Thailand Trapped in Household Debt Trap

Household Debt Surges Amid Prolonged Low Interest Rates and COVID-19 Crisis

[Asia Economy Reporter Yujin Cho] Household debt, considered the biggest risk factor for the Thai economy, is becoming more dangerous due to the impact of COVID-19. As income declines have prolonged and consumer sentiment has worsened due to COVID-19, household debt is being pointed out as a factor spreading financial instability.

According to a recent report by The Wall Street Journal (WSJ), the Bank of Thailand announced that as of the end of the third quarter last year, Thailand's household debt reached 13.8 trillion baht, a 79% increase compared to the same period the previous year.

Thailand's household debt ratio stands at 87% of its Gross Domestic Product (GDP), the highest among emerging Asian countries such as Malaysia (77.2%), China (59.8%), and Indonesia (17.2%). When the household debt ratio exceeds 80% of GDP, it negatively affects economic growth due to reduced disposable income and contracted consumption.

The household debt issue has been a ticking time bomb for the Thai economy for years. Due to a low interest rate environment, competitive lending conditions, and inflation, Thailand's household debt ratio has remained in the 70% range relative to GDP since 2012.

Shannon Burnard of Nomura Holdings Singapore said, "With the emergence of variant viruses, labor market deterioration due to COVID-19, and recession in the real economy, Thailand's household debt ratio relative to GDP is expected to rise at an even faster pace this year."

Thailand has been hit even harder by the resurgence of COVID-19 starting from the end of last year compared to the first wave, with daily new confirmed cases recently tripling.

Amid the rapid spread of COVID-19, the Thai Ministry of Finance recently revised its GDP growth forecast downward from the previous 4.5% (announced in October last year) to 2.8%.

In a situation where economic uncertainty caused by COVID-19 is increasing both domestically and internationally, the rapidly rising household debt is expected to increase the vulnerability of the Thai economy, WSJ evaluated.

WSJ introduced the case of Nuan Chan Lunkun, a 30-year-old office worker, to illustrate the reality of household debt in Thailand. Mr. Lunkun uses more than half of his 24,000 baht monthly salary to repay debts. His father, a taxi driver, his mother, a street vendor, and his older brother, a temporary office worker, all lost their income simultaneously due to COVID-19, reducing the household income by two-thirds. He said, "I have borrowed up to the maximum limit from banks, so additional loans are difficult. After repaying debts, the remaining half of my salary barely supports the living expenses of our family of four."

The number of subscribers to the Debt Clinic program, introduced by Thai financial authorities in 2017 to help heavily indebted households establish financial plans, surged more than threefold to 11,118 cases compared to the previous year.

Kajorn Thanapas, the Bank of Thailand's head of financial consumer protection, said, "The best way is to implement stimulus measures that can resolve household debt. Cash handouts like those currently used are unlikely to have the expected effect under high debt burdens."

This content was produced with the assistance of AI translation services.