PUBLISHED: 14 Feb 2025 at 14:10
Thailand’s strategy of pursuing an expansionary fiscal policy to boost economic growth is facing challenges due to rising costs related to elderly care and the need to maintain sustainable public debt levels, as highlighted by the World Bank.
The latest Thailand Economic Monitor report indicates that the Southeast Asian nation could enhance its fiscal resilience by cutting back on regressive energy subsidies, boosting tax revenue, and accelerating public investments in vital sectors such as infrastructure, new technology, and human capital.
The World Bank noted, “Pro-growth consumption-stimulating measures, including the digital wallet initiative, have intensified fiscal pressures,” referencing the ambitious cash handout program implemented by the current government.
Historically, Thailand’s economic growth has lagged behind its regional counterparts, averaging less than 2% over the past decade, primarily due to rising household debt and struggles within the manufacturing sector due to competition from cheap imports. In response, the government has increased budget spending, introduced cash handouts, and rolled out debt relief measures to boost growth amidst ongoing uncertainties, including trade threats.
Looking ahead, the World Bank projects that Thailand’s economic recovery is poised to gain traction this year, driven by stronger domestic demand and fiscal stimulus. Growth is expected to rise to 2.9% in 2025, compared to 2.6% last year, although a slight slowdown to 2.7% is anticipated in 2026. Overall, the economy is forecast to reach its potential output level by 2028.
As pressures mount for increased social spending and public investment due to a growing elderly population, the country’s public debt ratio is projected to increase significantly, reaching 70% of GDP within five years, up from an expected 64.8% at the end of the current fiscal year.
The report emphasizes the necessity for the Bank of Thailand to maintain a cautiously accommodative monetary policy to support recovery. It also highlights the need for targeted household debt relief while ensuring financial stability. The Bank of Thailand, which held the policy rate steady at 2.25% in December after a surprise cut in October, is set to reevaluate this rate on February 26.
