Thailand tackles household debt crisis: doubts over effectiveness

To tackle the escalating household debt crisis in Thailand, the government has launched a series of measures aimed at combatting informal debt and loan sharks. However, researchers and industry leaders have voiced concerns about the effectiveness of these measures, urging the government to address the root cause of the problem by ensuring fair income distribution and creating high-income employment opportunities.

The government’s initiatives involve collaboration with different agencies, the Interior Ministry, and the National Police Bureau to prevent unregulated lending. The measures include helping debtors, mediating disputes, and taking stringent actions against intimidation and unfair debt collection practices. After the mediation process, the government will assist in restructuring the debt.

Household debt in Thailand is estimated to exceed 90% of the country’s GDP. The government’s conservative estimates put informal debt at 50 billion baht. However, some suggest the figure could be as high as 1 trillion baht. Economists remain sceptical about the probable success of the government’s initiatives.

Kasikorn Research Center (K-Research) has voiced support for the government’s measures.

Burin Adulwattana, managing director of K-Research, stated…

“This is a good starting point to ensure equitable treatment for borrowers, particularly in terms of interest rates charged.”

An uphill task

He suggested that reducing the debt of approximately 3 million government officers could increase purchasing power and domestic consumption, contributing to the economy.

The Federation of Thai Industries (FTI), however, sees the implementation of these measures as an uphill task. Kriengkrai Thiennukul, chairman of the FTI, stressed that the authorities’ efforts require the cooperation of creditors, especially those granting informal loans.

The government’s debt relief plan has also raised concerns in the market, with ASL Securities deputy managing director Tawatchai Asawapornchai highlighting the need for more details about proposed interest rates and payment period extensions.

Anusorn Tamajai, director of the Digital Economy, Investment and International Trade Research Center under the University of the Thai Chamber of Commerce, emphasised the need for a comprehensive approach to tackle household debt. He suggested measures such as reducing the legal reserve ratio of financial institutions, easing criteria for the provisioning of bad debts or non-performing loans for banks, and providing tax deductions for the sale or transfer of non-income-generating assets for financial institutions.

The burgeoning debt has also impacted Thailand’s entertainment industry. Sanga Ruangwattanakul, president of the Khao San Road Business Association, reported a 30% decrease in spending on entertainment since the beginning of the year, indicating that this is typically the first expense to be cut when people need to save money to pay off debts.