Thailand’s Economy: World Bank Warns of Impending Debt Crisis
Thailand’s ambitious economic growth strategy, fueled by expansionary fiscal policies, faces significant headwinds, according to a new World Bank report. While the government’s stimulus efforts show promise, the World Bank cautions about escalating costs associated with an aging population, crucial infrastructure and technological investments, and the looming threat of unsustainable public debt.
The World Bank’s Thailand Economic Monitor, released Friday, presents a complex picture of Thailand’s economic landscape. While acknowledging the government’s proactive approach, the report emphasizes the need for fiscal prudence. It highlights the potential strain from Prime Minister Paetongtarn Shinawatra’s flagship digital wallet program—a cash handout initiative designed to boost consumer spending—which, while aiming to stimulate the economy, has contributed to mounting fiscal pressures.
Thailand’s economic performance has lagged regional neighbors for a decade, averaging under 2% annual growth. This sluggish growth stems from a combination of factors, including surging household debt and a manufacturing sector struggling to compete with cheaper Chinese imports. Further complicating the situation are external uncertainties, including the potential for renewed trade tensions with the United States, echoing former President Donald Trump’s threats of reciprocal tariffs. To counter these challenges, the government has implemented various measures, including increased budget spending, cash handouts, and debt relief initiatives.
The World Bank projects Thailand’s economic growth to accelerate to 2.9% this year, building on 2.6% growth in the previous year. This projected growth is primarily driven by stronger domestic demand and the government’s fiscal stimulus. However, the report anticipates a slight slowdown to 2.7% growth in 2026, with Thailand’s output reaching its potential by 2028.
A key concern is escalating public debt. With increasing pressure to fund social programs and invest in human capital due to an aging population, the World Bank forecasts Thailand’s public debt-to-GDP ratio could reach the statutory ceiling of 70% within five years, up from an estimated 64.8% at the end of the current fiscal year. This rising debt burden underscores the need for fiscal responsibility and sustainable spending.
The report suggests several strategies to enhance Thailand’s fiscal resilience: reducing regressive energy subsidies, increasing tax revenue, and accelerating public investments in infrastructure, new technologies, and human capital. These recommendations aim to bolster long-term economic growth while mitigating rising debt risks.
The World Bank also addresses monetary policy, suggesting the Bank of Thailand’s cautiously accommodative stance is appropriate to support the ongoing recovery. However, the report stresses the importance of targeted action to address household debt burdens while minimizing credit tightening and maintaining financial stability. The Bank of Thailand, which maintained its policy rate at 2.25% in December following an October cut, will review its monetary policy stance on February 26th. The central bank’s decisions will be closely watched as Thailand navigates the delicate balance between stimulating growth and managing fiscal risks. The country’s success in addressing these challenges will be crucial to its long-term economic prosperity.
