Thailand's post-pandemic economic recovery remains sluggish compared to other regional economies, a challenge attributed to significant household debt. During the pandemic, borrowing intensified as individuals grappled with basic needs, and lingering debt continues to hamper consumer spending and investment. Currently, household debt stands at an elevated level, equating to 89 percent of economic output, prompting concerns over potential financial instability.
A comprehensive and coordinated approach is deemed necessary to address the issue effectively, as discussed in a recent Article IV report. This involves reducing existing debt while preventing further excessive borrowing. Drawing from case studies across different nations, it is evident that a multifaceted strategy can yield positive results.
Brazil has exemplified an effective approach by enabling borrowers to renegotiate their debts at a discount, restoring their access to credit with minimal government intervention. This initiative provided relief to over 15 million individuals. Similarly, Malaysia adopted responsible lending guidelines and enforced credit regulations following the 2008 financial crisis. Korea's strategy included restructuring measures and acquiring failing credit companies to stabilize its financial system. Both Ireland and the United States employed simplified debt settlement and bankruptcy procedures to aid distressed borrowers.
In response, Thailand has implemented various initiatives, such as the Khun Soo, Rao Chuay program that assists individuals and small enterprises with lower payment structures and debt restructuring. The Bank of Thailand introduced responsible lending guidelines in January 2024, improving consumer protection and restructuring over 7 million accounts. Further measures aim to enhance financial literacy and curb aggressive credit promotions.
Crucially, facilitating access to debt resolution for defaulters is a priority. Establishing effective and fair bankruptcy systems will enable defaulters to regain access to formal financial channels. Emphasis is placed on protecting the most vulnerable households while ensuring collaboration with private entities to address non-viable debts cost-effectively.
Addressing the underlying causes of household debt, such as the lack of formal employment for over half the workforce, is imperative. This workforce lacks job security and social protection, increasing their susceptibility to economic shocks. Enhanced social protection would mitigate inequality and curb household debt, reducing reliance on informal loans and improving financial stability.
Corinne Deléchat, Seunghwan Kim, and Ying Xu, economists from the IMF Asia-Pacific Department, compiled the report highlighting these findings and recommendations.