Rising dual debt a serious economic threat

Thailand needs to heed the very serious lessons of the many European economies caught up in the 2008 Global Financial Crisis (GFC) in terms of rising public and household debt.

This was the message Paul Gambles, the managing partner of the finance conglomerate MBMG Group, gave recently. He said it was imperative Thailand addressed its burgeoning household and public debt levels if it hopes to sustain economic growth.

In Gambles’ opinion the best way to sustain economic growth is to keep a tight lid on public and household debt. He noted how Thailand is in danger of sliding back into her bad financial habits, the ones that eventually saw her and the region engulfed in a crisis back in 1997.

Gambles noted the fact government debt is heading towards 50 percent of gross domestic product (GDP) and consumer debt is racing towards 80 percent as extremely worrying for future growth, especially as the two are happening concurrently.

Official government figures show that Thailand’s public debt as at 31 August was 5.3 trillion baht or 44.63 percent of GDP. Consumer debt had increased to 8.97 trillion baht at the end of the first quarter, the equivalent of 77.5 percent of GDP. As a comparison, consumer, or household, debt at the start of the 1997 Asian Financial Crisis was 1.36 trillion baht or 28.8 percent of GDP.

Gambles said most of the Eurozone economies which melted down in the 2008 GFC had public debt levels that were below the 60 percent threshold. Part of the problem was that a rise in private debt was a major contributor to how public debt soon ramped up. It was worrying that Thailand was very much on the same path.

A professor of economic and finance at a Sydney university, Steve Keen, said the Thai government may have to consider writing off a large part of consumer debt and running a budget deficit for a few years to help smooth the potentially hard economic landing the country might face.

The long-term concern is that rising consumer debt is shouldered very much by those least able to afford to service it, that is, the lower end of the economic spectrum. Professor Keen was quoted as saying, “Given the scale of state policy on non-land-owning Thai farmers, there simply has to be a debt write-off or some form of debt-to-equity solution to reduce consumers’ debt burden.”

Paul Gambles said the Thai economy could still grow at a healthy five percent in 2014 on the back of the 2-trillion baht infrastructure plan, and in spite of the high dual debt levels.