Fitch flags political hurdles to Thailand’s deficit-cut plan and VAT hikes

A Fitch Ratings report published on 10 February 2026 said Thailand’s election outcome points to policy continuity under a Bhumjaithai-led administration, even if a new coalition government is formed. Fitch stressed that the key determinant of Thailand’s sovereign rating going forward will be the new government’s economic and fiscal policy choices.

Fitch assessed that Bhumjaithai and its allies are likely to be able to form a coalition government, reducing the risk of post-election disruption. It said the increased number of seats held by Bhumjaithai and its partners could result in a more stable government than in the past.

The agency said coalition stability will influence whether Thailand can reduce structural political uncertainty and deliver a more predictable fiscal policy. It noted Thailand’s long history of political unrest and said that since the May 2023 election the country has seen three prime ministers.

However, Fitch flagged that bargaining among coalition parties could delay fiscal consolidation and potentially alter the medium-term fiscal framework (MTFF) in a material way.

The agency said it is watching whether the incoming government prioritises structural reforms or focuses mainly on short-term stimulus. It cited measures such as the “Khon La Khrueng” co-payment scheme—

While such measures can lift demand in the short term, Fitch warned that without appropriate offsets, additional coalition-driven spending could make deficit reduction harder.estimated to cost 0.8% of GDP—along with support for SMEs and efforts to address household debt.

Under the current MTFF, Thailand aims to narrow the budget deficit from 4.4% of GDP in fiscal year (FY) 2026 to 2.1% by FY2030, with public debt expected to peak in FY2028. Fitch said the plan relies on assumptions that are “politically difficult”, particularly a phased increase in value-added tax (VAT) to 8.5% in FY2028 and to 10% in FY2030.

Fitch reiterated that it shifted Thailand’s outlook to “negative” in September 2025 due to weaker fiscal metrics, underscoring that the government’s ability to stabilise the public-debt-to-GDP ratio remains crucial.

It warned that failure to cut the deficit in line with targets could undermine confidence and potentially lead to a sovereign rating downgrade. In the near term, Fitch said a key factor will be whether the government can align economic support measures with a credible and consistent deficit-reduction path.

‘Ekniti’ insists fiscal discipline will be upheld

Ekniti Nitithanprapas, Deputy Prime Minister and Finance Minister, said the caretaker government would continue working while a new government is formed. He said Thailand must prioritise economic restructuring, grounded in financial and fiscal discipline, to maintain confidence amid close foreign scrutiny.

“Everyone knows the country must focus on restructuring the economy, and crucially this must be anchored in fiscal discipline, because foreigners are watching Thailand’s direction,” he said, adding that the government would not pursue populist-style policies.

Benjarong Suwankiri, an assistant minister at the Finance Ministry, said the Thai economy had begun to show signs of recovery. He said growth last year was not below 2.2%, and fourth-quarter growth exceeded 1.8%—higher than previously feared. For FY2026, he noted the World Bank forecasts 1.6% growth and the ministry estimates 2%, but the government aims to push the economy back towards its 3% potential growth rate.

PDMO says Fitch’s remarks should not derail FY2027–30 plan

Jindarat Viriyataveekul, director-general of the Public Debt Management Office (PDMO), said Fitch’s latest observations were not overly worrying, citing expectations that the same party would remain in place and the finance minister would remain unchanged.

She said this should help maintain momentum for the medium-term fiscal framework for FY2027–30, including efforts to cut the fiscal deficit to no more than 3% of GDP by FY2029 and keep public debt below 70% of GDP.

“If the government can deliver within the medium-term fiscal framework, the rating agencies’ warnings should not be a concern—and it is possible Thailand’s outlook could be revised back to Stable,” she said.

Deficits projected to persist through FY2030

A Finance Ministry source said the FY2027–30 medium-term fiscal plan, already approved by the Cabinet, forecasts rising revenue but continued fiscal deficits when weighed against expenditure:

• FY2026: Spending 3.780 trillion baht; deficit 860 billion baht
• FY2027: Spending 3.788 trillion baht; deficit 788 billion baht
• FY2028: Spending 3.826 trillion baht; deficit 681 billion baht
• FY2029: Spending 3.864 trillion baht; deficit 590 billion baht
• FY2030: Spending 3.903 trillion baht; deficit 481 billion baht

Academic warns stability alone is not enough

Assoc Prof Dr Athiphat Muthitacharoen, a lecturer at the Faculty of Economics, Chulalongkorn University, and director of Chula’s Economic Research Centre, said Fitch’s report signals that political stability alone is insufficient; medium- to long-term fiscal and economic policy is also crucial, and closely watched by rating agencies.

He said the key question is whether Thailand can reduce the budget deficit under the FY2027–30 framework as planned. Fitch, he said, also scrutinises whether stimulus measures such as the “Khon La Khrueng Plus” programme—previously costing about 0.8% of GDP—can generate sufficient growth, alongside other projects intended to keep GDP expanding.

He added that Fitch places importance on strengthening government revenue, including broadening the tax base. Thailand’s tax revenue, he said, has declined from about 17% of GDP to around 15% of GDP—signalling reduced revenue-collection capacity.

On VAT increases, he said the political feasibility is a core concern, as tax rises are typically difficult to implement. If a VAT increase becomes necessary, he said, it should be considered through a long-term fiscal lens, including relief measures for those affected and steps to ensure fairness—so taxpayers feel public spending delivers value.

Call to widen the tax base and rein in spending growth

He also urged the government to bring more people into the tax system. Currently, only about 4.7–4.8 million people are in the personal income tax system, while the average annual growth in personal income taxpayers from 2014 to 2023 was around 1.8%—which he said reflects limited success in expanding the tax base. He added that tax deductions should also be reviewed to avoid excessive revenue losses.

Another area to watch, he said, is controlling public expenditure. The medium-term plan states that public spending growth should be capped at no more than 1% per year to support fiscal discipline. He called this highly challenging, noting that since the Covid-19 crisis, Thailand’s public spending has typically risen by 3–4% per year. Any serious effort to restrain spending, he said, would require reforms to recurrent expenditure, which accounts for roughly 70% of the budget—such as civil-service salaries and medical welfare costs.

On Fitch’s concern that coalition governments may add more stimulus spending, he said rating agencies want a stable government—and a sufficiently strong finance minister—able to push back against high-cost populist policies that could undermine fiscal stability.