$657 billion debt weighs on new Thai PM as millions struggle to pay house, car loans

BANGKOK – Thailand’s 38-year-old Prime Minister is working on a plan to alleviate the economic drag from a household debt bill topping US$500 billion (S$657 billion) – a figure that has ballooned since her father first took office in 2001.

Ms Paetongtarn Shinawatra’s administration, which took office in September, is in talks with banks to find ways to help millions of borrowers struggling to pay car and housing loans. A debt relief package – expected to be announced in the coming weeks – may include allowing banks to pay lower fees to the state bailout fund in exchange for providing easier terms to debtors.

The nation’s household debt ratio of 90 per cent of gross domestic product (GDP) is around double the average of emerging market economies’ ratios and above the 80 per cent level that the Bank for International Settlements considers worrying. The debt drag helps explain the cautious stance of the central bank, which until Oct 16 had resisted government pressure to cut interest rates for fear of fuelling even more loan growth. 

“An elevated level of household debt in Thailand is concerning as it could suppress private-sector spending and weigh on economic growth,” Mr Kiatipong Ariyapruchya, the World Bank’s senior country economist, said in an interview. “Many firms and households in the sectors hit hard by the pandemic remain vulnerable. This has implications on macroeconomic and financial stability.”

Household debt has soared, in part due to the populist policies of past governments including those of Thaksin Shinawatra and his sister Yingluck as well as the military-backed administrations that removed them in coups.

During Thaksin’s era between 2001 and 2006, money flowed into more than 70,000 villages through a debt moratorium for farmers and cheap loans, fuelling a boom in household spending. After widespread flooding in 2011, Yingluck offered a year-long tax rebate for first-time car buyers as well as other stimulus measures to revive demand. Both were ousted in military coups – Thaksin in 2006 and Yingluck in 2014.

Debt kept climbing – albeit at a slower pace – under military-backed rule, especially after the Covid-19 pandemic dented growth in the tourism-reliant economy. Coup leader Prayut Chan-o-cha enlisted officials who helped craft Thaksin’s policies and adopted similar measures to boost his popularity, such as giving cash handouts and subsidies to more than 10 million welfare card holders, subsidising diesel and cooking gas prices, and offering tax benefits to boost consumption and domestic tourism.

Economics professor Nattavudh Powdthavee from Singapore’s Nanyang Technological University said: “The government always gives bailouts like debt moratoriums and cash handouts to people, so they’re not trained to help themselves. It can lead to moral hazard and more debt creation. The easy access to illegal lending is also a factor. When people fail to service debt and resort to easy solutions, what they get is more debt.”

Debt trap

Thaksin, seen as the de facto chief of the ruling Pheu Thai Party, in August said that restructuring to cover households and businesses should be undertaken as “Thailand and its people are trapped in debt”. While the two-time former premier is unlikely to assume any official or political position in the new government, he is expected to wield considerable influence on the Paetongtarn administration. 

Thailand’s economy has lagged behind its neighbours’ for much of the past decade, with the lowest growth in the region, at below 2 per cent. Thaksin’s party has targeted an annual expansion of 5 per cent, closer to the level he averaged while in power two decades ago.

In her policy announcement to Parliament in September, Ms Paetongtarn suggested that the debt revamp will be especially targeted at providing relief to borrowers of car and home loans. The initiative will also cover the informal sector and will be implemented through state-owned financial institutions, commercial banks and asset management companies, she said at the time.

The Bank of Thailand previously pointed to the elevated debt ratio as among reasons why it was pushing back against government calls to cut borrowing costs from their highest level since 2013. The central bank relented with a surprise rate cut on Oct 16. 

Bank of Thailand governor Sethaput Suthiwartnarueput said of the country’s household debt load in an interview with Bloomberg News in June: “It’s a very severe issue. If I had to use an analogy, I would say it’s like a chronic disease, rather than an acute one, meaning it’s like diabetes rather than a heart attack. So it’s something that’s likely to persist for a long time and a big drag on us.”

Along with the economic drag comes escalating social costs. The country’s suicide rate increased to 7.9 per 100,000 individuals in 2023, approaching the record high of 8.59 during the 1997-1998 Asian financial crisis. Suicide attempts average 85 per day, or seven people every two hours, with economic problems cited as a precipitating factor, according to the nation’s Suicide Surveillance Centre.

Dr Thoranin Kongsuk, who oversees the centre, said: “We have seen a rising trend of suicide cases among people who have informal debt problems. Loan sharks mainly try to humiliate and threaten their clients, and sometimes even hurt them to get their money back. Once people feel they’ve no hope left in life, suicide tendencies begin to emerge.”

The debt pile per household is set to jump 8.4 per cent to a record 606,378 baht (S$24,000) in 2024, according to a survey by the University of the Thai Chamber of Commerce. It is estimated that informal debt such as that owed to loan sharks could be another 10 per cent to 20 per cent of GDP, which would mean that the real level of household debt in Thailand could be above 100 per cent of GDP. 

S&P Global Ratings analyst Deepali Seth-Chhabria said: “Thailand’s household leverage is one of the highest among emerging markets and has reached unsustainable levels, leading to elevated risk. We expect only a gradual reduction in household leverage in the next few years.” BLOOMBERG