Thailand risks credit downgrade as low growth erode confidence

Amonthep Chawla, Executive Vice President at CIMB Thai Bank, said the risk is real, noting that Moody’s has already revised Thailand’s outlook from “stable” to “negative”. He added that other agencies, such as Fitch and S&P, could follow suit in the near future.

High public debt remains a critical factor, much of it carried over from previous administrations. With the government’s latest budget already passed, fiscal pressures are expected to continue mounting.

“The key challenge is how to generate additional revenue while containing spending,” Amonthep said, warning that the fiscal deficit will otherwise deepen and add to the country’s public debt burden. 

He called for more targeted spending, particularly measures aimed directly at low-income households, similar to the “Let’s Go Halves” co-payment scheme, which used limited funds but had a strong multiplier effect in the economy.

However, he emphasised that the main driver of any downgrade is not fiscal weakness but Thailand’s long-standing low-growth trap. The economy has been expanding at only 2–3% annually, far below potential and well behind regional peers.

This prolonged subpar growth is abnormal. Thailand used to perform much better, but now its growth potential itself is being revised down, Amonthep noted.

He urged the government to pursue structural reforms that lift long-term growth, not just short-term handouts. “If Thailand remains stuck at around 2% growth, the risk is not just a negative outlook but an actual downgrade in ratings. Compared with our neighbours, Thailand is looking weaker.”

Thailand’s low growth and fiscal risks raise downgrade concerns

Thailand faces rising risks of a sovereign credit downgrade as the economy struggles with slow growth, mounting public debt and structural weaknesses, according to Burin Adulwattana, Managing Director and Chief Economist at Kasikorn Research Centre.

He noted that if GDP growth remains weak while public debt continues to climb, the debt-to-GDP ratio will increase rapidly. Thailand’s economy has been recovering slowly, and low growth is accelerating the pace of debt accumulation.

A key concern is fiscal discipline. Thailand has run persistent budget deficits of 4–10% of GDP annually in recent years, pushing debt levels higher and closer to the legal ceiling. “The crucial question is how each government will manage fiscal discipline to prevent chronic deficits,” Burin said.

Populist spending adds to the risks. Cash handouts and welfare schemes alone will not lift economic growth, and if such programmes continue to expand while the tax base shrinks due to an ageing population, rating agencies may consider downgrades. 

Burin warned that Thailand could face challenges similar to France, where ballooning welfare costs strain public finances.

Structural vulnerabilities are another concern. Heavy reliance on specific sectors such as tourism, automotive manufacturing and exports leaves Thailand exposed to external shocks. A downturn in any of these could slash national revenue and tax collection.

Burin outlined measures to restore fiscal balance and credibility:

• Expand the tax base – bring informal workers and businesses into the tax system and plug loopholes.
   
• Raise tax rates gradually – particularly value-added tax (VAT).
   
• Cut spending – reduce recurrent expenditures by shrinking the public payroll and adopting technology such as AI to improve efficiency.
   
• Target welfare – ensure benefits go only to eligible groups to avoid duplication.
   
• Avoid wasteful populism – limit policies seen as excessive or ineffective, and allocate budgets more prudently.

Thailand faces two decades of chronic deficits

Thailand has run chronic budget deficits for more than 20 years without signs of recovery, according to Athiphat Muthitacharoen, Director of the Chulalongkorn Economic Research Centre. 

He noted that Moody’s recently cut the country’s outlook to negative, while other rating agencies have flagged public finance as a growing risk. Compared with peer economies, Thailand’s fiscal position is clearly weaker.

The cost of servicing debt is also rising. Interest payments currently account for 9% of state revenue and are projected to reach 11% next year—above the threshold for investment-grade economies. Athiphat said the outlook downgrade is a critical warning, and if Fitch and S&P follow suit, pressure on Thailand will intensify.

Tax reform is now seen as the most feasible lever, as spending cuts are politically harder to implement. Yet Athiphat stressed that Thailand is not in a fiscal crisis: most debt is baht-denominated, long-term, and over 80% is held domestically. The real risk lies in market confidence—if investors believe fiscal discipline is lacking, borrowing costs could spike.

Half of state revenue is already allocated to debt repayment. The tax base remains narrow: 75% of tax income comes from personal income tax, corporate tax and VAT. 

Only 14% comes from personal income tax, with just 4 million taxpayers—around 10% of the workforce—while a vast informal economy and growing exemptions have cost the state about 20% of potential revenue.

Corporate income tax accounts for 27% of revenue, but generous Board of Investment (BOI) privileges, worth over 200 billion baht annually—or 30% of corporate tax income—undermine collections. 

Transparency has also declined, as data on tax expenditures has not been published since 2018. Corporate tax is capped at 20%, below the regional average of 23%. VAT contributes the most at 23%, though still below the legal ceiling of 10%, with any increase considered politically sensitive.

Athiphat recommended a three-pronged approach:

• Tax burden map – Publish a breakdown of who pays what to ensure fairness and build social consensus.
   
• Transparency and oversight – Disclose the cost of tax privileges and establish an independent fiscal institution to monitor them.
   
• Long-term roadmap – Follow models like Singapore and Japan, gradually closing loopholes, broadening the tax base, and phasing in higher VAT if needed.