New govt faces 263bn-baht fiscal reform test under MTFF plan

Thailand’s fiscal outlook has reached a major turning point after credit-rating agencies Moody’s and Fitch revised Thailand’s outlook to negative, a signal that a fiscal position once seen as a strength is becoming more fragile amid persistent budget deficits and steadily rising public debt.

Against that backdrop, Finance Minister Ekniti Nitithanprapas, also described as deputy prime minister and the economic team lead under Prime Minister Anutin Charnvirakul, put forward a medium-term fiscal framework (MTFF) for 2026–2030 to restructure and rebalance fiscal discipline. The mission is portrayed not as a short-term fix, but as a “major surgery” aimed at restoring credibility with rating agencies and building a stronger fiscal foundation for future governments.

Cutting the deficit and tightening Section 28

A core objective of the MTFF is to reduce the fiscal deficit in a systematic way, targeting a decline from 4.4% of GDP in fiscal year 2026 to no more than 3% by 2029.

The plan also locks the public debt ceiling at no more than 70% of GDP, with no further expansion of the framework, signalling that Thailand will avoid over-borrowing at the expense of future generations.

A key obstacle is off-budget obligations, particularly projects under Section 28 of the State Fiscal and Financial Disciplines Act. Outstanding commitments under this channel have climbed beyond 1.1 trillion baht.

More than 70% of these obligations, the piece says, consist of grant-style subsidies to the agricultural sector through the Bank for Agriculture and Agricultural Cooperatives (BAAC). While such measures may provide short-term relief, they do not raise productivity structurally and create an interest burden that the state must compensate for, estimated at nearly 18 billion baht per year.

Managing this “second wallet” is presented as decisive. As an initial step, Ekniti approved repayment to BAAC of 35 billion baht immediately after taking office to ease pressure on fiscal space and signal to investors that the government is prepared to clear legacy liabilities to strengthen Thailand’s credit standing.

The article links this to S&P Global Ratings maintaining Thailand’s rating at BBB+ with a stable outlook in 2025, despite heavy pressures.

The 263bn-baht revenue challenge

The MTFF argues that spending cuts and tighter debt control alone will not be enough, and calls for an urgent, large-scale overhaul of the tax structure. The plan sets a target to raise government revenue by 263 billion baht by 2027, described as a difficult task with major political obstacles.

The most sensitive measure is a phased increase in value-added tax (VAT). While VAT remains at 7% to support purchasing power in a weak economy, the MTFF sets out a path to raise VAT to 8.5% in 2028, and then to 10% in 2030, to secure a more stable revenue base as Thailand ages.

The article notes that a 1 percentage point VAT increase can generate more than 70–80 billion baht per year, but would raise cost-of-living risks, requiring systematic support for vulnerable groups.

Beyond VAT, the tax reform agenda focuses on three main areas:

• Tax base expansion: bringing income earners outside the system into the tax net through digital tax transformation, improving fairness and raising revenue.
• Carbon tax: aligning with environmental commitments while creating a new revenue stream from high-emission industries.
• Global minimum tax: implementing the Pillar 2 approach to levy at least 15% on large multinational companies to prevent profit shifting, allowing Thailand to collect additional revenue from major global firms operating locally.

The 263-billion-baht target is presented as grounded in calculations of these new tax tools’ potential. If achieved, Thailand’s fiscal space would widen enough to better withstand future shocks.

The political test of continuity

The biggest risk is described as political stability. Parliament was dissolved on December 12, 2025, leaving the Anutin government—described as only about two and a half months old—unable to carry the fiscal “blueprint” through. Investors and rating agencies are now focused on whether the incoming government will have the political will to pursue reforms that may be unpopular but improve fiscal health.

If the next government returns to short-term populist spending, relies heavily on borrowing via Section 28 without discipline, or delays tax reform for electoral gain, the article argues that a credit downgrade risk becomes difficult to avoid.

A downgrade would immediately lift funding costs across the system, affecting government borrowing costs as well as mortgage rates and SME loan rates.

The MTFF tax and fiscal reforms are framed as a foundation for “fiscal security”, described as Thailand’s last line of defence at a time of slow recovery and rising global competition. A stronger fiscal base would also enable proactive fiscal policy during crises, with the article citing schemes such as “SMEs Credit Boost” as an example of using fiscal mechanisms to share risk and support lending when commercial banks are reluctant to extend credit.