Thailand trapped in household debt quagmire

Most Thai households were mired in high debt even before COVID-19 hit in early 2020. For many years, the average Thai worker struggled to make ends meet, forcing them to rely on borrowing .

The latest crises on a global scale, like the lingering pandemic and its plethora of variants, and the Russian invasion of Ukraine have only pushed them into a deeper debt hole.

Political Focal Point

In the third quarter of last year, household debt rose 4.2% year-on-year to 14.35 trillion baht ($434.8 billion), or 89.3% of gross domestic product (GDP). ), according to the National Economic and Social Development Council (NESDC). .

This dire situation provided fodder for opposition politicians to attack the coalition government led by the Palang Pracharath party.

Recently, Kla party leader Korn Chatikavanij floated an idea to get rid of debt, sparking a debate among netizens.

Korn, also a former finance minister, has promised to work with banks to provide clean loans to people engaged in small businesses, such as street food vendors or farmers nationwide.

According to Korn’s plan, the three-year loan would charge an interest rate as low as 2.75% per annum, and each borrower could get between 30,000 and 100,000 Bt.

Korn’s suggestion comes just as his party prepares to contest Bangkok City Council elections slated for May and a possible early general election for the House of Representatives in case a political mishap leads to the dissolution of the lower house. of Parliament this year.

He defended his plan, saying it was not a far-fetched idea, saying he helped many people get out of debt during his tenure as finance minister from 2008 to 2011.

Other opposition politicians have long raised the issue of high household and state debt, accusing the government of mismanaging the economy. Household debt is likely to be a hot topic in opposition political campaigns should a snap election take place.

In response, the government blamed the impact of COVID-19, which weighed on the economy and led to high and persistent household debt.

To demonstrate its commitment, the government recently announced 2022 as the year of resolving the household debt crisis plaguing the country. The government and the Bank of Thailand have asked public banks and other lenders to help retail borrowers and small businesses restructure their debts, for example by reducing the interest rate and rescheduling debt payments. debt.

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Main causes of debt

Widening economic inequality has been blamed by many economists as a major contributor to the debt problem. They say a small minority are reaping substantial economic gains while the vast majority are trapped in low income and high debt. The other reason is slower economic growth.

Since leading the military coup in 2014 and staying in power for a second term after the 2019 general election, Prime Minister Prayut Chan-o-cha has been accused of mishandling the economy, which has slowed growth.

The collapse of the tourism industry as a result of the pandemic has affected travel agents, tour guides, hotel staff and restaurant workers, as well as taxi and bus drivers. According to the NESDC, employment in tourism-related services fell 3.1% year-on-year in the fourth quarter of last year.

Thailand has also suffered from the erosion of its competitiveness, as the country faces strong competition from emerging countries such as Vietnam, which has been very successful in boosting its exports.

In addition, an aging society has weakened consumption and also reduced the availability of productive labor, experts say.

Mortgage at the top of the list

In the third quarter of last year, the largest share of household debt was mortgages, which accounted for 4.9 trillion baht, followed by 4.9 trillion baht consumer loans – personal loans and cards credit – and 2.7 trillion baht was small business loans. Leasing of cars and motorcycles totaled 1.8 trillion baht.

Small business loans rose the most at 7.3% year-on-year, followed by a 5.5% rise in mortgage loans and a 4.6% jump in consumer loans, according to the NESDC .

Struggling with debt

Students from low-income families, such as farmers and street food vendors, have largely borrowed money from government grant programs. There are approximately 5 million students and their guarantors who owe money to the Student Loan Fund. The government recently earmarked the fund to reduce the penalty to a maximum of 2% per year in case new graduates fail to repay their loan.

But helping students and their parents pay off their debt is difficult due to generally unfavorable economic conditions.

According to the NESDC, the unemployment rate among new graduates (those with bachelor’s degrees and above) at 3.22% was well above the overall national unemployment rate of 1.64% in the fourth quarter of last year.

Manufacturing and service companies are cautious about hiring inexperienced workers.

Teacher and police debt is a chronic problem. Rice farmers face falling prices. They are also affected by frequent severe droughts and floods in recent years due to the fallout from climate change.

The electricity tariff will increase to 4 baht/unit in May-August

More loans to fight against debt?

Providing more low-interest loans may temporarily ease the burden on families trapped in debt, but this is just refinancing debt, said Teerana Bhongmakapat, former dean of the faculty of Economics from Chulalongkorn University.

“For the best medium to long-term solution, we need to consider how the money will be spent wisely, or borrowers’ ability to repay debt, and how the economy is performing,” Teerana said. .

If farmers continue to invest in rice cultivation, they will not escape debt due to the poor outlook for rice prices. It may not be wise to invest in tourism-related services, he pointed out. Tourism has an uncertain future compared to the rosy years before the public health crisis, he said.

Teerana predicts that manufacturers and businesses will be cautious about new capital investments due to the uncertain outlook for local and global economies.

Geopolitical uncertainty

Thai consumers have been facing a rising cost of living since the third quarter of last year. The recent invasion of Ukraine has only inflated the already high energy bill.

As the pandemic shows signs of easing the severity of the healthcare system despite the high number of new cases, the Thai and global economies are also under high pressure due to tensions between rival superpowers. The United States is leading an alliance to impose harsh economic sanctions to punish Russia for waging war against Ukraine.

“The Russian invasion of Ukraine could intensify towards Eastern Europe or part of Western Europe or even towards East Asia and South East Asia , as tensions between American, Western and Asian allies on one side, and Russia and China on the opposite side, rise,” Teerana said.

Global trade is expected to grow slowly over the next few years due to high oil prices translating into high logistics costs and the impact of economic sanctions. The shortage of materials and grains would also impact the manufacturing and service sectors as well as consumers.

Uncertainty in the Thai and global economies will hit Thai households and they are unlikely to be debt free, he warned.

Teerana forecasts economic growth of around 3.5% this year, but growth could be slower in the next few years, he warns.

By Thai PBS World’s Business Desk

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