## 1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath ## Source details **Canonical URL:** [1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025054.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025054.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025054.pdf.json) --- ### Introduction and fiscal framework - Public debt ceiling: 70 percent of GDP (raised from 60 percent of GDP in September 2021). - Fiscal Policy Committee (FPC) numerical limits include: - Government debt service: Not to exceed 35 percent of the annual revenue. - Foreign currency public debt: Not to exceed 10 percent of the total public debt. - Foreign currency public debt service: Not to exceed 5 percent of the exports of goods and services. - Deficit borrowing: Not to exceed 20 percent of the expenditure budget and 80 percent of the budget for principal repayments. - Capital expenditure: No less than 20 percent of the annual budget and not less than the fiscal year budget deficit. - Coverage of the debt rule: general government, state-owned enterprises (SOEs), government agencies, and guaranteed debt of special financial institutions. ### Pandemic and post-pandemic fiscal responses (key figures) - Total pandemic stimulus announced: THB 1.56 trillion. - Health spending: THB 280 billion. - Relief (cash handouts): THB 886 billion. - Economic restoration and recovery: THB 391 billion. - Pandemic and related financial measures summary: - Fiscal stimulus: THB 1,557 billion (9.3 percent of FY19 GDP). - Financial measures: THB 900 billion (5.1 percent of FY19 GDP), including: - Guarantees on BoT soft loans to SMEs: THB 500 billion (3.0 percent of FY19 GDP). - BoT Stabilization Fund: THB 400 billion (2.4 percent of FY19 GDP). - Additional fiscal measures following the war in Ukraine: 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 FY19 GDP). - Off-budget financing for pandemic measures: THB 1.5 trillion (8.9 percent of FY19 GDP). - Public debt: increased to around 63 percent of GDP as of end FY24 and is expected to stay elevated. - SOE-related quasi-fiscal pressures and costs: - Thailand Oil Fund net negative financial position: around THB 100 billion as of end September 2024. - Electricity Generating Authority of Thailand accrued revenue: THB 85 billion as of end-June 2024. - Estimated combined associated costs from SOE measures and fuel tax cuts: around 0.6 percent of GDP in FY24. ### Assessing the debt ceiling: approach and rationale - Two-step assessment approach: 1. Estimate the “debt limit” using three analytical approaches. 2. Calibrate the “debt ceiling” by applying a safety margin to the debt limit to account for shocks and risk tolerance. - Emphasis on country-specific calibration: debt carrying capacity depends on revenue-generating capabilities, financial market depth, institutions, and macro fundamentals. ### Step 1 — Estimating Thailand’s debt limit (three approaches and results) 1. Primary-balance and debt dynamics approach (fiscal reaction function and r-g intersection) - Method: estimate debt level where maximum primary balance meets financing costs under stress (PB_max = Debt* × (r − g)_stress). - Inputs and illustrative estimates: - Historic high primary balance used: 3.4 percent of GDP. - Maximum 10-year bond yield since 2000: 7.8 percent. - Assumed nominal GDP growth: 4.7 percent (2.7 percent real GDP growth + 2 percent inflation). - Resulting estimated debt level: around 109.4 percent of GDP. - Sensitivity: using a lower growth rate (declining potential growth by 0.5–1 percentage points) and a less ambitious primary balance yields an estimate as low as 71.5 percent of GDP. - Overall range implied by this approach: 80–110 percent of GDP. 2. Debt-servicing capacity approach (ratio of interest expenses to revenues) - Concept: use the ratio of interest expenses to revenues as proxy for fiscal stress; empirical thresholds (τ) range from 16 to 19. - Formula applied by staff: D* = τ × (Revenues/GDP) / (Effective Interest Rate). - Staff estimates (2000–2023): debt limits range from 84.5 to 100.3 percent of GDP. - Excluding the COVID-19 period (FY20–FY21): estimates range from 82.3 to 97.7 percent of GDP. - Tabulated staff values: - τ = 16 → 84.5 (2000–2023) and 82.3 (2000–2023 excl. COVID-19). - τ = 19 → 100.3 (2000–2023) and 97.7 (2000–2023 excl. COVID-19). 3. Growth-maximizing debt approach (impact on growth via public capital elasticity) - Method: estimate elasticity of output to public capital stock (α) and compute debt-to-GDP ratio that maximizes growth assuming public debt finances public capital (“golden rule”). - Estimated α from panel data (ASEAN-4, 1960–2019) using two specifications yields point estimates for α of 16.8 percent and 31.8 percent. - Corresponding growth-maximizing debt-to-GDP ratios: 30.8 percent and 77.2 percent respectively. - Range implied by this approach: 30.8–77.2 percent of GDP. - Synthesis of Step 1: staff assess Thailand’s debt limit would likely be in the range of 77–87 percent of GDP, with a midpoint of 82 percent of GDP. The debt limit estimates are sensitive to assumptions about growth, interest rates, and the capacity for fiscal adjustment. ### Key analytical observations and risks - The primary-balance approach can yield debt limits potentially higher than 100 percent of GDP but is highly sensitive to assumptions; conservative assumptions point to lower limits (e.g., 71.5 percent). - The debt-servicing capacity approach yields a range roughly 82.3–100.3 percent of GDP depending on sample and τ. - The growth-maximizing approach gives a lower range (30.8–77.2 percent), depending on the estimated elasticity of public capital. - Main determinants of sustainable debt limit: potential growth, interest rates, and political/social constraints on achieving large primary surpluses. - Off-budget financing, quasi-fiscal SOE operations, and contingent liabilities represent material risks to debt trajectories. ### Methodology for calibrating the debt ceiling - Use a multivariate normal distribution of key macroeconomic and fiscal variables: real GDP growth, primary balance, real interest rates, and real exchange rates, calibrated on historical data. - Conduct multiple simulations from the joint distribution; each simulation produces a medium-term path for macroeconomic variables and associated debt trajectory. - For the primary balance, use staff’s baseline projections. - Present resulting debt paths in a fan chart and calibrate the debt ceiling as the initial point so that debt stays below the debt limit with 90 percent probability in the medium-term horizon. - The exercise calibrates the debt ceiling consistent with 10 percent risk tolerance of breaching the debt limit. ### Findings (Baseline) - Projected distribution indicates 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. - The baseline calibration implies the current debt ceiling is broadly consistent with the debt limit and the safety margin under the baseline assumptions. ### Alternative scenarios and sensitivity to additional risks - Incorporating contingent liabilities: - Contingent liabilities are estimated at 3 percent of GDP every 6 years. - Once contingent liabilities are incorporated, the required safety margin increases and the calibrated debt ceiling falls to below 70 percent of GDP. - Incorporating additional spending needs: - Additional spending for climate change adaptation, human capital investment, and population aging is modeled at 0.7 percent of GDP on an annual basis, without additional revenues or offsetting spending cuts. - With these additional spending needs, the calibrated debt ceiling needs to be lowered to around 66 percent of GDP. - Risk tolerance and shock frequency: - A larger or more frequent shock environment (requiring stronger counter-cyclical fiscal responses) would justify reducing risk tolerance, increasing the safety buffer, and lowering the debt ceiling further. ### Conclusions and policy implications - Recommendation: 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, fiscal policies should 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. ### Strengthening fiscal rules and transparency - Improve the broader fiscal rules framework to support lowering public debt: - Consider short-term operational rules within a clear medium-term framework. - Consider a risk-based rules approach: a more ambitious deficit target embedded in the MTFF triggered when debt is close to the ceiling. - Define a clear escape clause with 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. - Strengthen fiscal transparency to avoid “debt surprises”: - Materialization of contingent liabilities can significantly impact debt trajectories. - Off-budget operations and quasi-fiscal operations can loosen control over public spending and lead to debt surprises. - Information is limited regarding outstanding financial liabilities of the government and compensations made to the SOEs clear them. - Improve reporting on off-budget operations and improve costing of contingent liabilities. *Source: IMF staff, "1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath" (January 27, 2025).* ### 1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath _______________ 7 ### 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). - The Fiscal Policy Committee (FPC) determines the debt ceiling and other numerical limits, including: - Government debt service: Not to exceed 35 percent of the annual revenue. - Foreign currency public debt: Not to exceed 10 percent of the total public debt. - Foreign currency public debt service: Not to exceed 5 percent of the exports of goods and services. - Deficit borrowing: Not to exceed 20 percent of the expenditure budget and 80 percent of the budget for principal repayments. - Capital expenditure: No less than 20 percent of the annual budget and not less than the fiscal year budget deficit. - The debt rule covers the public sector broadly—general government, state-owned enterprises (SOEs), government agencies, and guaranteed debt of special financial institutions. ### Pandemic and post-pandemic fiscal responses (key figures) - Total pandemic stimulus announced: THB 1.56 trillion. - Health spending: THB 280 billion. - Relief (cash handouts): THB 886 billion. - Economic restoration and recovery: THB 391 billion. - Pandemic and related financial measures summary: - Fiscal stimulus: THB 1,557 billion (9.3 percent of FY19 GDP). - Financial measures: THB 900 billion (5.1 percent of FY19 GDP), including: - Guarantees on BoT soft loans to SMEs: THB 500 billion (3.0 percent of FY19 GDP). - BoT Stabilization Fund: THB 400 billion (2.4 percent of FY19 GDP). - Additional fiscal measures following the war in Ukraine: 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 FY19 GDP). - Off-budget financing for pandemic measures: THB 1.5 trillion (8.9 percent of FY19 GDP). - Public debt increased to around 63 percent of GDP as of end FY24 and is expected to stay elevated. - SOE-related quasi-fiscal pressures and costs: - Thailand Oil Fund net negative financial position: around THB 100 billion as of end September 2024. - Electricity Generating Authority of Thailand accrued revenue: THB 85 billion as of end-June 2024. - Estimated combined associated costs from SOE measures and fuel tax cuts: around 0.6 percent of GDP in FY24. ### Assessing the debt ceiling: approach and rationale - Two-step assessment approach: 1. Estimate the “debt limit” (threshold beyond which debt is unsustainable or negatively impacts growth) using three analytical approaches. 2. Calibrate the “debt ceiling” by applying a safety margin to the debt limit to account for shocks and risk tolerance. - Importance of country-specific calibration: debt carrying capacity depends on revenue-generating capabilities, financial market depth, institutions, and macro fundamentals. ### Step 1 — Estimating Thailand’s debt limit (three approaches and results) 1. Primary-balance and debt dynamics approach (fiscal reaction function and r-g intersection) - Method: Estimate the debt level where maximum primary balance meets financing costs under stress (PB_max = Debt* × (r − g)_stress). - Inputs and illustrative estimates: - Historic high primary balance used: 3.4 percent of GDP. - Maximum 10-year bond yield since 2000: 7.8 percent. - Assumed nominal GDP growth: 4.7 percent (2.7 percent real GDP growth + 2 percent inflation). - Resulting estimated debt level: around 109.4 percent of GDP. - Sensitivity: Using a lower growth rate (declining potential growth by 0.5–1 percentage points) and a less ambitious primary balance yields an estimate as low as 71.5 percent of GDP. - Overall range implied by this approach: 80–110 percent of GDP. 2. Debt-servicing capacity approach (ratio of interest expenses to revenues) - Concept: Use the ratio of interest expenses to revenues as proxy for fiscal stress; empirical thresholds (τ) range from 16 to 19. - Formula: D* = τ × (Revenues/GDP) / (Effective Interest Rate) (as applied by staff). - Staff estimates (2000–2023): debt limits range from 84.5 to 100.3 percent of GDP. - Excluding the COVID-19 period (FY20–FY21): estimates range from 82.3 to 97.7 percent of GDP. - Tabulated staff values: - τ = 16 → 84.5 (2000–2023) and 82.3 (2000–2023 excl. COVID-19). - τ = 19 → 100.3 (2000–2023) and 97.7 (2000–2023 excl. COVID-19). 3. Growth-maximizing debt approach (impact on growth via public capital elasticity) - Method: Estimate elasticity of output to public capital stock (α) and compute debt-to-GDP ratio that maximizes growth assuming public debt finances public capital (“golden rule”). - Estimated α from panel data (ASEAN-4, 1960–2019) using two specifications yields point estimates for α of 16.8 percent and 31.8 percent. - Corresponding growth-maximizing debt-to-GDP ratios: 30.8 percent and 77.2 percent respectively. - Range implied by this approach: 30.8–77.2 percent of GDP. - Synthesis of Step 1: staff assess Thailand’s debt limit would likely be in the range of 77–87 percent of GDP, with a midpoint of 82 percent of GDP. The debt limit estimates are sensitive to assumptions about growth, interest rates, and the capacity for fiscal adjustment. ### Key analytical observations and risks - The first approach can yield debt limits potentially higher than 100 percent of GDP but is highly sensitive to assumptions and represents thresholds beyond which debt could become explosive. Conservative assumptions point to lower limits (e.g., 71.5 percent). - The second approach highlights debt-servicing capacity and gives a range roughly 82.3–100.3 percent of GDP depending on sample and τ. - The third approach emphasizes growth considerations and gives a lower range (30.8–77.2 percent), depending on the estimated elasticity of public capital. - Overall, outcomes for potential growth, interest rates, and political/social constraints on achieving large primary surpluses are key determinants of the sustainable debt limit. ### Policy implications and considerations (from analysis) - Fiscal prudence is warranted to restore buffers given current public debt around 63 percent of GDP (end FY24). - The assessment raises the technical question of whether there is room to recalibrate the statutory debt ceiling (currently 70 percent of GDP) given staff estimates of the debt limit (77–87 percent of GDP, midpoint 82 percent). - Any recalibration should account for: - The need for a safety margin to absorb macroeconomic shocks and rising risks. - Strengthening transparency and accountability (concerns from off-budget financing and quasi-fiscal SOE operations). - Risks from weakened expenditure control due to expanded off-budget operations and quasi-fiscal activity. - The sensitivity of debt-limit estimates to assumptions on growth, interest rates, and the feasibility of achieving higher primary balances. *Source: IMF staff, "1. Thailand: Fiscal Reponses During the Pandemic and in the Aftermath" (January 27, 2025).* ### 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 ### Methodology for calibrating the debt ceiling - Use a multivariate normal distribution of key macroeconomic and fiscal variables: real GDP growth, primary balance, real interest rates, and real exchange rates, calibrated on historical data. - Conduct multiple simulations from the joint distribution; each simulation produces a medium-term path for macroeconomic variables and associated debt trajectory. - For the primary balance, use staff’s baseline projections. - Present resulting debt paths in a fan chart and calibrate the debt ceiling as the initial point so that debt stays below the debt limit with 90 percent probability in the medium-term horizon. ### Findings (Baseline) - Projected distribution indicates 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. - The baseline calibration therefore implies the current debt ceiling is broadly consistent with the debt limit and the safety margin under the baseline assumptions. ### Alternative scenarios and sensitivity to additional risks - Incorporating contingent liabilities: - Contingent liabilities are estimated at 3 percent of GDP every 6 years. - Once contingent liabilities are incorporated, the required safety margin increases and the calibrated debt ceiling falls to below 70 percent of GDP. - Incorporating additional spending needs: - Additional spending for climate change adaptation, human capital investment, and population aging is modeled at 0.7 percent of GDP on an annual basis, without additional revenues or offsetting spending cuts. - With these additional spending needs, the calibrated debt ceiling needs to be lowered to around 66 percent of GDP. - Risk tolerance and shock frequency: - The exercise calibrates the debt ceiling consistent with 10 percent risk tolerance of breaching the debt limit. - A larger or more frequent shock environment (requiring stronger counter-cyclical fiscal responses) would justify reducing risk tolerance, increasing the safety buffer, and lowering the debt ceiling further. ### Conclusions and policy implications - Recommendation: 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, fiscal policies should 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. ### Strengthening fiscal rules and transparency - Improve the broader fiscal rules framework to support the objective of lowering public debt: - Consider short-term operational rules within a clear medium-term framework. - Consider a risk-based rules approach: a more ambitious deficit target embedded in the MTFF triggered when debt is close to the ceiling. - Define a clear escape clause with 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. - Strengthen fiscal transparency to avoid “debt surprises”: - Materialization of contingent liabilities can significantly impact debt trajectories. - Off-budget operations and quasi-fiscal operations can loosen control over public spending and lead to debt surprises. - Information is limited regarding outstanding financial liabilities of the government and compensations made to the SOEs clear them. - Improve reporting on off-budget operations and improve costing of contingent liabilities. *Source: IMF staff estimates.* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025054.pdf_