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### Thailand: Introduction and fiscal framework
- Public debt ceiling: 70 percent of GDP (raised from 60 percent of GDP in September 2021); determined by the Fiscal Policy Committee (FPC).
- Public debt coverage under the debt rule: general government debt, state-owned enterprises, government agencies, and guaranteed debt of special financial institutions.
- Key fiscal-rule thresholds:
  - Public debt: Not to exceed 70 percent of GDP (FPC).
  - Government debt service: Not to exceed 35 percent of the annual revenue (FPC).
  - Foreign currency public debt: Not to exceed 10 percent of the total public debt (FPC).
  - Foreign currency public debt service: Not to exceed 5 percent of the exports of goods and services (FPC).
  - Deficit borrowing: Not to exceed 20 percent of the expenditure budget and 80 percent of the budget for principal repayments (Law, PDMA).
  - Capital expenditure: No less than 20 percent of the annual budget and not less than the fiscal year budget deficit (Law, FRA).
- Additional numerical limits by FPC and FRA Section 28 (effective until end-November 2024):
  - Central contingency fund share: 2-3.5 percent of total budget.
  - Principal repayments: 2.5-4.0 percent.
  - New multi-year commitment: <10 percent.
  - FRA Section 28: fiscal liability for quasi-fiscal compensation should not exceed 30 percent of total budget.

### Pandemic and aftermath fiscal actions (Thailand) — measures and immediate effects
- Total pandemic stimulus packages announced March 2020, April 2020, May 2021: THB 1.56 trillion.
- Funding envelopes:
  - Health spending: THB 280 billion.
  - Relief (cash handouts): THB 886 billion.
  - Economic restoration and recovery: THB 391 billion.
- Pandemic-related financial measures and guarantees:
  - Financial measures: THB 900 billion.
  - Guarantees on BoT soft loans to SMEs: THB 500 billion.
  - BoT Stabilization Fund: THB 400 billion.
- Financing structure:
  - Pandemic packages financed largely by off-budget loans amounting to THB 1.5 trillion (8.9 percent of FY19 GDP), combined with budget reallocations and balance sheets of the BOT and Specialized Financial Institutions (SFIs).
- Post-pandemic (war in Ukraine) additional measures FY22: THB 153 billion (0.9 percent of GDP), including:
  - Cost-of-living support: THB 75 billion (0.4 percent of GDP).
  - Subsidy of diesel oil and gas: THB 40 billion (0.2 percent of GDP).
  - Temporary cut to social security contributions: THB 34 billion (0.2 percent of GDP).
  - Tourism recovery: THB 5 billion (0.0 percent of GDP).
- Fiscal outcomes and energy-related positions:
  - Public debt: around 63 percent of GDP as of end FY24.
  - Thailand Oil Fund accumulated a net negative financial position of around THB 100 billion as of end-September 2024.
  - Electricity Generating Authority of Thailand accrued revenue of THB 85 billion as of end-June 2024.
  - Energy-related measures and tax cuts estimated at around 0.6 percent of GDP in FY24.

### Assessment approach: estimating a debt limit and calibrating a debt ceiling
- Two-step assessment:
  1. Estimate Thailand’s “debt limit” (threshold where debt becomes unsustainable or harmful to growth).
  2. Calibrate the debt ceiling by incorporating a “safety margin” (buffer) for shocks and risk tolerance.
- Three estimation approaches used:
  - Approach 1: Primary-balance and debt-dynamics (fiscal reaction function and r-g intersection).
  - Approach 2: Debt-servicing capacity (ratio of interest expenses to revenues).
  - Approach 3: Debt impact on growth (growth-maximizing debt level assuming public debt finances public capital; “golden rule”).

### Key quantitative findings from the three approaches
- Approach 1 (primary-balance / debt dynamics)
  - Debt limit range under this approach: 80-110 percent of GDP.
  - Example: Using historic high primary balance of 3.4 percent of GDP and maximum 10-year bond yield since 2000 of 7.8 percent, with assumed nominal GDP growth 4.7 percent (2.7 percent real + 2 percent inflation), estimated debt level ≈ 109.4 percent of GDP.
  - Under less optimistic assumptions (lower growth by 0.5-1 percentage points and a less ambitious primary balance), estimate can be as low as 71.5 percent of GDP.
  - Note: Estimates highly sensitive to assumptions about r, g, and achievable primary balances.
- Approach 2 (debt-servicing capacity; interest-to-revenue ratio thresholds)
  - Using thresholds from Comelli et al. (2023) where fiscal-stress signaling ratio (τ) ranges 16–19:
    - Staff estimates (2000–2023): τ = 16 → 84.5 percent of GDP; τ = 19 → 100.3 percent of GDP.
    - Staff estimates (2000–2023 excluding COVID-19 period): τ = 16 → 82.3 percent of GDP; τ = 19 → 97.7 percent of GDP.
- Approach 3 (growth-maximizing debt level under the “golden rule”)
  - Estimated output elasticity of public capital stock (α) from pooled OLS on ASEAN-4 (1960–2019) panel:
    - Point estimates for α range from 16.8 percent to 31.8 percent.
    - Corresponding growth-maximizing debt-to-GDP ratios range from 30.8 percent to 77.2 percent.
- Consolidated staff assessment:
  - Staff assess Thailand’s debt limit would likely be in the range of 77-87 percent of GDP, with a midpoint (central estimate) of 82 percent of GDP.

### Analysis implications and vulnerabilities
- Debt-limit estimates are highly sensitive to:
  - Potential growth (g) and nominal interest rates (r).
  - Feasibility of achieving high primary balances.
  - Composition and efficiency of public spending (share allocated to productive public capital).
- Observed fiscal practices raising concerns:
  - Extensive use of off-budget financing: THB 1.5 trillion (8.9 percent of FY19 GDP) weakened transparency and legislative scrutiny and bypassed the deficit borrowing rule.
  - Expanded quasi-fiscal operations—largely from increasing energy subsidies provided by SOEs—weakened central government control over public spending.
  - Such practices can reduce effective expenditure control and increase contingent liabilities.
- Relative calibration context:
  - Statutory debt ceiling of 70 percent of GDP sits below staff’s midpoint debt-limit estimate of 82 percent of GDP, while public debt was around 63 percent of GDP as of end FY24.

### Calibration methodology for the debt ceiling and baseline simulation results
- Safety margin rationale: difference between the debt limit and the ceiling provides a buffer against adverse macroeconomic shocks.
- Shock modeling:
  - A multivariate normal distribution of key macroeconomic and fiscal variables is calibrated based on historical data: real GDP growth, primary balance, real interest rates, and real exchange rates.
  - Multiple simulations using the joint distribution produce paths for macro variables and associated debt trajectories over the medium-term.
  - Baseline uses staff’s projections for the primary balance; results shown as a fan chart.
  - Debt ceiling is calibrated so debt stays below the debt limit with a 90 percent probability in the medium-term horizon.
- Baseline scenario result:
  - Thailand’s current debt ceiling is broadly consistent with the debt limit and the safety margin.
  - A debt ceiling around 70 percent of GDP would be consistent with public debt remaining below the estimated debt limit of 82 percent with 90 percent probability.

### Alternative scenarios and sensitivity analyses
- Contingent liabilities:
  - Modeled as 3 percent of GDP every 6 years.
  - Incorporating contingent liabilities increases required safety margin and reduces required debt ceiling to below 70 percent of GDP.
- Additional spending needs:
  - Assumption: 0.7 percent of GDP on an annual basis for climate change adaptation, human capital investment, and addressing population aging, with no additional revenues or offsets.
  - Under contingent liabilities plus additional spending, calibrated debt ceiling needs to be lowered to around 66 percent of GDP.
- Risk tolerance and shock frequency:
  - Baseline calibration uses a 10 percent risk tolerance of breaching the debt limit (i.e., 90 percent probability of staying below the debt limit).
  - Increasing frequency or size of shocks, or larger counter-cyclical fiscal responses, would warrant reducing risk tolerance, increasing the safety buffer, and lowering the debt ceiling further.

### Conclusions and policy implications (Thailand)
- Recommended fiscal stance:
  - Refrain from further raising the debt ceiling and proceed with fiscal consolidation to restore fiscal space.
  - Staff analysis indicates the adequate debt ceiling could be as low as 66 percent of GDP when accounting for contingent liabilities and additional spending needs.
  - Even under more benign assumptions, the required debt ceiling consistent with the estimated debt limit is close to the current debt ceiling of 70 percent of GDP.
  - Given public debt is already near this level and expected to rise, tighten fiscal policies to reduce public debt and restore fiscal space.
  - Considering an increasingly shock-prone and uncertain environment, Thailand would benefit from reducing public debt below 60 percent of GDP in the medium term and reinstating the debt ceiling of 60 percent of GDP to preserve fiscal buffers.
- Fiscal rules framework improvements:
  - Strengthen short-term operational rules within a clear medium-term framework to help bring down public debt below 60 percent of GDP.
  - Consider a risk-based rules approach: trigger a more ambitious deficit target embedded in the MTFF when debt is close to the ceiling.
  - Introduce a clearly defined escape clause accompanied by a requirement for a medium-term path to return to the ceiling.
  - Streamline the overly complex fiscal rules framework following a careful review of individual rules.
- Fiscal transparency:
  - Strengthen fiscal transparency to avoid “debt surprises.”
  - Improve reporting on off-budget operations and the costing of contingent liabilities.
  - Address limited information regarding outstanding financial liabilities of the government and compensations made to SOEs that clear liabilities.
  - Enhance disclosure to reduce risks from quasi-fiscal and off-budget operations.
- Prioritize productivity-enhancing public investment:
  - If higher public borrowing is considered, prioritize investments that raise the output elasticity of public capital (α) and potential growth to improve debt-carrying capacity.

### International case studies — selected findings and policy takeaways (summarized)
- Brazil (2023-2024)
  - Program helped over 15 million people renegotiate R$52 billion (about 0.5 percent of GDP).
  - Household DSTI ratio: 28 percent in June 2023; 26 percent in June 2024.
  - NPLs: 4.18 percent in June 2023; 3.65 percent in June 2024.
  - Program budget envelope: R$8 billion (less than 0.1 percent of GDP).
  - Key takeaway: Private sector participation minimized fiscal costs while helping defaulted households renegotiate debt.
- Malaysia (2008-2017)
  - Household debt-to-GDP ratio: 89 percent in 2015; 84.3 percent in 2017.
  - Unsecured personal loans growth rate: 25.2 percent in 2008; 2.5 percent in 2017.
  - Policy measures: tiered pricing, stricter credit card requirements, responsible lending, maximum loan tenure, risk-informed pricing, financial literacy programs (POWER!).
  - Key takeaway: Ensure regulatory consistency across banks and NBFIs to avoid regulatory arbitrage.
- Korea (2002-2006)
  - Credit card delinquency ratio: 11.9 percent in 2002; 2.6 percent in 2006.
  - Measures: higher provisioning, tightened asset classification, limitations on cash advances, capital adequacy tightening, takeover of LG Card, multiple workout channels (private workouts, “bad bank”, Credit Counseling and Recovery Service, PDRP, personal bankruptcy).
  - Key takeaway: Comprehensive workout and supervisory measures can arrest systemic spillovers from mass defaults.
- Hungary (2009-2015)
  - Household debt-to-GDP ratio: 39.4 percent in 2010; 21.1 percent in 2015.
  - Measures: FX mortgage conversion, “Settlement” and “Fair Banking” Acts, bank levy, high policy rates, debt-cap regulation.
  - Key takeaway: Large-scale corrective measures can remove household FX exposure but may harm banking sector profitability, tighten lending, and depress investment and growth.
- Cross-cutting policy lessons:
  - Combine ex-ante macroprudential tools with ex-post debt workout and relief programs.
  - Involve private creditors where possible to limit fiscal costs and moral hazard.
  - Use stress tests and scenario analysis to assess policy effects on banks and the broader economy.
  - Strengthen financial literacy and consumer protection; extend regulatory coverage to NBFIs and state-owned banks.

*Prepared by IMF staff (chapter excerpt).*

### 1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath _______________ 5

### 1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath

### Introduction and fiscal framework
- Thailand’s public debt ceiling is set at 70 percent of GDP (raised from 60 percent of GDP in September 2021) and is determined by the Fiscal Policy Committee (FPC).
- Public debt coverage under the debt rule: general government debt, state-owned enterprises, government agencies, and guaranteed debt of special financial institutions.
- Key fiscal-rule thresholds (as presented):
  - Public debt: Not to exceed 70 percent of GDP (FPC).
  - Government debt service: Not to exceed 35 percent of the annual revenue (FPC).
  - Foreign currency public debt: Not to exceed 10 percent of the total public debt (FPC).
  - Foreign currency public debt service: Not to exceed 5 percent of the exports of goods and services (FPC).
  - Deficit borrowing: Not to exceed 20 percent of the expenditure budget and 80 percent of the budget for principal repayments (Law, PDMA).
  - Capital expenditure: No less than 20 percent of the annual budget and not less than the fiscal year budget deficit (Law, FRA).
- Note: Additional numerical limits set by the FPC (central contingency fund share 2-3.5 percent of total budget; principal repayments 2.5-4.0 percent; new multi-year commitment <10 percent). FRA Section 28: fiscal liability for quasi-fiscal compensation should not exceed 30 percent of total budget. All ratios/thresholds effective until end-November 2024.

### Pandemic, aftermath fiscal actions, and immediate effects
- Pandemic fiscal support:
  - Total pandemic stimulus packages announced March 2020, April 2020, May 2021: THB 1.56 trillion.
  - Funding themes and envelopes: Health spending THB 280 billion; Relief (cash handouts) THB 886 billion; Economic restoration and recovery THB 391 billion.
  - Pandemic-related financial measures and guarantees: Financial measures THB 900 billion; Guarantees on BoT soft loans to SMEs THB 500 billion; BoT Stabilization Fund THB 400 billion.
  - Pandemic packages financed largely by off-budget loans amounting to THB 1.5 trillion (8.9 percent of FY19 GDP), combined with budget reallocations and balance sheets of the BOT and Specialized Financial Institutions (SFIs).
- Post-pandemic additional measures related to the war in Ukraine:
  - Additional fiscal measures FY22: THB 153 billion (0.9 percent of GDP), including cost-of-living support THB 75 billion (0.4 percent of GDP); subsidy of diesel oil and gas THB 40 billion (0.2 percent of GDP); temporary cut to social security contributions THB 34 billion (0.2 percent of GDP); tourism recovery THB 5 billion (0.0 percent of GDP).
- Fiscal outcomes:
  - Thailand’s public debt increased to around 63 percent of GDP as of end FY24 and is expected to stay elevated.
  - The Thailand Oil Fund accumulated a net negative financial position of around THB 100 billion as of end-September 2024.
  - The Electricity Generating Authority of Thailand accrued revenue of THB 85 billion as of end-June 2024.
  - Taken together, energy-related measures and tax cuts are estimated at around 0.6 percent of GDP in FY24.

### Assessment approach: estimating a debt limit and calibrating a debt ceiling
- Two-step assessment:
  1. Estimate Thailand’s “debt limit” (threshold where debt becomes unsustainable or harmful to growth).
  2. Calibrate the debt ceiling by incorporating a “safety margin” (buffer) for shocks and risk tolerance.
- Three estimation approaches applied to identify a possible debt limit range:
  - Approach 1: Primary-balance and debt-dynamics (fiscal reaction function and r-g intersection).
  - Approach 2: Debt-servicing capacity (ratio of interest expenses to revenues).
  - Approach 3: Debt impact on growth (growth-maximizing debt level assuming public debt finances public capital; “golden rule”).

### Key quantitative findings from the three approaches
- Approach 1 (primary-balance / debt dynamics)
  - Staff analysis indicates Thailand’s debt limit under this approach ranges between 80-110 percent of GDP.
  - Example calculations: Using historic high primary balance of 3.4 percent of GDP and maximum 10-year bond yield since 2000 of 7.8 percent, with assumed nominal GDP growth 4.7 percent (2.7 percent real + 2 percent inflation), estimated debt level ≈ 109.4 percent of GDP.
  - Under less optimistic assumptions (lower growth by 0.5-1 percentage points and a less ambitious primary balance), estimate can be as low as 71.5 percent of GDP.
  - Note: Estimates are highly sensitive to assumptions about r, g, and achievable primary balances.

- Approach 2 (debt-servicing capacity; interest-to-revenue ratio thresholds)
  - Using thresholds from Comelli et al. (2023) where fiscal-stress signaling ratio (τ) ranges 16–19:
    - Staff estimates (2000–2023): τ = 16 → 84.5 percent of GDP; τ = 19 → 100.3 percent of GDP.
    - Staff estimates (2000–2023 excluding COVID-19 period): τ = 16 → 82.3 percent of GDP; τ = 19 → 97.7 percent of GDP.

- Approach 3 (growth-maximizing debt level under the “golden rule”)
  - Estimated output elasticity of public capital stock (α) from pooled OLS on ASEAN-4 (1960–2019) panel:
    - Point estimates for α range from 16.8 percent to 31.8 percent.
    - Corresponding growth-maximizing debt-to-GDP ratios range from 30.8 percent to 77.2 percent (i.e., 31 to 77 percent of GDP).

- Consolidated staff assessment:
  - Bringing the three approaches together, the staff assess Thailand’s debt limit would likely be in the range of 77-87 percent of GDP, with a midpoint (central estimate) of 82 percent of GDP.

### Analysis implications and vulnerabilities highlighted
- The debt limit estimates are highly sensitive to:
  - Assumptions on potential growth (g) and nominal interest rates (r).
  - Feasibility of achieving high primary balances (fiscal reaction capacity).
  - The composition and efficiency of public spending (e.g., share allocated to productive public capital).
- Observed fiscal practices that raise concerns:
  - Extensive use of off-budget financing (THB 1.5 trillion; 8.9 percent of FY19 GDP) weakened transparency and legislative scrutiny and bypassed the deficit borrowing rule.
  - Expanded quasi-fiscal operations—largely from increasing energy subsidies provided by SOEs—have weakened central government control over public spending.
  - These practices can reduce effective expenditure control and increase contingent liabilities.
- Relative calibration: Thailand’s current statutory debt ceiling of 70 percent of GDP sits below the staff’s midpoint debt-limit estimate (82 percent of GDP), but public debt was already around 63 percent of GDP as of end FY24.

### Policy implications and recommendations (inferred from analysis)
- Fiscal prudence is needed to restore fiscal buffers given elevated public debt (around 63 percent of GDP in 2024) and remaining near the statutory ceiling (70 percent of GDP).
- On debt-ceiling calibration:
  - There may be room to recalibrate the debt ceiling, given staff’s estimated debt-limit midpoint of 82 percent of GDP, but any recalibration should be cautious and consider:
    - The sensitivity of debt-limit estimates to r, g, and fiscal policy capacity.
    - The need to maintain a buffer (safety margin) to absorb shocks and limits to fiscal reaction.
- Strengthen fiscal governance and transparency:
  - Limit and enhance oversight of off-budget borrowing and quasi-fiscal operations to preserve transparency and legislative scrutiny.
  - Rein in quasi-fiscal subsidies by SOEs to avoid hidden fiscal costs and contingent liabilities.
- Preserve and deepen fiscal-rule credibility:
  - Ensure the debt ceiling functions as an effective anchor by complementing any rule recalibration with stronger institutional controls, clearer definitions of covered debt, and improved reporting on fiscal risks.
- Emphasize productivity-enhancing public investment:
  - If debt is to be used for higher levels of public borrowing, prioritize investments that raise the output elasticity of public capital (α) and potential growth to improve debt-carrying capacity.

*Prepared by IMF staff (chapter excerpt).*

### 16.      To avoid public debt exceeding the estimated “debt limit”, the debt ceiling should be

### 16.      To avoid public debt exceeding the estimated “debt limit”, the debt ceiling should be 

### Calibration methodology
- Safety margin rationale: the difference between the debt limit and the ceiling provides a buffer against adverse macroeconomic shocks that could push debt beyond the debt limit.
- Shock modeling:
  - A multivariate normal distribution of key macroeconomic and fiscal variables is calibrated based on historical data. Variables: real GDP growth, primary balance, real interest rates, and real exchange rates.
  - Multiple simulations are carried out using the joint distribution; each simulation produces a path for macroeconomic variables and associated debt trajectory over the medium-term.
  - For the primary balance, staff’s baseline projections are used.
  - Resulting debt paths are presented in a fan chart.
  - The debt ceiling is calibrated as the initial point so that debt stays below the debt limit with a 90 percent probability in the medium-term horizon.

### Baseline scenario results
- Projected consistency:
  - Thailand’s current debt ceiling is broadly consistent with the debt limit and the safety margin.
  - The projected distribution indicates that a debt ceiling around 70 percent of GDP would be consistent with public debt remaining below the estimated debt limit of 82 percent with 90 percent probability.

### Alternative scenarios and sensitivity
- Contingent liabilities:
  - Contingent liabilities are modeled as 3 percent of GDP every 6 years, consistent with existing literature.
  - Incorporating contingent liabilities increases the required safety margin and reduces the required debt ceiling to below 70 percent of GDP.
- Additional spending needs:
  - Additional spending assumptions: 0.7 percent of GDP on an annual basis for climate change adaptation, human capital investment, and addressing population aging, with no additional revenues or offsetting spending cuts.
  - Under contingent liabilities plus additional spending, the calibrated debt ceiling needs to be lowered to around 66 percent of GDP.
- Risk tolerance and shock frequency:
  - Baseline calibration uses a 10 percent risk tolerance of breaching the debt limit (i.e., 90 percent probability of staying below the debt limit).
  - Increasing frequency or size of shocks, and the need for larger counter-cyclical fiscal responses, would warrant reducing risk tolerance, increasing the safety buffer, and lowering the debt ceiling further.

### Conclusions and policy implications
- Recommended fiscal stance:
  - Thailand should refrain from further raising the debt ceiling and instead proceed with fiscal consolidation to restore fiscal space.
  - Staff analysis indicates the adequate debt ceiling could be as low as 66 percent of GDP when accounting for contingent liabilities and additional spending needs.
  - Even under more benign assumptions, the required debt ceiling consistent with the estimated debt limit is close to the current debt ceiling of 70 percent of GDP.
  - Given public debt is already near this level and expected to rise, fiscal policies need to be tightened to reduce public debt and restore fiscal space.
  - Considering an increasingly shock-prone and uncertain environment, Thailand would benefit from reducing public debt below 60 percent of GDP in the medium term and reinstating the debt ceiling of 60 percent of GDP to preserve fiscal buffers.
- Fiscal rules framework improvements:
  - Strengthen short-term operational rules within a clear medium-term framework to help bring down public debt below 60 percent of GDP.
  - Consider a risk-based rules approach: trigger a more ambitious deficit target embedded in the MTFF when debt is close to the ceiling.
  - Introduce a clearly defined escape clause accompanied by a requirement for a medium-term path to return to the ceiling to improve credibility.
  - Streamline the overly complex fiscal rules framework following a careful review of individual rules.
- Fiscal transparency:
  - Strengthen fiscal transparency to avoid “debt surprises.”
  - Improve reporting on the extent of off-budget operations and the costing of contingent liabilities.
  - Address limited information regarding outstanding financial liabilities of the government and compensations made to SOEs that clear liabilities.
  - Enhance disclosure to reduce risks from quasi-fiscal and off-budget operations.

*Source: IMF staff estimates and analysis as presented in the cited chapter.*

### 8.      The program helped over 15 million people renegotiate R$52 billion (about

### 1thaea2025002-print-pdf - 8.      The program helped over 15 million people renegotiate R$52 billion (about

### Brazil: Program outcomes and fiscal implications
- The program helped over 15 million people renegotiate R$52 billion (about 0.5 percent of GDP) in overdue debt.
- Household DSTI ratio declined to 26.0 percent in June 2024 from 27.9 percent in June 2023.
- NPLs declined from 4.18 percent in June 2023 to 3.65 percent in June 2024.
- Banks adopted more conservative standards in granting credit cards and non-payroll deducted credits.
- Household debt to GDP ratio did not decline significantly following the program, and increased by another 1.6 percent in June 2024 (y/y).
- With participation of private sector creditors, the program minimized fiscal costs/risks with a total budget envelope of R$8 billion (less than 0.1 percent of GDP).
- The number of people who renegotiated and paid off their debts was far below the program’s initial target population of more than thirty-two million potential debtors.

### Malaysia: Background
- Household debt-to-GDP ratio increased from 66 percent in 2008 to 89 percent in 2015.
- Growth rate of household debt peaked at 13.7 percent in 2010.
- Personal loans peaked at 25.2 percent of total loans in 2008.
- NBFIs including credit cooperatives, development financial institutions (DFIs), and a construction company (Malaysia Building Society Berhad (MBSB)) accounted for about 60 percent of outstanding personal financing to households.
- Outstanding credit card balances increased by 15.2 percent in 2010.
- Balance written off for credit cards increased by 28.5 percent in 2011.
- Leverage position of the lower-income segment of borrowers was 4.4-9.6 times the annual income; other income groups were 2.3-3.3 times the annual income.

### Malaysia: Policy measures implemented (mostly 2011–2014)
- Tiered pricing on credit card interest rate: On July 1st, 2008, BNM implemented a three-tier pricing of credit card debt.
- Stricter credit card requirements: On April 1st, 2011, BNM increased minimum income requirement to at least RM 24,000 per annum (from RM 18,000 per annum), limited number of credit cards (no more than two issuers), and limited credit limits (not exceeding two times individual’s monthly income per issuer) for lower-income individuals.
  - Following this, credit card revolving balances moderated sharply by 8.4 percent between April to December 2011, and the number of credit cards approved declined.
- Responsible lending practices: Guidelines on Responsible Financing effective January 1st, 2012, required affordability assessments, more robust income verifications, and prudent debt service ratios; formal requirements for credit cooperatives issued in December 2012.
- Introduction of maximum loan tenure: July 2013 limits—personal financing maximum tenure 10 years, residential property loans 35 years, car loans 9 years.
- Tightening on personal loans: Policy Document on Personal Financing implemented July 5th, 2013 prohibited pre-approved personal financing without borrower application and required BNM approval for new products/variations.
  - After these measures, annual growth in outstanding NBFI lending to households more than halved in 2013 with a marked slowdown in personal financing growth.
- Risk-Informed Pricing: Implemented March 2014 to strengthen pricing policies; lending rates on new financing for vehicles and residential properties adjusted upwards by about 70 basis points (bps) and 20 bps respectively after the Standards.
- Financial literacy enhancements: Programs including bankinginfo, insuranceinfo, and the Pengurusan Wang Ringgit Anda (POWER!) Program (launched January 2011); integration into primary school curriculum from 2014; credit card issuers required to provide clear disclosures on partial settlements since 2011; banks promoted debit cards.

### Malaysia: Program outcomes and key takeaways
- In 2017, household debt-to-GDP ratio declined to 84.3 percent from the 2015 peak of 89 percent.
- Household debt growth moderated to below 5 percent.
- Growth of unsecured borrowings in the form of personal loans declined sharply to 2.5 percent.
- Post-GFC deleveraging occurred without adversely affecting private consumption and economic growth.
- BNM worked with other supervisory agencies to ensure consistency in regulations across banks and NBFIs to minimize regulatory arbitrage, important because a large portion of unsecured household debt originated outside the banking system.

### Korea: Background
- Tax incentives after the Asian financial crisis led to a credit card boom in 1999-2002.
- Credit card debt peaked at 15 percent of GDP in 2002.
- Total household debt increased from 37 percent of GDP in early 1999 to 62.5 percent of GDP by Q4 2002.
- Credit card delinquency ratio reached 11.9 percent in 2002.
- Number of people in default peaked at 3.75 million in 2003.
- Credit card companies (CCC) dominated the market, funded by bond issuance; deterioration in March 2003 spread to bond markets.

### Korea: Policy measures (2002–2004) and workout channels
- Tightened prudential policies (2002–2003):
  - Increased required provisioning for household loans (applied to insurance and finance companies, bank-affiliated and specialized companies).
  - Strengthened asset classification: loans overdue by three months or longer classified as substandard if they exceed 60 percent of collateral value.
  - Required credit card issuers to cut cash advances portion to 50 percent or less.
  - Tightened capital adequacy requirements for banks and CCC.
  - Tightened prompt corrective action criteria: ban on issuing new cards if delinquency rates exceeded 15 percent for over one month.
- Took over a troubled credit card company: In January 2004, KDB stepped in to rescue LG Card; coordinated debt-equity swaps.
- Several workout vehicles:
  - Private workout by individual financial institutions: debt rescheduling up to 5 years.
  - “Bad bank”: removal of creditors’ blacklist and up to 8 years’ interest-free repayment.
  - Credit Counseling and Recovery Service: debt forgiveness up to one-third of total delinquent debt and up to 8 years’ repayment.
  - Personal Debtor Rehabilitation Program (PDRP): debt rescheduling, debt exemption from the court, repayment period of 3-8 years.
  - Personal bankruptcy: comparable to PDRP but less used due to social stigma.
- Additional administrative steps and borrower protection: identity and income verification for new customers, bans on aggressive marketing and unwarranted debt collection, promotion of debit cards, encouragement of financial institutions’ participation in individual credit rehabilitation.

### Korea: Program outcomes and key takeaways
- Rescue of LG Card did not cause a fiscal burden ex-post; creditor banks recorded an accounting profit when LG Card was acquired through a public takeover bid in 2007.
- Involvement of KDB raised ex-ante contingent liabilities and posed moral hazard concerns.
- Credit card delinquency ratio dropped to 2.6 percent in 2006 from above 10 percent in 2002-2003.
- Household debt-to-GDP ratio remained elevated at 67.5 percent in 2006 as some households repaired balance sheets while others increased borrowing, particularly mortgages.

### Hungary: Background
- Lending boom from 2000 with a large proportion of foreign currency loans (Swiss franc and euro).
- By 2008, over 60 percent of household debt in Hungary was denominated in Swiss francs.
- Household debt-to-GDP ratio peaked at 39.4 percent in 2010.
- Forint depreciated by 27.5 percent against the euro and 32.3 percent against the Swiss franc between September 2008 and March 2009.
- In 2014 Q4, household loans NPL ratio peaked at 19.2 percent; non-mortgage loans’ NPL ratio reached 16 percent.

### Hungary: Policy measures
- High policy rate: MNB kept interest rate higher and eased only in July 2009 to address depreciation.
- Exchange rate protection and early repayment schemes introduced in 2011, with associated losses for banks and the government.
- FX mortgage conversion:
  - First introduced in 2011: non-performing foreign currency mortgages could be converted into local currency with 25 percent of the loan canceled by mid-May 2012.
  - February 2015: conversion into forints with fixing of the exchange rate applied to all foreign currency denominated mortgage loans.
- Bank levy and financial transaction tax to accelerate deleveraging.
- “Settlement” and “Fair Banking” Acts (September and November 2014):
  - Compensation for “unfair lending practices” (retroactive) via principal reduction and cash transfers.
  - Restricted unilateral interest rate and cost hikes, regulated borrower information, allowed loan contract termination under certain conditions.
- “Debt cap” regulation (January 1st, 2015): PTI ratio limits and LTV ratio limits for collateralized loans.

### Hungary: Program outcomes and key takeaways
- In 2015, household loans outstanding declined considerably and the share of foreign currency lending shifted markedly due to FX conversion into forints.
  - The share of foreign currency denominated lending to household declined from 52.8 percent at end-2014 to 3.0 percent in Oct 2015.
- The measures removed significant exchange rate and financial stability risk from households’ balance sheets.
- Policy measures (FX conversion, early repayment, settlement, resetting unfair interest rates, extra bank levy) contributed significantly to losses in the Hungarian banking sector in 2011-2015; only banks without foreign currency lending reported profits.
- Cross-border deleveraging was sharp; some banks requested capital injections from parent banks to remain above minimum capital requirements.
- Deterioration of banks’ capital positions and shrinking profitability led to tightened lending conditions and contraction in credit growth, contributing to historically low investment rates and lower economic growth.
- Central banks should consider whether monetary policy is the most effective tool for private sector deleveraging or whether greater use of macro-prudential and micro-prudential policies is warranted.

### Other international practices to facilitate deleveraging
- Hong Kong SAR (2002): Individual Voluntary Arrangements (IVA), an informal court-supervised mechanism as an alternative to bankruptcy, proved helpful for consumer debt problems.
- Taiwan Province of China (2006): personal debt restructuring program offering lower interest rates and longer repayment periods, covering 30 percent of total card balances.

*Source: 1thaea2025002-print-pdf.*

### 20.      In Ireland after the GFC, besides interest subsidy, the state helped the debtors by

### 1thaea2025002-print-pdf - 20.      In Ireland after the GFC, besides interest subsidy, the state helped the debtors by

### Ireland: Personal Insolvency Act 2012 — statutory solutions
- Introduced three new statutory solutions as alternatives to bankruptcy depending on the special features of the problems arising from the different debt types:
  - Debt Relief Notices: for people with virtually no assets and very little income, debts up to 20,000 euros could be completely written off and no payments are required if the debtor’s financial situation does not improve.
  - Debt Settlement Arrangements: to deal with unsecured debt (credit cards, loans, and overdrafts), debtors shall repay a percentage of their overall debt that is affordable for up to five years, and the remaining debt will be written off.
  - Personal Insolvency Arrangements: the agreed settlement of secured debt up to 3 million euros and up to six years of repayment.

### European emerging-economy debt relief initiatives
- Croatia:
  - In 2015, offered a “fresh start” to 60,000 of its poorest citizens through debt cancellation covering bank, public utility, tax, and telecommunication debts.
- Czech Republic — "Milostivé léto" ("Merciful Summer"):
  - Forgiveness targeted people who failed to pay social security, health insurance contributions, tax, transportation, utility, and other debts to public entities.
  - Allowed forgiveness of penalties, late fees, default interests, and costs associated with debt recovery, requiring the debtor to pay only the principal amount or a portion of the total debt.
  - Milostivé léto III helped 143 thousand self-employed persons and 32 thousand employers with social security debts between July and September 2023.
  - In 2021 and 2022, in total, the legislation helped more than 61 thousand people out of their debt trap.
- Footnote on sequencing:
  - Following the introduction of "Milostivé léto I” in 2021, the II, III, and IV were sequentially introduced in the summers of 2022, 2023, and 2024. The 2024 version was implemented between 1 July to 30 November 2024.

### United States: consumer protections, student loan relief, and bankruptcy options
- Credit Card Accountability Responsibility and Disclosure Act (2009):
  - A federal statute that protects borrowers by enhancing disclosures to consumers, limiting overcharges and fees, and constraining credit card issuance to minors and students.
- U.S. Department of Education “Fresh Start” program (temporary):
  - Ran until the end of September 2024 for student debt.
  - Allowed borrowers to get their loans out of default, remove the record of default from their credit report, and regain access to financial aid and government loans.
  - Collections paused to give borrowers time before return to repayment.
  - Debtors have access to income-driven repayment (IDR) plans, in which the payment will be less than 10-20 percent of their discretionary income, as well as access to loan forgiveness programs, and short-term relief including forbearance and deferment.
  - After the Fresh Start program ends, loan rehabilitation will be the option that allows borrowers to get out of default by consolidating defaulted federal student loans into a Direct Consolidation Loan, which also allows access to IDR plans.
- Bankruptcy laws:
  - Chapter 7: one of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts.
  - Chapter 13: enables individuals with a regular income to develop a plan to repay all or part of their debts. Debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years.

### Conclusions and policy recommendations — overarching lessons
- General principles:
  - A comprehensive, multi-pronged approach to household deleveraging is necessary.
  - Ex-post measures to deal with the existing stock of debt should be mindful of moral hazard and seek to limit fiscal costs, e.g. by involving the private sector and/or using partial government guarantees.
  - Ex-ante policies and in particular macroprudential policies are an essential component of a deleveraging strategy, accompanied by financial literacy campaigns and consumer protection regulations.
  - The regulatory coverage should be comprehensive and include NBFIs and state-owned banks.
  - Carefully calibrate the intensity and pace of deleveraging to avoid adverse impacts on private consumption and growth.
  - Use stress tests and scenario analyses to simulate potential policy effects on the banking sector and the broader economy.
- Ex-post measures (recommendations):
  - Continue to strengthen personal debt workout programs for households with prolonged debt issues.
  - Further develop the personal debtor rehabilitation program, insolvency arrangements, and a socially acceptable and relatively simple personal bankruptcy mechanism, as in Korea, Hong Kong SAR, Ireland, and the United States.
  - Debt restructurings should avoid rolling over unviable loans thus creating moral hazard.
  - Take fiscal costs into consideration when adopting measures for deleveraging.
  - Target debt relief and forgiveness at the most vulnerable households while minimizing potential fiscal cost.
  - Involve the private sector in negotiations between creditors and debtors to reach agreements with a relatively small government expense (as Brazil did in the case study).
  - Use carefully chosen government guarantees to motivate creditors to renegotiate without concern about repeated default.
  - When there is potential spillover from household debt burden to a broader financial sector crisis, carefully calculate and cautiously implement government bailout measures and exit strategies to avoid excessive fiscal burden and moral hazards.
- Ex-ante measures (recommendations):
  - Continue developing the prudential policy toolkit so it can be deployed once credit growth recovers.
  - Consider introducing or reinforcing:
    - a broad-based DSTI ratio,
    - LTV ratios,
    - risk-informed pricing,
    - strengthened documentation requirements and verification for new credit,
    - enhanced credit information systems.
  - The BOT has the authority to deploy the countercyclical buffer framework and should consider developing the systemic risk buffer framework to protect the banking sector from the build-up of system-wide risks.
- Education and consumer protection:
  - Enhance education, financial literacy, and better borrower protection to prevent over-indebtedness.
  - Consider bans on aggressive marketing of credit cards, promotion of the use of debit cards, and cap on excessive interest rates.
  - Encourage financial institutions to adopt financial education measures, enhance disclosures to consumers, and participate more actively in individual credit rehabilitation programs.
  - Continue financial literacy initiatives such as providing free courses and materials in money and debt management, and partnerships with education ministries to include financial literacy in the school curriculum.

### Thailand: Summary of four case studies — selected indicators and policy takeaways
- Brazil (2023-2024)
  - DSTI ratio: 28 percent in June 2023
  - NPL ratio: 4.18 percent in June 2023
  - DSTI ratio: 26 percent in June 2024
  - NPL ratio: 3.65 percent in June 2024
  - Policy measures: Desenrola Brasil program; Auction on debt renegotiation rate; Targeted at low-income households and guarantee from government; Preventative measures: Financial literacy campaign; Cap on credit card interest.
  - Key takeaway: An innovative program assisting defaulted households to renegotiate debt and regain access to credit with private sector participation and limited fiscal costs.
- Malaysia (2008-2017)
  - household debt-to-GDP ratio: 89 percent in 2015
  - household debt growth rate: 13.7 percent in 2010
  - unsecured personal loans growth rate: 25.2 percent in 2008
  - household debt-to-GDP ratio: 84.3 percent in 2017
  - household debt growth rate: 5   percent in 2017
  - unsecured personal loans growth rate: 2.5 percent in 2017
  - Policy measures: Tiered pricing on credit card interest rate; Stricter credit card requirements; Responsible lending practices; Introduction of maximum loan tenure; Tightening on personal financing; Risk-Informed Pricing; Financial literacy enhancement: POWER! Program.
  - Key takeaway: Supervisory agencies need to ensure consistency in regulation to avoid regulatory arbitrage when a large portion of the debt is issued in NBFIs.
- Korea (2002-2006)
  - credit card delinquency ratio: 11.9 percent in 2002
  - credit card delinquency ratio: 2.6 percent in 2006
  - Policy measures: Took over a troubled credit card company; Several workout vehicles for resolving debts; Preventative measures: Tightened prudential policies; Additional administrative steps and borrower protection.
  - Key takeaway: Examples of policies undertaken to avoid spillovers to the broader financial system when there is a massive credit card default.
- Hungary (2009-2015)
  - household debt-to-GDP ratio: 39.4 percent in 2010
  - household debt-to-GDP ratio: 21.1 percent in 2015
  - Resolution measures: Exchange rate protection and early repayment schemes; FX mortgage conversion; “Settlement” and “Fair Banking” Acts.
  - Preventative measures: High policy rate to defend depreciation; Bank levy and financial transaction tax; “Debt cap” regulation.
  - Key takeaway: Deleveraging measures taken without thorough consideration could impair banking sector profitability and solvency, leading to further credit contraction and economic slowdown.

*International Monetary Fund — Chapter excerpt on household deleveraging and policy responses*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1thaea2025002-print-pdf.pdf_