Thailand's economic challenges: Soaring private debt, low productivity and rising inequality

Thailand's economy is facing significant structural challenges that extend beyond short-term issues, according to Vitai Ratanakorn, Governor of the Bank of Thailand (BOT). Speaking at the KKP Year Ahead 2026 seminar, Vitai highlighted concerns about low productivity, a lack of new investment, and the rising levels of both household and corporate debt.

He also pointed out the country's high level of public debt and the growing inequality across various sectors of society. Thailand's economic competitiveness has been weakened by these issues, compounded by an ageing population, which is further reducing the country's growth potential.

Vitai noted that household debt in Thailand is among the highest globally, and that there are significant challenges in refinancing corporate debt, especially with high interest rates. The private sector, particularly SMEs, has faced declining credit access for the last three years, leading to a credit cost that banks are reluctant to take on.

The country’s GDP growth has also slowed dramatically, from an average of 5% in the past to just 2% in recent years, and this year’s GDP is forecast to be around 2.2%. This is a significant drop from previous growth levels. Despite this, export performance has been under pressure due to the high base set in the previous year, while domestic consumption has weakened from 5% growth to 1-2%.

Vitai stressed the importance of economic reforms and urgent action to support the SME sector, which has been struggling with credit access. He also pointed to government budget delays as a key concern, which may have further consequences for the economy in the near future.

The BOT Governor also highlighted Thailand’s reliance on outdated industries and technology, which he described as unsustainable in the long term, urging for more innovation to drive future economic growth.

Limited Success in Using Interest Rates to Boost Growth

Vitai acknowledged that the current monetary policy faces significant limitations in stimulating economic growth, especially with the 1.25% interest rate, which is already the third-lowest globally, following only Switzerland and Japan.

"Looking at the 1% interest rate reduction we've seen in the past, it only boosted GDP by 0.18% over two years, which is very little," Vitai said. "The current issues are structural, and they cannot be solved by merely injecting liquidity via interest rates alone. Even if we cut rates by 0.50%, it would only boost inflation by 0.1%."

Given these limitations, the BOT has shifted its role. Instead of just maintaining stability, it will focus on targeted measures aimed at solving real sector problems. These include efforts to address SME debt, as well as plans to help 1 million small debtors escape the debt trap through targeted relief programmes.

Tackling the Baht’s Strength Through Gold Trading Measures

The central bank is also addressing the increasing impact of gold trading on the baht. The trading volume in Thailand’s gold market is reportedly as high as 50-60% of GDP, especially through 15 major players who trade gold on apps. For example, one of these traders had revenues exceeding 5 trillion baht, which is very high relative to Thailand’s 18 trillion baht GDP.

The BOT reported gold trading volumes reaching 250 billion baht per day, a figure far exceeding the daily trading volume of the Thai stock market at 40 billion baht. This has pushed the baht higher as traders sell large amounts of US dollars to facilitate gold transactions.

To counter this, the BOT will tighten regulations by using the Foreign Exchange Control Act to monitor and manage gold trading on apps. A new limit on transactions for gold trading volumes of 50-100 million baht will be introduced, with details expected to be announced between January 23-29, 2026.

This move is part of the BOT’s broader strategy to stabilise the baht’s value while managing the economic effects of external factors and ensuring financial stability across the country.

Tightening control on cash exchanges to combat "grey capital"

Vitai said that the BOT has recently requested cooperation from all commercial and state-owned banks and will issue a circular soon to help monitor unusual cash exchange transactions.

Particularly, this involves large sums of money being exchanged in suspicious patterns, such as requests to exchange amounts of 1 million baht or more, especially for 100, 500, and 1,000 baht banknotes, which tend to occur more frequently during election periods when cash transactions are higher than normal.

Since the BOT currently does not have the authority to ban cash exchanges, the initial phase will focus on collaboration with banks to monitor these transactions. If any suspicious activity is detected, banks are asked to report it so the BOT can trace the money trail.

The BOT anticipates that within 2-3 months, it will amend regulations to improve its ability to prevent such transactions, particularly cash exchanges. This is in contrast to transactions made via bank transfers, which are secure, transparent, and traceable.

"In the past, such transactions were reported to other agencies, such as the Anti-Money Laundering Office (AMLO), but not to the BOT, which prevented us from accessing the data. Therefore, the BOT is working to expand its access to data, particularly for large transactions that are deemed unnecessary, especially during the election period when cash exchanges tend to rise," Vitai stated.