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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).
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.
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 The pandemic fiscal support has been fully withdrawn and the monetary policy tightening cycle ended in September 2023, with the policy rate remaining on hold until mid-October 2024 when it was cut by 25 bps.
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.
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