Thailand no longer has a fiscal buffer to contain rising public debt, making it necessary to accelerate reforms for both the economy and the public sector to lift economic growth closer to its full potential, according to the Finance Ministry.
A ministry source who requested anonymity said its Fiscal Risk Report, prepared following the completion of fiscal 2025 to assess the government's medium-term fiscal risks in terms of debt sustainability, underscored the need for comprehensive structural reforms to both the economy and the public sector, alongside a serious commitment to fiscal consolidation.
According to the debt sustainability analysis for fiscal 2024-2026, the positive structural contribution from economic growth has declined significantly. As a result, the government's fiscal space for net borrowing (after deducting principal repayments) without increasing the public debt-to-GDP ratio has narrowed to only 1.5% of GDP.
Although domestic borrowing conditions remain stable, the continued accumulation of outstanding debt at elevated levels has increased the structural burden of interest payments to around 1.5% of GDP. As a consequence, Thailand has effectively exhausted the structural buffer that previously helped contain public debt levels, said the source.
If the government implements serious fiscal consolidation in accordance with the medium-term fiscal framework for 2027-2030, Thailand could begin to lose debt sustainability if economic growth cannot exceed the pace recorded during the post-pandemic period, noted the ministry.
In addition to strict fiscal consolidation, accelerating structural reforms for both the economy and the public sector to enable medium-term economic growth to approach its full potential is essential to maintain the country's debt sustainability, noted the source.
While government expenditures classified as hard to cut (salaries, welfare benefits for civil servants, and public welfare programmes) slowed somewhat in fiscal 2025, they continue to account for a high proportion of the budget. Such expenditures increased by 3.4% from the previous fiscal year and represented 67.4% of total net budget expenditures.
Spending on debt servicing, contractual obligations and public welfare programmes also continued to grow at a relatively high rate, said the source.
Thailand's public debt has risen rapidly since the pandemic, when the government issued two emergency borrowing decrees totalling 1.5 trillion baht to mitigate the pandemic's impact on the public.
As of April 2019, before the pandemic, Thailand's public debt tallied 6.88 trillion baht, equivalent to 41.2% of GDP. By April 2026, public debt rose to 12.8 trillion baht or 66.7% of GDP, approaching the fiscal sustainability ceiling of 70% of GDP.
Meanwhile, the ministry proposed tax reforms to increase government revenue from 2026-2030. The proposals include raising the value-added tax (VAT) rate from 7% to 10%, with a phased increase of 1.5 percentage points in 2028 and a further 1.5 percentage points in 2030.
If the VAT rate is successfully increased to 10% as planned, the ministry estimates annual VAT revenue would rise by 345 billion baht. However, despite more than a decade of discussions, no administration has succeeded in increasing the VAT rate.
