Why Thailand plans to stretch the national budget in 2025

In 2023, a newly elected government in Thailand made big promises to deliver more direct benefits to its people. The signature program was a digital wallet schemewith most adults in Thailand receiving a one-off payment of 10,000 baht ($288). The total cost of the program was estimated at approximately $14 billion.

Srettha Thavisin, the prime minister who led the digital wallet attack, is no longer in office, and in the short time since the 2023 elections, Thai politics has not exactly been a model of stability. So the question is: is the government still planning to spend a lot of money on demand-side incentives like the digital wallet? Now that Thailand is putting the finishing touches to its… budget for the financial year 2025we now know that the answer is yes.

As I explained here , it was never entirely clear how Thailand planned to finance a cash payment of $14 billion in one year. The government had a budget deficit of about $17 billion in 2022 and 2023, so nearly doubling that amount with another $14 billion at a time of low economic growth and high interest rates made little sense.

In April, before the political upheaval, the government was already coming to terms with this budget reality and came up with a plan to distribute digital wallet payments so they could spread the costs over two years. Even then, there was the idea of ​​taking only about $9 billion from the budget and financing the remaining $5 billion or so with a loan from a state-owned rural development bank. The plan has undergone numerous changes since then, seemingly being changed on the fly as new ideas and leadership came into view and disappeared.

What we know for sure is that the government has made progress with the first phase and distributed about 145 billion baht ($4.2 billion) in September this year, and this came from the 2024 budget. As a result, the deficit for the 2024 fiscal year to approximately $18.3 billion. It is not as high as during the COVID-19 pandemic, but it is rising at a time when many other countries in the region are looking to consolidate their balance sheets and reduce deficits.

With plans to pay out the second phase of the digital wallet in 2025, it is likely that the deficit will continue to rise next year. The 2025 budget is set at 3.75 trillion baht ($109 billion), an increase of almost 15 percent from 2024, which was already high because it included additional spending on the digital wallet. It seems like the Thai government wants to spend big at this point, regardless of who is in charge. And those expenses will likely have to be paid for with more borrowing.

A rising budget deficit in itself is not a problem. But it could become a problem if the deficit rises faster than the rate of economic growth, or if the cost of new debt exceeds the economic benefits it should deliver. And the problem for Thailand right now is that economic growth is slow. The tourism sector is recovering, but global export demand remains weak and this is a major problem for an export-oriented economy like Thailand.

As a result, public debt as a percentage of GDP has risen sharply. In May 2021, Thailand’s debt-to-GDP ratio stood at 55 percent. According to the latest data of the Ministry of Finance, debt as a percentage of GDP had ballooned to 64 percent by August 2024. This is what you would expect when the government borrows to finance major spending programs like the digital wallet at a time of slow economic growth. And this ratio is likely to rise next year as Thailand pumps even more money into the economy, including additional phases of the digital wallet.

It is still too early to say whether and to what extent the digital wallet has actually stimulated economic growth. But what is clear is that Thailand is in a difficult position in terms of sustaining budget deficits at a time of sluggish economic growth, and that the main driver of economic activity, exports, is an uncertain bet, given that protectionism and economic nationalism are on the rise.