COVID-19 exacerbated the situation, but high levels of household debt are a structural feature of the pre-pandemic Thai economy.
According to recent reports in the bangkok daily Y China South Morning PostHousehold debt in Thailand has reached its highest level in years, with collected statistics by the Bank of Thailand showing that it reached 90 percent of GDP in the fourth quarter of 2021. The pandemic is partly to blame for this. With an economy heavily structured around the export of services and goods, the pandemic hit incomes in Thailand quite a bit, and people would have been forced to borrow to make up the difference.
But that is 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 it has been consistently high, exceeding 100 percent of GDP for many years. So while we can say that COVID-19 exacerbated the situation, this is a structural feature of the pre-pandemic Thai economy.
Around 2010-2011, debt levels in Thailand began to increase significantly. Household debt stood at 68% of GDP at the beginning of 2012 and had grown to 81% at the end of 2015. This coincided with a depreciation of the Thai baht and a large boom in exports. In 2016, Thailand was running a surplus in your checking account greater than 10 percent 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 boom in exports could theoretically be recycled into higher wages for workers in factories and services that provide labor. to those sectors.
And wages saw a big spike between 2011 and 2014 (thanks to a rise in the minimum wage), before slowing down considerably in the years before the pandemic. For example, from the fourth quarter of 2015 to the fourth quarter of 2017, the average monthly salary for a factory worker it increased by only 2 percent. This was a period when Thailand was running very large current account surpluses, suggesting that the gains from the export boom were not turning into large wage increases for workers.
Of course, there are many other reasons why household debt could be rising: Lax underwriting standards and regulatory oversight; expansionary monetary policy that encourages excessive lending; high gas and electricity prices were 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 an important part of the story is that large trade surpluses and growing exports did not translate into correspondingly large wage increases for workers, causing people to turn to various forms of consumer credit.
In Thailand, the government is reluctant to run a deficit to cushion commodity price increases (the Energy Regulatory Commission has just approved a record electricity rate, which is unlikely to help reduce household debt in the short term) and large trade surpluses do not necessarily translate into large wage increases for workers. So it would not be unexpected to find households taking on more and more debt to fill the gap.
None of this should come as a surprise, least of all to government legislators. The numbers have been made available in the databases of the World Bank, the Asian Development Bank and the Bank of Thailand for anyone who wanted to consult. I noted in an article almost two years ago that the time was right for the government to use some of its fiscal leeway during the pandemic to tackle consumer over-indebtedness. Now that inflation is rising and global monetary policy is tightening, and with overall household debt persistently high, that window is narrowing and it’s not immediately clear what the exit strategy will be.