ongoing recovery, while translating into improvements in borrowers’ debt-servicing capacity with little risk of additional leverage amid tightened lending. Resolute reforms to boost productivity and competitiveness are necessary to reverse the downward trend in potential growth. Providing an adequate social protection floor to vulnerable households could help enhance their resilience to shocks and address structural drivers of household debt accumulation.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper explores the scope of recalibration to deal with Thailand’s debt. Thailand’s debt ceiling plays a central role in safeguarding fiscal prudence. Fiscal framework provides necessary flexibility to respond to shocks, but at the cost of weakened expenditure control. This paper assesses Thailand’s debt ceiling and discusses policy implications. The analysis suggests that Thailand’s debt limit ranges between 80-110 percent of gross domestic product (GDP). The analysis shows that growth-maximizing debt levels for Thailand would range between 31 to 77 percent of GDP. Overall, the analyses indicate that the debt limit for Thailand would depend importantly on outcomes for growth, interest rate and capacity for fiscal adjustment. The results show that Thailand’s current debt ceiling is broadly consistent with the debt limit and the safety margin. However, a larger safety margin is required if contingent liabilities and additional spending needs are considered. Increasing frequency of shocks and the need for potentially larger counter-cyclical fiscal policies would further reduce the required debt ceiling.
International Monetary Fund. Asia and Pacific Dept

The Thai authorities would like to express their appreciation to the IMF mission team, led by Ms. Deléchat, for the constructive and candid policy discussions. The authorities broadly agree with staff’s assessment of the Thai economy and welcome their support for Thailand’s policy responses amid the prevailing global economic uncertainties.

International Monetary Fund. Asia and Pacific Dept

1. Thailand’s post-pandemic recovery is nearly complete, albeit it has been uneven and slower than peers. The output gap is still negative, while average inflation has declined and remained below the Bank of Thailand’s (BOT) target range (1 to 3 percent) since January 2024. The pandemic fiscal support has been fully withdrawn and the monetary policy tightening cycle ended in September 2023, with the policy rate remaining on hold until mid-October 2024 when it was cut by 25 bps.

International Monetary Fund. Asia and Pacific Dept

Pandemic responses and recent fiscal stimulus measures have eroded Thailand’s fiscal space, pushing public debt close to the authorities’ debt ceiling of 70 percent of GDP. While this situation generally calls for fiscal prudence to bring down debt levels, it also raises the question of whether the current debt ceiling is adequately calibrated. This chapter explores this question and discusses implications for fiscal policy and the broader fiscal framework.

Teresa R Curristine
,
Isabell Adenauer
,
Virginia Alonso-Albarran
,
John Grinyer
,
Koon Hui Tee
,
Claude P Wendling
, and
Delphine Moretti
This Note provides guidance on developing and implementing a medium-term fiscal framework (MTFF). MTFFs aim to promote fiscal discipline and sustainability, transparency, and better-informed fiscal decisions. An MTFF comprises a set of institutional arrangements for prioritizing, presenting, reporting, and managing fiscal aggregates - revenue, expenditure, balance, and debt - generally over a three-to-five-year period. It incorporates a fiscal strategy, medium-term projections of key macroeconomic variables and fiscal aggregates, and ceilings on total expenditure to guide subsequent annual budgets. By introducing a medium-term perspective into fiscal and budgetary decision making, MTFFs provide a clearer understanding of the impact, trade-offs, and risks of policy choices. MTFFs contribute to enhancing transparency and accountability by communicating the government’s medium-term fiscal goals, policies, and fiscal performance. Ultimately, clarity on medium-term fiscal plans and on their effective implementation can bolster confidence in the government’s ability to manage its finances prudently and competently. In addition to providing guidance on how to design an MTFF and the institutional and technical arrangements needed to support implementation, the Note discusses key challenges and presents country examples from across the globe by income group and concludes with lessons learned.