For the economy as a whole as well as for individuals, household debt is an issue. Domestic demand, a major engine of growth, is decreased. Additionally, it makes them more financially vulnerable because they run the risk of loan default.
Thailand’s household debt crisis is a significant issue that endangers the stability and economic growth of the nation.The National Economic and Social Development Council (NESDC) has issued a warning that household debt in Thailand is becoming a significant issue.
Main Points
The National Economic and Social Development Council (NESDC) cautions that if jobs and the economy weaken, Thailand’s mounting household debt might become a significant issue.
To stop the growth of domestic spending, debt restructuring must continue along with financial and fiscal restraint at both the individual and business levels.
Thailand’s tax system needs to be reorganized so that there is enough money for investments that will make the nation more competitive and for welfare programs.
Household debt in 4Q22 was THB 15.09 trillion ($470 billion), up 3.5% YoY, and represented 86.9% of GDP. As a result, Thai households have less money available for investment and consumption. They also owe more than they earn.
According to Danucha Pichayanan, the secretary-general of NESDC, household debt will impede the growth of domestic consumption if employment and the economy fall. At the individual and business levels, debt restructuring must go hand in hand with sound financial and fiscal management.
Indebted people owing more than 100,000 baht in about 57% of cases, and more over 1 million baht in 14% of cases. Each person owes 520,000 baht on average. In Thailand, household debt has nearly doubled during the past ten years.
The study discovered that Thais have an average of three loan accounts per person, while 32% of those who are in debt have more than four debt accounts.
The average household debt for workers increased by 25% this year to 272,528 baht from 217,952 baht in 2022, according to the most recent poll by the University of the Thai Chamber of Commerce (UTCC) performed on April 18–24, 2023.
The epidemic made things worse because many individuals lost their jobs or had to take out extra debt to get by during the crisis. Travel bans and lockdowns had a significant negative impact on the tourism industry, which makes up around 20% of the GDP. Many employees in this industry are low-wage earners with little access to formal financing. They frequently turn to rogue lenders who impose exorbitant interest rates and employ harsh practices to collect debts.
A “time bomb” with a potential release date
According to Danucha Pichayanan, secretary-general of the National Economic & Social Development Council, household debt is a “time bomb” that could go off at any time. He asserted that in order to effectively address the issue, the next administration must rigorously monitor it, encourage financial responsibility, and rein in advertising activities that encourage debt accumulation.
He also cautioned that when consumer confidence and demand are impacted by household debt, it will become more obvious when the economic recovery loses steam.
For the economy as a whole as well as for individuals, household debt is an issue. Domestic demand, a major engine of growth, is decreased. Additionally, it makes households more financially vulnerable since they might stop making loan payments or reduce spending if interest rates go up or their income declines. A vicious cycle of slower growth, higher unemployment, and increased debt could result from this. As a result, reducing family debt is essential to the long-term economic and social stability of Thailand.
reasons for a high household debt load
The high level of household debt in Thailand is a result of a variety of reasons. Among them are:
The COVID-19 pandemic has had a significant negative impact on the Thai economy, particularly the export and tourism industries, which are important sources of income for many people. Many households have experienced job loss or income reduction as a result, forcing them to take out larger loans to pay their bills.
Increased minimum wage: The government hiked the minimum wage by 40% nationwide in 2012, giving low-income people more spending money and increasing their consumption. However, this also increased inflation and living expenses, which forced some people to take out larger loans to support their standard of living.
The government implemented a strategy in 2011–2012 that provided tax credits for individuals who purchased their first automobile. After the devasting floods of 2011, this was intended to boost customer demand and help the indigenous auto sector. But this also led to a lot of people borrowing money to buy cars they couldn’t afford, and some of them missed payments as a result.
high family debt’s effects
High levels of household debt are bad for people and the economy as a whole. Among them are:
Consumer spending declines: Families with high levels of debt have a tendency to spend less on goods and services and save more money to pay off their debts. This lowers overall demand and slows the rate of economic expansion.
Financial vulnerability is increased when a household has a high level of debt because they are more vulnerable to outside shocks such changes in interest rates, income variations, or medical emergencies. If they are unable to pay back their loans on time, creditors may impose fines, take legal action, or seize their assets.
Reduced social welfare: Due to their financial challenges, households with high levels of debt may endure stress, worry, or depression. Their family and social interactions, as well as their bodily and mental health, may all be impacted by this.
High household debt solutions
As it involves coordinated efforts from numerous stakeholders, including the government, financial institutions, civil society, and people, there is no simple way to reduce family debt in Thailand. Several possible actions include:
Debt restructuring: In order to help households that are having a hard time repaying their debts, the government and financial institutions can do more. For example, they should consider extending loan terms, lowering interest rates, or waiving fees. This can lessen their financial burden and keep them from getting sucked into a debt trap further down the road.
Financial literacy: The public should be made more financially informed and educated by the government and civil society, especially among young people and low-income groups. They can use this information to better comprehend the dangers and obligations of borrowing money and to decide how much they should spend and how much they should save.
Economic recovery: The government should put in place measures that can increase economic growth and give people more possibilities to find work and earn money. This could help them have more spare money and depend less on debt.
In Thailand, household debt is a complicated and pervasive problem that has a wide range of effects. It is crucial to address it quickly and carefully since it has repercussions for both the personal and national growth of everybody involved.
