The inspiration for this article comes from the International Monetary Fund’s (IMF) World Economic Outlook (WEO) report for the month of October.
As usual, the organisation conducted a quarterly review of the world economy, including GDP growth projections for member countries.
Some of the projections surprised me as Thailand’s expected GDP growth for 2026 ranked the lowest among the 10 member nations of the Association of Southeast Asian Nations (Asean), and the second-lowest (1.6%) in Asia after Japan (0.6%).
We know things are not going great in Thailand, but to suggest GDP growth will lag that of Myanmar (3.0%), Laos (2.5%) and Cambodia (4.0%) — especially by such a large margin — is not only likely inaccurate but insulting.
The IMF projects the kingdom will see 2.0% GDP growth this year. If readers do not feel embarrassed by this point, please look at the attached table.
The title of this article, “Thailand now ‘the sick man of Asean'”, actually could not be further from the truth. Nonetheless, things are bad. This article still makes the point that the economy is in a coma and needs an urgent turnaround.
Political propaganda and small fixes will not do the job. Policymakers should stop dreaming that there are easy solutions. Solutions will not only be difficult but also painful.
For a good example of painful solutions to turn the economy around, we can turn our attention to Argentina.
The country was previously plagued by 200%-plus inflation rates that mutilated its economy. The Argentine peso even lost 45% of its value within a single year. Even the IMF gave up hope on controlling the level of skyrocketing inflation there.
Newly installed President Javier Milei performed a de facto miracle by pushing inflation down to the 30% level. Many thought his hostile spending cuts of 30% and massive market reforms would cost him his political future.
On the contrary, his party won a majority of seats in both Houses in last week’s midterm elections. But despite the sharp pain, Argentines did feel the benefit of low inflation after he came to power.
Surely, not everyone is happy about this, as some of the measures are indeed painful. Pensioners have been protesting on the streets for weeks.
As I said, to get the job done, no Mickey Mouse solution will do. Originally, I intended to write three full sections in this article.
The first would describe the crises that qualify the Thai economy to be branded “the sick man of Asean”. The second would discuss the consequences of said crises. And the last section would suggest certain painful solutions to ease the crises.
But due to space limitations, only the first section will be explained here. However, I will try my best to blend in some of the consequences and suggested solutions.
The first crisis is that of low GDP growth. It is not only for this or next year that Thailand’s GDP growth is being ranked the lowest in the region. Readers may want to glance at the table once again.
I am afraid that Thailand will stay at the bottom of the table at least until 2030. The IMF does not spell this out directly, but it can be deduced from the IMF’s World Economic Outlook (WEO) report for October that, from 2025-2030, Thailand’s average nominal GDP growth rate will stand at 2.8%.
The real GDP growth rate is probably only 1.8% which is the lowest among the major Asean economies.
By 2030, Thailand is expected, as per this report, to drop from being the third-largest economy in Asean to the fifth-largest.
Just out of curiosity, I wonder what the average long-term (nominal) GDP growth numbers of our Asean peers are during this five-year period.
Let’s see. They are 8.5% for the Philippines, 7.3% for Indonesia, 6.3% for Vietnam, 6.0% for Malaysia, and 4.3% for Singapore. For the honour of our country, may I repeat that the average (projected) nominal GDP growth for Thailand is 2.8%.
Thailand might be low on GDP growth, but we are surely high in debt. In fact, the high level of (bad) debt ranks as the nation’s second economic crisis. Thailand’s household debt to GDP ranks seventh in the world (88.2%), beating Hong Kong (87.8%), Norway (87.4%), and Denmark (84.8%).
But guess what? Those countries have high levels of household debt because their housing prices are extremely high. If mortgages are deducted, other consumption loans stand at less than 5% of GDP. Therefore, household debt never poses a threat to those economies.
Thailand, in contrast, has 60% of GDP for non-mortgage debt, which is way too high for Thai debtors to be able to repay.
I have calculated how much GDP growth, namely, income growth, Thailand needs to be able to cover the interest rate on its existing debt. Just interest rate obligations, no principal repayments.
Given an interest rate of 3% for loans, 4.8% GDP growth is needed. If that rate rises to 4%, 6.4% GDP growth would be required. Needless to say, Thailand could never reach such GDP growth, which means the problem of non-performing loans (NPL) is theoretically unsolvable.
Given the above calculation, Thai borrowers should have defaulted “en masse,” leading to a collapse of the nation’s banking system.
They have, but all parties concerned, including the Bank of Thailand (BoT), have been helping to hide the numbers. According to a BoT report, NPLs in the private sector are just 2.83%. Who are you kidding? The real rate of NPLs should be well above 20%.
Before loans are classified as NPLs, banks restructure those that are turning bad into good loans. This deceptive practice hides the problem from the public, but cannot hide it from the banks.
Since there are fewer good customers, the Thai banking system has seen negative loan growth for 15 consecutive months. Banks are indeed zombies.
What happens when less and less money enters the economic system? The answer can be found in the table, and the vicious cycle of low growth and bad debt begins. So if someone asks me whether the economy will bottom out in 2026, I would say not until the NPL problem is resolved and the zombie banking system is fixed.
To solve those problems, someone has to improve the borrower’s “ability to pay”. Fake debt restructuring is counterproductive.
When customers start paying debts regularly, banks will “magically” emerge from zombie mode and become active agents in the economy again.
The last crisis relates to competitiveness. Thailand’s industrial system does not yield a high enough income to push for growth and repay all debt.
If we want to have income on par with Malaysians, who enjoy almost twice the level of per-capita income, we need high-value-added products like theirs.
This all points to a switch to a STEM-based (science, technology, engineering and mathematics) industrial system.
Is there a “Big Quick Win” formula?
No.
It would take 20 years to achieve a STEM-friendly knowledge base, as Thailand would have to revamp its entire education system.