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Thai Laborers' Rising Debt Impacts Economy

  • Ron Corben

Workers carry a new tile while repairing the roof of an apartment building under the hot sun Sunday, April 27, 2014 in Bangkok, Thailand.

Workers carry a new tile while repairing the roof of an apartment building under the hot sun Sunday, April 27, 2014 in Bangkok, Thailand.

A survey by the University of the Thai Chamber of Commerce shows an increase in debt levels among lower wage workers. Analysts say it is just another sign of how the country’s prolonged political deadlock is affecting household finances.

According to the results, 90 percent of laborers earning less than $500 a month are increasingly in debt, often needing to borrow funds to meet even basic daily requirements.

The university's economists say levels of forced borrowings by laborers outside the banking system are at their highest levels in six years. The survey reported that Thai household debt now accounts for over 80 percent of Thailand's total national output - from just over 50 percent in 2008.

Luxmon Attapich, a senior Thai economist at the Asian Development Bank, says the high rates of debt are impacting consumption, undermining economic growth.

"Because of this high debt it means that households will have to pay for debt and that part of income cannot be used for consumption," Luxmon said. "If you look at the rate of NPLs (non-performing loans) for household debt we can see that it is rising a little."

The economist explains that this means people are paying off debt at a level that will affect them similarly in 2014 as it did in 2013.

Thai laborers' concerns also include loss of employment, rising costs of living and continuing political uncertainties that are causing some foreign investors to put big investments on hold. Economists say that Thailand's slowing economy, forecast to grow just under 3 percent this year, could lead to some 600,000 unemployed, which would be the highest number in a decade.

Thailand’s months-long political deadlock still shows no signs of a breakthrough, and the caretaker government lacks the authority to set economic policy.

In response, influential business groups such as the Thai Board of Trade and the Thai Chamber of Commerce are adding their voice to calls for a return to parliamentary democracy amid the poor economic outlook.

Chris Baker, an author and commentator on Thai business, says the slowing economy is spurring both political sides towards negotiations.

"The tentative moves on all sides of the last month to move towards negotiations has been pushed in the background by the business community who is clearly spooked by the signs of what happened in the first quarter and the prospect that it will get even worse," Baker said. "So I think, yes, the economy has become very important."

The Thai central bank says the prolonged political uncertainty contributed to slumps in domestic consumption, investment and tourism with negative growth over the first two months of 2014.

Asian Development Bank's Luxmon says the political stand-off has had broad impact on the economy.

"The bigger picture remains the same - domestic consumption is not going to expand this year," Luxmon said. "Domestic investment does not look good either because investors are taking a wait and see approach and because activities are not happening . So we say export is going to be a hero for this year. But all in all less than three per cent growth - that's definite for Thailand this year."

University of the Thai Chamber of Commerce economists also warn if the political stand-off is prolonged into the second half of the year more people will face redundancies with some businesses already cutting working hours.

International ratings agency, Moody's Investors Services has recently warned an extension or escalation of the political turmoil would weaken Thailand's sovereign debt rating - translating into higher interest rates on government borrowings.
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