Thailand’s Public Debt Level and Debt Crisis
Keywords:
Debt crisis, public debt, fiscal policyAbstract
Thailand has adopted a public debt to GDP ratio at the maximum of 60 percent as a fiscal sustainability framework. This rule of thumb, however, is questionable since we have witnessed debt crises happened in some European countries that follow a similar rule of EU. Using Reinhart (2010) dataset, we find that not only debt to GDP ratio but also other macroeconomic conditions determine a chance of a crisis. For Thailand, as in 2008 economic condition, the stress test indicates that the level of debt to GDP that triggers a debt crisis is around 80-90 percent. However, the level is lowered to 60-70 percent in a period of severe contraction. Nonetheless, past evidences showed that debt crises often occurred with or followed other types of crises (e.g. banking crisis); such situation could easily double the public debt to GDP ratio because of the government bailout practice. We therefore propose to reduce the maximum debt to GDP ratio to 40-45 percent as a new fiscal sustainability framework of Thailand.
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