IMF urges new government to exercise caution as public debt soars

When compared to other ASEAN countries, Thailand’s public debt is among the highest, currently standing at approximately 67.9% of GDP and projected to rise further to 68.9% of GDP by 2028. 

This is partly due to a budget structure dominated by recurring expenditures, which account for over 70% of total spending and are difficult to cut, alongside a series of short-term economic stimulus measures and extensive tax relief schemes.

Julie Kozack, spokesperson for the International Monetary Fund (IMF), reiterated this concern when answering a Bangkok Biz News reporter’s question during the IMF’s monthly press briefing on September 11. 

She noted that Thailand’s public debt is already relatively high compared with peer countries at a similar stage of development. As such, the government must exercise caution and prudence in fiscal management, while at the same time building buffers in public finances for the country’s long-term benefit.

“Fiscal policy should remain prudent because of the elevated debt level. As the economy begins to recover, Thailand will need fiscal consolidation with the goal of creating more fiscal space,” she said.

This echoes comments made earlier by Era Dabla-Norris, deputy director of the IMF’s Fiscal Affairs Department, during the IMF–World Bank Group Spring Meeting in April. She observed that fiscal positions across ASEAN vary considerably, but overall, the region’s average debt-to-GDP ratio is lower than that of other emerging markets and developing economies.

Thailand, however, has a slightly higher debt level than most ASEAN peers, exceeding 60% of GDP. The IMF has therefore recommended that the Thai government pursue cautious and frugal fiscal policies.

“On average, in ASEAN, debt-to-GDP ratios are lower than in other emerging markets and developing economies. However, in Thailand, the level is somewhat higher than others in the region, at over 60% of GDP,” she said.

When asked about political uncertainty and border conflicts, the IMF spokesperson said the Fund generally does not comment on domestic political issues. Nevertheless, the IMF is closely monitoring developments, which will be reflected in the revised economic forecasts due in its upcoming October report.

“Thailand is facing uncertainties. The Fund is closely monitoring the situation and assessing the outlook for the economic projections in our October report,” Kozack told the reporter.

Thailand’s persistent fiscal deficit

According to data from the Fiscal Policy Office (FPO), Thailand has been running a fiscal deficit consistently, and the figure is now higher than that of countries with a similar BBB credit rating. The average budget deficit has widened year after year:

Thaksin–Surayud era: –0.8% of GDP

Abhisit–Yingluck era: –2.2% of GDP

Early Prayut era: –2.7% of GDP

Prayut during Covid-19: –3.9% of GDP

Srettha–Paetongtarn era: –4.0% of GDP

Should the ‘Half-Half Co-payment Scheme’ be revived?

Against this backdrop, economists are questioning the government’s plan to revive the Khon La Khrueng (Half-Half) Co-payment Scheme, first introduced under former Prime Minister Prayut Chan-o-cha, now being reconsidered by the Bhumjaithai-led administration under Anutin Charnvirakul. With Thailand’s fiscal space shrinking, the debate is whether such a stimulus measure is appropriate.

Assoc Prof Athiphat Muthitacharoen of Chulalongkorn University’s Faculty of Economics told Bangkok Biz News Deeptalk that the current government only has a four-month window, and therefore must design policies carefully.

He stressed that the government needs to clarify what the scheme aims to achieve. If the target is to support small shops, then the original condition of limiting participation to small shops not registered as juristic persons should be preserved.

However, if the priority is to boost consumption, spending rules may need to be adjusted to increase efficiency. Clear communication with the public on any changes will also be crucial.

“The situation today is entirely different from the Covid-19 era, especially in terms of fiscal ammunition, which is now very limited. With less than 5 billion baht left in the budget, the government would need to reallocate funds from elsewhere. The key question is how to redesign Khon La Khrueng 2.0 so it can stimulate the economy effectively within such tight fiscal constraints,” he said.

Satid Sutipanya