Economic experts are not happy with the policies pursued by the outgoing administration to increase the income of Thai households, as well as the proposals of the parties who could form the next government.
“The income guarantee scheme for farmers implemented by the outgoing government did not work, while the debt moratorium policies proposed by many political parties in contention to form the new government make no sense,” said Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand.
The income guarantee scheme for farmers costs the exchequer over 100 billion baht a year.
“This subsidy without attached conditions is a waste of taxpayers’ money,” he said. “There should have been conditions set on increasing productivity and reskilling of farmers,” he said.
The Democrat Party has vowed to continue this policy if it were to be a part of the new ruling coalition.
Somporn also does not agree with the debt moratorium proposed by Pheu Thai and Bhumjaithai parties. “It could become a moral hazard,” he warns.
The keys to reducing household debt and increasing income sustainably are through improving productivity and putting in place financial discipline, he said.
Raising the minimum daily wage would not help either if it was not accompanied by an increase in worker productivity, the experts said, though they agreed with the measures currently implemented by the Bank of Thailand (BOT) to reduce household debt to 80 percent of gross domestic product (GDP).
Worsening crisis
The average Thai household has accumulated debt of 559,400 baht, up 11.5 percent from last year, according to a survey by the University of Thai Chamber of Commerce (UTCC). “It is the highest level in over 15 years of our survey,” said Thanawat Pholwitchai, rector of the UTCC.
About 80 percent of the debt amount is owed to financial institutions and 20 percent to loan sharks, said Thanawat, who is also chief advisor of the Center for Economic and Business Forecasting of the UTCC.
What’s behind the high debt?
The key reasons for the high debt levels are: lack of spending discipline, spending beyond means, making mistakes in investment, and lack of financial literacy. He projected that the debt would peak next year.
The persistent debt accumulation partly was also caused by slower economic growth as a result of trade wars between major economic powers, the COVID-19 pandemic and the slow recovery of the economy in the post-pandemic phase.
Despite Thailand’s successful holding of the general election on May 14, the formation of the new government has been blocked by senators who were appointed by coup leaders.
There is uncertainty about the economic outlook, and the cost of living has been rising. People will remain trapped in the low-income cycle at least until early next year, he said.
Household debt remains high at 90.6 percent of GDP, totalling 15.96 trillion baht at the end of the first quarter this year. However, Thanawat was optimistic that the household debt would not be a threat to economic stability if the GDP expands, rather it would be a problem of individual debtors.
The Thai economy grew 2.6 percent last year while the BOT has forecast growth rate to be 3.6 percent this year.
Mismatch of income and expenditure
The debt survey asked 1,300 respondents nationwide between July 17-21 this year. The majority replied that they had low income and could not meet their expenses.
The survey also found that in order to make ends meet, they had resorted to borrowing from banks, reduced spending, and sought additional income. Around 69.3 percent of respondents had admitted that their pattern of spending had not gone as planned; 60.7 percent of respondents said they had indulged in excessive spending, and 47.2 percent said they had drawn from future income for current spending.
Speaking about their current situation, 54.7 percent said that debt was rising higher than their income. Looking ahead, 60.4 percent of them believed that their debt would be higher than the rise in their income.
Around 65.6 percent of respondents said they had borrowed from financial institutions, 31.2 percent owed debt to both financial institutions and loan sharks, and 3.2 percent owed money to loan sharks. Each family has an average debt of 559,408 baht. They have to repay, on average, 16,742 baht a month — 12,012 baht to financial institutions and 4,712 baht to loan sharks.
BOT steps in
The BOT has launched measures to solve the household debt problem by working with both state-owned banks and other financial institutions. The central bank on July 21 issued additional measures focusing on responsible lending and tackling the persistent debt category that should be closed within five years and the interest rate charged should not exceed 15 per cent a year.
The central bank also plans to ask banks to charge interest rates on risk-based pricing and set the debt-service ratio at an appropriate level as part of efforts to reduce the debt spiral and prevent new debt from lapsing into bad debt.
According to the Thai Bankers’ Association, as of the end of April there were 2 million accounts having a combined debt of 1.88 trillion baht under restructuring, down sharply from the peak of 6.12 million accounts and debt of 4.2 trillion at the end of July 2020.
The BOT aims to reduce household debt to lower than 80 percent of Thailand’s GDP within five years.
BOT deputy governor of financial institutions stability Ronadol Numnonda told a press conference last week that the measures launched by the central bank would help deal with household debt in a sustainable manner.
He said such measures would help in dealing with non-performing loans, persistent debt, new debt and informal debt effectively.
The BOT plans to unveil measures related to responsible lending on January 1 next year and another related to persistent debt on April 1, he said.
He said cooperation from related agencies, as well as a change in debtors’ and creditors’ behaviour was necessary to tackle the issue.
Thailand could face a “lost year” if no government formed soon
Challenge for new government
Many political parties pledged to increase the income of the people during the campaign for the May 14 general election. Many believed that a higher economic growth rate could lessen the household debt.
The Pheu Thai Party, which could lead the next government, claims its economic policies would drive economic growth at 5 percent during its four-year term. The party has promised to implement a debt moratorium for small and medium-sized enterprises for one year and debt suspension for farmers for three years. The party has also proposed a hike in minimum daily wage to 600 baht and 25,000 baht monthly salary for new graduates.
The Bhumjaithai Party, which has the third highest number of seats in the lower House, has proposed a debt moratorium for farmers for three years.
Income inequality
High economic growth alone, however, does not ensure widespread benefits to a large number of households if wealth is concentrated in the hands of a few groups of people.
Against this backdrop, apart from the plan to raise the minimum wage to 450 baht a day, the Move Forward Party is focused on income inequality.
The immediate plan is to liberalize alcoholic beverage production, which is currently dominated by two giant producers. Small players face barriers, as the current law requires a high investment amount for new entry. The opportunities would be vast for small players if the monopoly ends. Krungsri Research estimated the market value at 473 billion baht in 2020, or about 64 percent of the total beverage industry.
By Thai PBS World’s Business Desk
