Beat ASEAN | Economy | South East Asia
COVID-19 has exacerbated the situation, but high levels of household debt are a structural feature of the Thai economy that predates the pandemic.
According to recent reports from the Bangkok Post and the South China Morning Post, household debt in Thailand has reached its highest level in years, with statistics compiled by the Bank of Thailand showing that it reached 90% of GDP in the fourth quarter of 2021. the pandemic is partly responsible for this. With an economy heavily structured around the export of services and goods, the pandemic has hit incomes in Thailand hard, and people have reportedly been forced to borrow to make up the difference.
But that’s only part of the story. Household debt was already high in Thailand before the pandemic, reaching 78.8% of GDP in the first quarter of 2019. And domestic credit to the private sector has been consistently high, exceeding 100% of GDP for many years. So while we can say that COVID-19 has exacerbated the situation, it is a structural feature of the Thai economy that predates the pandemic.
Around 2010-2011, debt levels in Thailand began to increase significantly. Household debt stood at 68% of GDP at the start of 2012 and had reached 81% by the end of 2015. This coincided with a depreciation of the Thai baht and a major export boom. In 2016, Thailand had a current account surplus of over 10% of GDP.
The effect that a large trade surplus has on a particular economy depends on how the gains are distributed. In Thailand, where exports come mainly from the sale of manufactured goods and machinery to foreign buyers and from the tourism sector, a big export boom could theoretically be recycled into higher wages for factory and service workers who supply labor in these sectors.
And wages rose sharply from 2011 to 2014 (thanks to a rise in the minimum wage), before slowing considerably in the years leading up to the pandemic. For example, from the fourth quarter of 2015 to the fourth quarter of 2017, the average monthly salary of a factory worker increased by only 2%. It was a period when Thailand was accumulating very large current account surpluses, suggesting that the gains from the export boom were not being converted into large wage increases for workers.
There are of course many other reasons why household indebtedness could rise: lax underwriting standards and regulatory oversight; accommodative monetary policy encouraging excessive lending; with high gas and electricity prices being passed on to consumers, especially during the commodity boom of the mid-2010s. But looking at the overall structure of the Thai economy, it seems that a significant portion of the story is that large trade surpluses and booming exports were not translated into corresponding wage increases for workers, causing people to turn to various forms of consumer credit.
In Thailand, the government is reluctant to run deficits to cushion commodity price increases (the Energy Regulatory Commission has just approved a record electricity tariff, which is unlikely to help reduce household debt anytime soon) and large trade surpluses are not necessarily enough. result in significant wage increases for workers. It would therefore not be unexpected to see households taking on more and more debt to fill the void.
None of this should come as a surprise, let alone government policymakers. The figures are readily available in the World Bank, Asian Development Bank and Bank of Thailand databases for anyone who wants to look them up. I noted in an article nearly two years ago that now is the time for the government to use some of its fiscal space during the pandemic to deal with consumer over-indebtedness. Now that inflation is soaring and global monetary policy is tightening, and overall household indebtedness remains consistently high, that window is shrinking and it is not immediately clear what the exit strategy will be.