Household debt a ticking time bomb

Household debt is a major concern for policymakers, who fear it could become a ticking time bomb for the economy.

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Household debt is a major concern for policymakers, who fear it could become a ticking time bomb for the economy. According to Pornchai Thiraveja, director-general of the Fiscal Policy Office, as of the second quarter of 2024 household debt tallied 89.6% of GDP.

Although the rate dropped from 90.7% in the first quarter, household debt remains elevated beyond recommended levels. The Bank for International Settlements conducted a study and recommended that if household debt exceeds the specified threshold, the resulting debt burden would have a greater negative impact on long-term economic growth than the short-term positive effects of increased consumption driven by higher household debt.



The Finance Ministry and Bank of Thailand have been urged to implement measures to address this issue, leading to the recently unveiled "You Fight, We Help" debt relief programme, which provides a three-year suspension of interest payments during which the government absorbs the interest burden. Mr Pornchai said although the household debt level is high, an analysis of its structure reveals the majority of it is used for wealth accumulation such as asset purchases, business activities and education. These purposes contribute to income generation and improve the quality of life for households in the future as evidenced by the composition of household debt, where 34.

1% is used for purchasing assets such as real estate, and 10.6% for buying vehicles like cars and motorcycles. These vehicles can also serve as tools for generating income, such as taxis or motorcycles used for deliveries.

In addition, 17.6% of household debt is directly for business activities, and 4.1% for education.

When combining debt used for asset accumulation, business activities and education, these categories account for over 66.5% of the total household debt structure. Furthermore, about 44.

7% of household debt, or nearly half, is secured debt, such as mortgages and car loans, indicating that some households incur debt to acquire assets rather than for consumption. According to Mr Pornchai, given the prospects in 2025, Thailand's household debt levels are expected to decrease as financial institutions tighten lending standards, particularly for housing and vehicle loans..