Thailand mulls public debt ceiling hike in face of energy shock

THAILAND is open to a higher public debt ceiling “if necessary”, Finance Minister Ekniti Nitithanprapas said, stressing that any additional spending should be channelled into investments that can help the South-east Asian nation build resilience.

The government is “looking into the details” of such an increase from the current voluntary cap of 70 per cent of gross domestic product, Ekniti said. The debt level is currently about 66 per cent, including the liability of state enterprises and past liabilities of bailing out financial institutions in the wake of the Asian financial crisis in 1997.

“We have to use it to for transitions and transformations,” Ekniti said, citing a move away from oil dependency to renewable energy and upgrading skills of vulnerable groups of people as examples. “If we don’t do anything – if we cannot create growth – then public debt to GDP will be rising anyway,” he added.

Ekniti, who is also the kingdom’s deputy prime minister, was speaking during a fireside chat at the IMF Spring Meetings in the US capital on Wednesday (Apr 15).

Ekniti, who had previously stressed fiscal discipline, is now signalling openness to expanding fiscal space as energy shock stemming from the Middle East conflict threatens to fan inflation and weaken growth in Thailand, a net energy importer. Thailand raised the debt cap from 60 to 70 per cent in 2021 to fund pandemic-era stimulus.

Higher debt levels could put pressure on the country’s sovereign ratings, and Ekniti has said he plans to engage with rating agencies during his visit to the US to urge them to maintain the credit standing. Both Fitch Ratings and Moody’s shifted Thailand’s outlook to negative last year.

Ekniti last week said that oil prices are expected to remain elevated for as long as two years due to the Middle East conflict, signalling prolonged pressure on Thailand, which is already grappling with rising costs and slowing growth. More than half of Thailand’s oil imports come from the region, much of it shipped through the Strait of Hormuz.

The energy shock is already weighing on Thailand’s outlook. Economists have begun trimming growth forecasts, as higher fuel costs hit consumption and disrupt exports and tourism, two key drivers of the economy.

Economists in a Bloomberg survey expect growth to slow to 1.8 per cent this year, from 2.4 per cent in 2025, while inflation is forecast to turn positive as early as April after 12 consecutive months of declines.

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The Thai government on Saturday approved a 3.7 billion baht (S$147 million) relief package to ease the immediate economic impact from the conflict. It also endorsed a broader soft-loan package to support longer-term adjustment, including five billion baht for clean energy measures, 30 billion baht for farmers, and 100 billion baht for small and medium-sized enterprises.

Prime Minister Anutin Charnvirakul’s government aims to lift growth above 3 per cent through targeted spending and budget reallocation, while monitoring risks of stagflation and maintaining fiscal discipline.

In Washington, Ekniti also called on greater integration efforts by members of the Association of South-east Asian Nations in other areas besides trade, where he said the bloc had done a good job. “But we have to do better on financial integration,” he said, adding that more collaboration on digital payments, for example, could help boost tourism in the region. BLOOMBERG