1 week Ago
The International Monetary Fund (IMF) is urging Thailand to strengthen household financial security to mitigate the country's persistently high household debt. In its Country Focus report published on April 9, the IMF said more than half of Thai workers are not formally employed, which deprives them of job security and social protection. This leaves Thai households vulnerable to economic shocks and income disruptions, often needing to borrow to cover their basic living expenses.
"Strengthening social protection would not only help reduce inequality, but also curb household debt, particularly informal lending, which in turn could mitigate financial stability risks," the IMF stated. Even though Thailand's household debt-to-GDP ratio declined to 89% from its peak level during the pandemic, the ratio remains historically high. According to the IMF, addressing household debt is essential, but it must be done carefully to avoid undermining economic growth.
If debt solutions are implemented too hastily without considering the broader economic linkages, they could strain the banking sector, leading to reduced credit availability, slowing both consumer spending and business investment, noted the lender. The IMF advises household debt policies strike a balance between reducing household burdens and maintaining economic stability. The lender said Thai authorities have taken significant steps to alleviate household debt, such as repayment assistance, debt restructuring programmes, enhanced regulatory measures, and financial education initiatives.
The "You Fight, We Help" debt relief programme, launched in December 2024, has financial institutions offer individuals and small businesses reduced monthly payments, interest suspensions or waivers, and flexible loan restructuring options. In January 2024, the Bank of Thailand introduced new guidelines to promote responsible lending. These measures enhanced consumer protection and facilitated the restructuring of more than 7 million accounts.
Additional steps, such as limiting borrowing based on individuals' asset levels, aim to further reduce debt and improve its manageability. The IMF's country case studies highlight the importance of addressing persistent and non-viable debt. In Thailand, borrowers who have defaulted often face significant challenges in regaining access to formal bank credit.
To address this, the fund recommends simplifying the resolution of personal debt and establishing socially acceptable bankruptcy systems that are accessible, efficient and equitable. The IMF also urges the government to focus on supporting the most vulnerable households and collaborating with the private sector to lower the cost of addressing household debt. The lender cited Brazil, which supported defaulted borrowers by enabling them to renegotiate and settle their debts at a discount, restoring access to credit with the support of private lenders and minimal government expenditure.
The programme, which ran from July 2023 to May 2024, assisted more than 15 million people in restructuring loans totalling 52 billion reals, equivalent to about 0.5% of the country's GDP..
