NESDC urges Thai fiscal reform as debt may top 70% of GDP in fiscal 2028

Thailand’s public debt is projected to peak at 70.05% of GDP in fiscal 2028 under the baseline scenario in a 2026 study by the Office of the National Economic and Social Development Council (NESDC). The study identifies uncertainty over revenue measures, including a planned value-added tax (VAT) increase, as a major risk to fiscal stability.

The NESDC’s baseline puts the public debt-to-GDP ratio at 67.97% in fiscal 2026, rising to 69.34% in 2027 and 70.05% in 2028 before declining to 65.74% in 2032. The projection uses economic and fiscal assumptions from the medium-term fiscal framework for fiscal 2027–2030.

The NESDC study, “Thailand’s fiscal risk landscape from a debt dynamics perspective”, assesses risks relating to revenue, expenditure, public debt and fiscal commitments over fiscal 2027–2032. The findings show that Thailand’s debt trajectory is sensitive to economic growth, welfare spending and tax policy.

Thailand’s planned VAT increase remains uncertain

The VAT increase envisaged in the fiscal 2027–2030 medium-term fiscal framework remains highly uncertain, according to the NESDC. Governments have repeatedly maintained a reduced VAT rate below 10% for more than two decades, the study noted.

Progress on other policies capable of generating revenue comparable to a VAT increase has also been limited, the NESDC found, making uncertainty over revenue policy a significant risk to Thailand’s future fiscal stability.

Within the baseline scenario, the NESDC identifies the primary fiscal balance as a factor contributing to debt accumulation. Automatic debt dynamics, by contrast, help lower the debt-to-GDP ratio because assumed economic growth remains higher than the government’s real borrowing costs.

Thailand’s government revenue falls as a share of GDP

Net government revenue averaged 15% of GDP in fiscal 2023–2025, down from 16.5% in fiscal 2011–2016, according to the NESDC. The decline highlights limitations on revenue collection relative to the size of the economy as public spending needs continue to grow.

The NESDC traced Thailand’s fiscal risks to structural constraints and vulnerabilities accumulated over the past decade. Government revenue has declined and fallen short of expenditure by an average equivalent to about 4% of GDP, leading to persistent budget deficits over the past 10 fiscal years and a substantial increase in public debt.

Thailand’s tax system remains heavily reliant on indirect taxes, while property-based taxes play a relatively small role, the NESDC found. A limited tax base, together with constraints relating to VAT registration criteria and tax rates, restricts revenue-raising capacity.

Personal income tax exemptions, expense deductions and allowances narrow the tax base, according to the NESDC. Corporate income tax revenue is concentrated among a small number of large businesses, while effective tax rates recorded in company accounts vary by business size, potentially limiting the scope to raise more revenue from existing tax bases.

Thai spending commitments reach 76.2% of fiscal 2026 budget

Expenditure commitments that must be funded accounted for 76.2% of Thailand’s fiscal 2026 budget, up from 71.7% in fiscal 2016, the NESDC found.

Personnel costs, lump-sum retirement payments and pensions, healthcare and welfare spending are expected to keep increasing, according to the NESDC. These costs are difficult to reduce in the short term because they arise from entitlements and obligations established by law or regulation.

Thailand’s ageing population adds long-term spending pressure and could reduce the room for public investment and measures to cushion economic volatility, the NESDC warned.

The NESDC also identified weaknesses in budget flexibility, the scope to redirect funds towards necessary and cost-effective programmes, and expenditure monitoring, particularly for capital projects. Rising debt and accumulated commitments require larger allocations to cover past obligations, narrowing fiscal space for investment and new policies.

Actual capital expenditure reaching the economy amounts to less than 20% of the total annual expenditure budget because funds allocated for investment are transferred to recurrent spending, the NESDC found. Making the budget respond effectively to national development goals would require time and appropriate structural reform.

Debt servicing limits Thailand’s room for new borrowing

Persistent deficits, crisis-related borrowing and a slow economic recovery have increased public debt and budgetary obligations for principal and interest repayments, according to the NESDC. Servicing existing debt absorbs budget funds and limits the capacity to borrow more for investment or to respond to unforeseen events.

The NESDC cautioned that a high public debt level alone does not establish fiscal unsustainability. Assessments must also consider revenue-raising capacity, fiscal adjustment, debt-servicing obligations, borrowing costs and economic growth to determine repayment capacity and the room to absorb future risks.

Thailand’s off-budget obligations add fiscal pressure

Off-budget commitments, including quasi-fiscal measures under Section 28 of the State Fiscal and Financial Disciplines Act of 2018, create additional exposure, the NESDC found. Public debt and fiscal-balance figures alone may therefore fail to reflect the government’s full obligations.

Direct fiscal commitments include pending reimbursements under Section 28 and welfare obligations, according to the NESDC. Contingent liabilities, including debt guarantees and disaster-related obligations, could also become future budget expenditure.

Outstanding obligations requiring government reimbursement under Section 28 rose from 839.462 billion baht in fiscal 2018 to 1,133.751 billion baht in fiscal 2025, the NESDC found.

The growing Section 28 reimbursement burden requires larger budget allocations and could affect the liquidity of agencies implementing measures on the government’s behalf if repayment allocations do not match outstanding obligations, the NESDC warned.

NESDC urges growth measures alongside spending reform

The NESDC recommended pursuing stronger economic growth alongside expenditure reform to expand fiscal space. Scenario analysis showed that faster growth would lower the debt-to-GDP ratio through both automatic debt dynamics and improvements in the primary fiscal balance.

Reforms targeting particular spending items could also reduce debt pressure, although their effect on the overall debt trajectory was limited within the scope of the measures modelled, according to the NESDC.

The NESDC stressed that the limited modelled impact did not mean expenditure reform was less important. Structural fiscal rebalancing must strengthen economic growth potential and reshape spending together to expand fiscal space as Thailand faces a limited revenue base, quasi-fiscal obligations and population ageing, the study concluded.