GDP outlook cut as Thailand sets 3.78tn baht budget, debt nears ceiling

Thailand’s economic managers have downgraded growth expectations for the next two years as global uncertainty intensifies, while the government moves forward with a tightly constrained fiscal plan that pushes public debt close to its legal ceiling.

At a high-level meeting chaired by Prime Minister Anutin Charnvirakul on April 22, key agencies, including the Finance Ministry, the Budget Bureau, the Office of the National Economic and Social Development Council (NESDC) and the Bank of Thailand, reviewed the fiscal framework for the 2027 budget year amid mounting pressure from geopolitical risks, particularly the ongoing conflict in the Middle East.

The meeting agreed to maintain the fiscal 2027 expenditure ceiling at 3.788 trillion baht, in line with an earlier Cabinet resolution. This represents only a modest increase of 7.4 billion baht, or 0.2%, from the previous year, reflecting tightening fiscal space. Government net revenue is projected at 3 trillion baht, up 2.7% year-on-year, while the budget deficit is set at 788 billion baht, equivalent to 3.9% of GDP, a reduction from the previous year in line with the medium-term fiscal consolidation plan.

Despite these efforts, Thailand’s growth outlook has weakened. The NESDC now expects GDP to expand by just 1.4% in 2026, before recovering to 2.2% in 2027, assuming the Middle East conflict ends within the first half of 2026. The Bank of Thailand offered a similar assessment, projecting growth at 1.5% and 2.3% respectively over the same period. Inflation is forecast to rise to 2.5–3.5% in 2026 before easing in the following year.

Officials warned that a prolonged conflict could push global oil prices as high as US$110–115 per barrel, significantly weighing on Thailand’s economic growth by driving up production costs and disrupting supply chains.

The structure of the 2027 budget underscores these constraints. Recurrent expenditure accounts for 73.3% of total spending, leaving only 20.8% allocated to investment, with the remainder devoted to debt repayment and treasury replenishment.

To bolster revenue collection, the government is considering tax reforms, including adjustments to personal income tax allowances, a potential one-baht-per-litre increase in fuel tax, and a levy on outbound travel.

Public debt remains a central concern. By the end of fiscal 2027, debt is projected to reach 13.79 trillion baht, or 69.36% of GDP, just below the statutory ceiling of 70%.

At the same time, Thailand faces a heavy debt-servicing burden, with 1.45 trillion baht in obligations maturing that year, rising to 1.81 trillion baht when interest is included. However, only 151 billion baht, about 4% of the total budget, has been allocated for principal repayment, forcing the Finance Ministry to rely heavily on refinancing strategies.

Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas said Thailand still has limited borrowing capacity of around 4% of GDP, equivalent to roughly 800 billion baht, under the current debt ceiling framework. He noted that the ceiling, set by the fiscal policy committee, could be adjusted if necessary, as was done during the Covid-19 crisis.

Before turning to additional borrowing, however, the government is focusing on reallocating existing funds to maximise efficiency.

Plans are under way to reclaim unspent budget allocations from fiscal 2026 projects that fail to sign procurement contracts by the April 30 deadline. This is expected to free up between 70 billion and 100 billion baht, which, combined with 25 billion baht in remaining central funds, could provide a fiscal buffer of up to 125 billion baht.

These funds will be deployed under a three-pronged strategy. First, targeted support will be directed at vulnerable groups, including low-income households and transport operators, to cushion the impact of rising energy costs and prevent price pass-through to consumers. Currently, such support costs the government between 7 billion and 10 billion baht per month, with future spending dependent on how long the crisis persists.

Second, the government aims to accelerate Thailand’s economic transition, particularly by reducing reliance on imported fossil fuels. Measures under consideration include promoting rooftop solar installations, enabling households to sell excess electricity back to the grid, subsidising electric vehicles, and introducing a Direct Power Purchase Agreement (Direct PPA) system to allow private-sector trading of clean energy.

Third, a longer-term reform agenda will prioritise investment in human capital and infrastructure, with a strong focus on developing AI-related skills to enhance workforce productivity alongside broader energy-sector reforms.