Previous Quarterly Editions
TREND ►
Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: MediumAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Thailand is not in danger of a debt crisis, but debt is an increasing concern. The approximate debt-to-GDP ratio is currently at 60%, of which two-thirds is external debt. In July 2023, household debt swelled to US$455 billion, or 90.6% of GDP. The new government headed by Prime Minister Srettha Thavasin, whose Pheu Thai Party leads the ruling coalition, has proclaimed that reducing debt is a top priority. On September 26, the cabinet approved US$5.3 billion in new borrowing for fiscal year 2024 to finance the budget deficit. Existing debt is valued at US$45 billion, with US$10.83 billion in debt repayments.
Expropriation Risk: 54 54 54 54 ►Political Violence Risk:58 57 60 59 ▼Terrorism Risk:53 55 55 57 ►Exchange Transfer and Trade Sanction Risk: 45 54 45 45 ►Sovereign Default Risk:47 47 47 47 ►
However, three scenarios, whether singly or in combination, could bring Thailand closer to the edge of a debt crisis. In the first, Thailand’s technocratic community worries that the return of the Pheu Thai Party as leader of the government coalition will lead to another era of populist spending, ranging from direct payouts to subsidies for important sectors such as agriculture. Apart from the danger of increased corruption, economists worry that the new government will open the fiscal taps too widely. During the election campaign, Srettha promised that every Thai citizen over the age of 16 would receive US$260 in digital payments; if implemented, the total payout would be equal to nearly 3% of GDP.
In the second case, Thailand’s sluggish growth rate — 1.8% in the second quarter of 2023 compared with 2.6% in the first quarter — is due primarily to slow recovery from the COVID-19 pandemic and low consumer spending as a result. The country’s high household debt is particularly worrisome because it is primarily non-housing debt. A significant rise in taxation would be unpopular across the board, and economists worry that government attempts to alleviate household debt will involve transfers to public debt.
In the third case, there is a broad commitment to infrastructure development across the political spectrum, but that will likely involve acceding to pressure from Beijing to extend rail and road projects under China’s Belt and Road Initiative (BRI). A BRI partnership is in progress to build a rail link between Vientiane in Laos and Nakhon Ratchasima in northern Thailand, but Beijing is pressing Bangkok to accede to a further link to Bangkok. Previous governments have hesitated because of finance and debt issues.
Deployment of Pheu Thai’s populist initiatives early in the new administration will tamp down public discontent over the state the economy in the short term; however, if Thailand moves closer to a serious debt crisis, it will increase opposition to the new administration on both ends of the political spectrum. A noticeable rise in debt linked to infrastructure partnerships with China would be particularly inflammatory, as younger Thais are increasingly wary of Chinese domination.
The expropriation risk in Thailand remains low but will likely rise with plans for infrastructure development and for new special economic zones, particularly in border areas.
Land rights for the poor is a rising political issue in Thailand, and the current administration will tread carefully; Pheu Thai’s political base is Thailand’s poorest rural regions.
The government will also aim to keep expropriation risks low to attract foreign investors, especially since Thailand is falling behind Vietnam and Indonesia in attracting foreign direct investment.
TREND ▼
Thailand has emerged from a three-month period of political uncertainty in which the results of the May general elections were reconfigured to exclude the Move Forward Party, which won the largest number of seats in the House, from the government coalition and put Pheu Thai at the head. Prime Minister Srettha did this by bringing the two military-linked parties, Palang Pracharat and the Thai Union Party, into the coalition. Pheu Thai’s reward for doing so was the safe return to Thailand of former Prime Minister Thaksin Shinawatra and a royal pardon for him.
However, having choreographed the new ruling coalition, Srettha now faces doubts and opposition on several fronts. Pheu Thai’s rural voters are increasingly vocal in their disapproval of his bargain with the military, as are younger voters in Bangkok. This risks the revival of a “Red Shirt” uprising, similar to that of 2008 to 2009, if the administration compromises with the military on critical issues. Younger voters will likely leave Pheu Thai for Move Forward; if that party renews its call for street demonstrations, former Pheu Thai voters may join them. Lastly, the risk of a military intervention will rise if Pheu Thai’s populist program raises corruption levels to a conspicuous degree.
Return to contents Next Chapter
With a long-standing Muslim separatist movement in the southern provinces, Thailand continues to be at risk for terrorism. Previous Pheu Thai administrations, particularly that of Thaksin, have exacerbated this conflict, and Srettha will need to be cognizant of that in handling relations with the separatist groups. There is also some risk of political instability in the south related to the May 2023 elections: A by-election in September gave a surprising win to the Move Forward Party, which means that discontent over Pheu Thai’s political bargain with the military may be spreading around the country.
The Thai baht fell 2.8% in September, making it the worst-performing currency in Asia, but economists believe that it is poised for a rebound with Srettha’s new economic policies. The fall of the baht was attributed to capital outflows due to interest rate differentials. The weaker currency is likely to encourage exports and tourism, both of which have performed poorly this year, and the government does not view the currency drop as overly alarming.
Thai fiscal policy will also be affected by regional and global geopolitical trends. On September 27, 2023, the central bank of Myanmar approved the use of the baht for international payments and settlement transactions — an attempt to conserve its dwindling dollar reserves as the country’s economy continues to plunge downward. In an attempt to lock in its own supply chains, particularly with Southeast Asia, China is pressing Thailand and other Mekong countries to increase the use of the yuan in transactions.
The near-term risk of default on sovereign debt is low, but current trends could raise of risk of default in the midterm if not addressed seriously.
