Household debt a major economic concern

Piyabutr Cholvijarn, the president of the Kenan Institute Asia, a Thailand-based non-profit development organization, and a director of the Thailand Chamber of Commerce recently warned that the level of household debt in the nation could result in a financial meltdown similar to that experienced in 1997.

Household debt is likely to reach a record 90 percent of GDP during this year and with a sluggish economy it is quite possible that many people are so heavily leveraged that they face imminent bankruptcy.

According to Mr Piyabutr, if loan shark debt is taken into account, it is possible the leverage ratio could be at 100 percent already. This would indicate that large numbers of households are on the verge of collapse.

Household debt has been a major concern for some years now, but despite the public concerns and commentary, it has slowly risen year after year. In 2009 the Bank of Thailand claimed household debt stood at 61.4 percent of GDP. By the beginning of 2013 this had risen to a whopping 82.3 percent. At last count, the level was 84.2 percent, or 10.2 trillion baht.

According to the Kenan Institute, household debt has been expanding at 15 percent per annum, but savings has only seen slight growth at about 1.5 percent.

As Thailand’s society ages it faces the same sort of problems as those in many of its trading partners with equally ageing populations, primarily Japan and the United States. Around one-third of the population will be classified as within the ‘aged’ bracket within a few years, and with savings rates very low, the Kenan Institute believes the household debt problems will only be further exacerbated.

Mr Piyabutr believes it is imperative the government embarks on a project to teach financial literacy to the bulk of the populace, especially those in what might be considered financially vulnerable positions, such as day labourers, farmers and students.

The Kenan Institute suggests creating an enforceable national savings scheme as one of the possible solutions to reducing household debt, although this would hardly go very far to addressing the perceived crisis in the short term.

Another possible help would be the creation of nanofinance schemes which could aid in weaning people away from loan sharks, who remain a powerful underground menace to the financial well-being of those on low incomes.

There is no easy answer to the household debt crisis according to the Kenan Institute, which singled out the first-time car buyer scheme as one of the major drivers of increased household debt when it was introduced.