Thailand’s fiscal posture remains notably fragile when viewed against the pre-Covid era, with government revenue below pre-pandemic levels and still lagging behind peers among emerging economies. The Fiscal Policy Office (FPO) frames this as a medium-term risk scenario in which the state’s capacity to service debt has diminished and the deficit persists at elevated levels. The latest fiscal risk assessment for 2024, released last month, underscores that revenue generation has not recovered to the historical benchmark, while the government’s debt repayment capacity shows signs of weakening relative to the pre-pandemic period. This combination signals the need for careful monitoring of several risk factors and a deliberate return to fiscal consolidation to restore breathing space for aging-related costs, ongoing structural transformations, and any potential shocks that could emerge in the years ahead. A Finance Ministry source, speaking on condition of anonymity, emphasized that the fiscal risk profile for fiscal 2024 and the medium-term horizon remains elevated relative to the pre-Covid baseline, underscoring the necessity of close watchfulness and proactive policy management. The same source argued that the government should begin in earnest a process of consolidation to shrink the persistent deficit, with the aim of gradually restoring fiscal space to address demographic shifts, structural economic changes, and potential crises that could arise in the future.
Fiscal Risk Landscape in Fiscal 2024 and the Medium Term
The revenue side of the budget has been a central point of concern. In fiscal 2024, government revenue collection came in at 15.1% of GDP, a figure that sits well below what was recorded before the pandemic and also below the performance of many emerging economies. This underperformance places the country at a disadvantage in terms of financing public priorities, and it constrains the government’s ability to absorb adverse shocks or to implement comprehensive reforms without triggering renewed pressure on deficits or debt. The FPO’s assessment highlights that the revenue gap is more than a short-term phenomenon; it reflects structural and cyclical pressures that are expected to persist into the medium term. A key implication of this dynamic is a reduced capacity to respond to crises—whether they are natural disasters, economic downturns, or demographic changes—that require timely fiscal space.
From a debt management perspective, the FPO notes a decline in the government’s debt repayment capacity when compared with the pre-pandemic period. This reduced capacity is particularly consequential given the already elevated stock of public debt and the ongoing obligation to fund rising welfare expenditures and ageing-related costs. The combination of lower revenue collection relative to GDP and a tighter ability to service debt increases the risk that financing costs will consume a larger share of the budget, leaving less room for essential investments or countercyclical measures. A Finance Ministry insider stressed that the medium-term outlook maintains high risk around the same core issues, suggesting that policy makers must maintain a vigilant stance and advance structural policy reforms to stabilize the fiscal path.
The source’s assessment points to a clear need for fiscal consolidation. Such consolidation would aim to reduce the deficit toward a more sustainable level, thereby freeing fiscal space to address critical priorities in the coming years. These priorities include ageing population pressures that will require higher social spending, ongoing structural transformations within the economy (such as shifts in industry composition and productivity dynamics), and the need to be prepared for potential future crises. The medium-term risk profile thus centers on balancing the imperative to invest and protect vulnerable groups with the necessity of maintaining a credible and sustainable fiscal trajectory.
In terms of the size and structure of expenditures, the government has faced sustained pressure from items that are difficult to cut. The concept of “hard to reduce” expenditures has become a persistent feature of the budget, reflecting commitments that are difficult to revise in the short to medium term. In fiscal 2023, these hard-to-reduce expenditures totaled 2.13 trillion baht, representing 67.2% of the budget, up from 65.8% in fiscal 2022. The rise in such expenditures has been attributed to a combination of debt repayment commitments and rising welfare expenses—spending designed to support public personnel, the elderly, and other vulnerable groups. The deterioration in the ratio of easily adjustable spending to total outlays is a clear signal that discretionary fiscal space is being squeezed, and that reforms targeting the efficiency and structure of public spending are becoming increasingly urgent.
Within the broader expenditure framework, the composition of outlays reveals some shifts. The proportion of spending on salaries, contributions, and compensation for government workers declined from 26.2% of the budget in fiscal 2022 to 25.7% in 2023. While this shift suggests some compressive adjustment in compensation, it must be weighed against rising demand for welfare services, health care, pensions, and other social protections that drive up the absolute level of outlays even as the payroll share stabilizes or declines. In other words, even as administrative costs may be trimmed in some areas, the basket of hard-to-reduce expenditures expands due to demographic and social protection commitments that are not easily curtailed.
From a debt-related risk perspective, elevated public debt levels continue to weigh on the fiscal framework. The government’s capacity to service debt has weakened, a situation reflected in higher interest payments relative to revenue. In fiscal 2024, interest payments rose to 9.59% of government revenue, highlighting the structural challenge of balancing debt service with current expenditures and development priorities. This increase is linked to both rising interest rates and a larger stock of outstanding debt that translates into higher annual debt service obligations, even if the government has taken steps to lengthen debt maturities to mitigate refinancing risks. Acknowledging these dynamics, the source notes that while the government has implemented steps to extend debt maturities, the overall revenue collection capacity remains constrained in the medium term.
Looking ahead, debt-related risks are expected to intensify in the medium term due to two primary factors identified by the source. First, the debt-to-GDP ratio is projected to continue rising, reaching 69.3% by the end of fiscal 2029. This trajectory is driven by persistently high budget deficits, and it suggests an average annual increase of 3.37% in the debt-to-GDP ratio, which could outpace the positive structural effects of ongoing economic growth. Second, the Fiscal Early Warning Composite Index stood at 3.36 at the end of the third quarter of 2024, a reading captured on a scale where 5 signals a warning threshold. This level indicates that the government should exercise caution in continuing its high-deficit policy. The data mark the 14th consecutive quarter of elevated fiscal risk, underscoring the durability of the risk environment and the need for a credible plan to reverse the trend.
In terms of liquidity and near-term financing, the source warns of potential pressures in fiscal 2025 if revenue collection continues to underperform relative to estimates. The government does hold a borrowing buffer intended to cover shortfalls when expenditures exceed revenues; however, this buffer can only accommodate a shortfall of 0.17% of GDP, equivalent to 4.92 billion baht. This means the cushion is modest and fragile, making any revenue shortfall or unanticipated expenditure spike a material risk to liquidity management. The source adds that budget allocations themselves could be insufficient if revenue outcomes deteriorate further, potentially forcing the government to draw on treasury reserves at higher levels to meet obligations.
Given these dynamics, the assessment emphasizes that the government must accelerate its consolidation efforts to bring the deficit back toward normal levels. The target articulated in the assessment is to reduce the deficit to not exceed 3% of GDP, a reduction from the projected 4.4% in fiscal 2025. Achieving this target would help restore fiscal space for priority areas, including crisis response and disaster preparedness, thereby enhancing resilience to future shocks or natural disasters. The policy emphasis then shifts to structural reforms designed to improve revenue collection and the efficiency of tax administration, along with a careful review of exemptions and reductions to ensure they are tightly targeted and limited to what is truly necessary. The overarching aim is to preserve an adequate annual budget for the hard-to-reduce expenditures, while continuing to invest in essential growth-enhancing activities that support investment, productivity, and long-term national development.
Revenue Performance and Structural Pressure on Tax Collection
The revenue dimension of the Thai budget remains the linchpin of fiscal risk, and this section delves into the structural and cyclical elements that underpin the ongoing revenue weakness. The FPO’s analysis signals that the government’s revenue collection, as a share of GDP, remains subdued against both its pre-crisis benchmark and the performance of regional peers in the emerging economies group. Several factors contribute to this situation, including macroeconomic headwinds, adjustments in consumer demand, and potential structural changes in key sectors such as automotive markets that influence VAT and related revenue streams. The combination of these factors means that the government’s ability to raise revenue remains constrained, contributing to the persistence of a deficit and the need for policy actions to restore a more sustainable fiscal path.
From a structural perspective, the medium-term outlook indicates that revenue collection capacity relative to GDP is unlikely to rebound quickly to pre-crisis levels. The structural changes in the automotive market—an important contributor to tax revenue through excises, VAT, and other charges—are highlighted as a source of ongoing pressure. In conjunction with a sluggish tempo of economic growth, these structural shifts constrain revenue generation, reducing the state’s fiscal space and complicating the task of balancing current spending with investment needs. The consequence is a challenging environment for policymakers who must navigate a deficit that remains elevated, even as the economy evolves in ways that might affect revenue streams in more persistent patterns.
The forecast for liquidity management reinforces the need for careful monitoring of revenue trends. The risk of revenue shortfalls relative to estimates implies a potential misalignment between budget projections and actual inflows, which could tighten liquidity conditions in the near term. The borrowing buffer, though a critical tool for smoothing temporary gaps, provides only a very narrow cushion. Thus, the government’s capacity to finance day-to-day operations without disrupting essential services hinges on improvements in revenue performance, better alignment of projected inflows with actual receipts, and a disciplined approach to expenditures, especially those that are difficult to reduce.
On the expenditure side, even as revenue remains constrained, the government faces rising demands for welfare and ongoing commitments tied to public personnel, healthcare, pensions, and other social protection programs. These pressures are particularly acute given demographic dynamics, which are expected to increase per-capita spending pressures in the years ahead. The rising welfare costs compound the revenue deficit, underscoring the importance of reforms that can improve expenditure efficiency and ensure that social protection programs deliver value without undermining fiscal sustainability. In the broader context, this is not merely a matter of tightening belts but of designing a durable framework that prioritizes essential services, shields the most vulnerable, and preserves the funds necessary to sustain investment in productivity-enhancing programs.
The structural and cyclical drivers of revenue weakness—together with rising public outlays—forge a complex fiscal landscape. Policymakers must address the shortfall in revenue relative to GDP while managing the rising costs associated with debt service and welfare expenditures. This confluence raises the stakes for reform in two broad channels: revenue collection reform and expenditure reform. On revenue, the focus should be on improving efficiency, breadth, and resilience of the revenue system, ensuring that tax administration is capable of capturing the available economic activity without imposing prohibitive compliance costs. On expenditure, the emphasis lies in reallocating resources toward high-return investments while curbing the growth of expenditures that are structurally difficult to reduce, thereby protecting core services and investments that drive productivity and growth.
Expenditure Pressures: Debt Service, Welfare, and Hard-to-Reduce Items
Expenditure dynamics are at the heart of the fiscal risk narrative. As the fiscal 2023 outlays demonstrate, hard-to-reduce expenditures—spending that cannot be easily cut—constituted a large share of the budget and grew as a result of debt service obligations and expanding welfare programs. The growing share of these expenditures in the overall budget signals that a larger portion of the pie is committed to obligations that are difficult to adjust in the short run, leaving less room for discretionary spending and for investment spending that could bolster future growth. This trend is particularly worrisome given that interest payments and debt service costs have risen as a share of revenue, a reflection of higher rates and a larger debt stock.
The composition of outlays reveals a mixed picture. While the share of salaries, contributions, and compensation for government workers declined slightly—from 26.2% of the budget in fiscal 2022 to 25.7% in 2023—this does not necessarily translate into a reduction in overall personnel costs, because the total expenditures in other welfare and debt-related categories rose, offsetting those savings. The shift suggests a degree of fiscal discipline in payroll costs, but it is not sufficient to offset rising costs in welfare and debt service, which have stronger growth dynamics and more structural stickiness. The net effect is a budget that remains heavily encumbered by a set of fixed obligations that are not easily renegotiated in the near term, creating a continuing challenge for the fiscal balance.
The rise in hard-to-reduce expenditures is closely linked to debt service and commitments, and to welfare spending for public personnel and the elderly. These spending categories are inherently persistent; debt service requires ongoing payments of interest and principal, while welfare programs expand as the population ages and social protection policies evolve. The result is a reinforcing cycle: higher debt service and welfare costs consume a larger share of scarce resources, which in turn makes it harder to fund growth-enhancing investments or to implement aggressive consolidation measures that could shorten the path back to balance.
The fiscal 2025 outlook suggests these expenditures will continue to exert upward pressure. The FPO’s assessment implies that even as efficiency gains are pursued in revenue collection and other areas, the structural pressures on outlays are likely to persist. The combination of rising welfare costs, aging-related expenditures, and the burden of debt service means that the fiscal space for discretionary spending remains constrained. Policymakers must therefore pursue a dual strategy: safeguard essential, hard-to-reduce expenditures and maximize the returns on spending through productivity-enhancing investments, while exploring reform options in welfare and pension structures to ensure sustainability without compromising social protection.
In addition to the above, the government’s debt-related risk profile remains elevated, driven by sustained high levels of public debt and the relative decline in debt repayment capacity when compared to the pre-pandemic period. The continued rise in interest payments as a share of revenue underscores the vulnerability to monetary tightening and changes in market conditions, which can tighten the fiscal stance further if financing conditions worsen. Although steps have been taken to lengthen debt maturities, these reforms do not fully offset the downward pressure on revenue collection capacity, reinforcing the case for a comprehensive approach to fiscal reform that addresses both revenue shortcomings and outlay pressures in a holistic manner.
Debt, Liquidity, and Financing Risks
Debt and liquidity considerations lie at the core of the medium-term risk profile. The debt service burden, measured as a share of government revenue, has risen to levels that warrant careful attention from policy watchers and market participants alike. The observed uptick in interest payments is consistent with both higher interest rates and an expanding stock of outstanding debt, both of which increase the annual cost of servicing debt. The Government’s response—such as extending debt maturities—mitigates some refinancing risk, but it does not eliminate the fundamental tension between rising debt service costs and constrained revenue capacity. The net effect is a higher sensitivity of the budget to moves in interest rates and to the dynamics of the domestic and global debt markets.
Looking ahead, two principal factors are identified as making medium-term debt risks more acute. First, the debt-to-GDP ratio is projected to rise further, reaching 69.3% by the end of fiscal 2029. This trajectory, driven by persistent budget deficits, implies an average annual escalation of around 3.37% in the debt-to-GDP ratio, a pace that could outstrip the beneficial effects of growth and productivity improvements if left unchecked. Second, the Fiscal Early Warning Composite Index registered 3.36 at the end of Q3 2024, indicating that with a 5-point scale used to flag warning thresholds, the government should exercise heightened caution in sustaining a high-deficit policy. The presence of a 3.36 reading on this index reinforces the warning signal that the fiscal framework is in a fragile zone and requires a credible plan to tilt the trajectory toward sustainability.
A question that looms over the liquidity outlook is the capacity to absorb potential revenue shortfalls. The 2025 liquidity outlook is informed by the possibility that revenue collection may fall short of estimates, a risk that could intensify if macroeconomic conditions deteriorate or if tax collection efficiency does not improve. Although the government maintains a borrowing buffer to smooth over shortfalls, this cushion is relatively modest. The 0.17% of GDP buffer, equivalent to 4.92 billion baht, represents a narrow margin for maneuver, making liquidity management highly sensitive to shocks. In this environment, budget allocations could also prove insufficient, potentially forcing the government to tap treasury reserves at higher levels to cover gaps between revenue and expenditure. The risk scenario stresses that liquidity will require careful monitoring and proactive management in the medium term, especially in a context of elevated deficits and rising debt service costs.
The policy takeaway is clear: to reduce risk in the future, the government should pursue acceleration of fiscal consolidation to return the deficit to a sustainable level, not exceeding 3% of GDP, and to bring the medium-term debt path back onto a more stable trajectory. This would help restore fiscal space needed to respond to crises, including the potential impacts of future natural disasters. The core actions proposed by the source emphasize reforming the structure and efficiency of government revenue collection, coupled with a rigorous review of tax exemptions and reductions to ensure they are limited to what is strictly necessary and beneficial for economic activity. By strengthening the revenue base and tightening exemptions to only essential provisions, the government can sustain essential, hard-to-reduce expenditures and preserve the capacity for critical investment spending that supports growth, productivity, and long-run development.
Medium-Term Projections: Debt Trajectory, Early Warning, and Policy Space
The medium-term projections presented by the FPO illuminate a path where debt dynamics and fiscal space become increasingly constrained if corrective steps are not undertaken. The projection that the public debt-to-GDP ratio will trend upward to 69.3% by the end of fiscal 2029 implies that debt burdens will continue to rise as deficits persist. This trajectory represents an annual expansion in the debt ratio that could undermine macroeconomic stability if growth rates do not translate into structural gains in output and productivity. The underlying driver of this rise is not solely the deficit, but the interaction between persistent deficits and the debt stock, which compounds debt service expenses as a share of public revenue. Consequently, even with growth, the structural limitations of the fiscal framework could impede the allocation of funds toward high-value investments that would support sustainable development.
The Fiscal Early Warning Composite Index, which stood at 3.36 at the end of the third quarter of 2024, serves as a critical barometer of the fiscal policy stance. By this metric, the government is cautioned to scrutinize its current approach to deficit financing and consider measures that would reduce vulnerability to adverse macroeconomic conditions or shocks. The fact that this indicator has remained elevated for 14 consecutive quarters reflects a protracted period of fiscal risk, underscoring the need for a credible and comprehensive plan to normalize the deficit and to restore trust among investors and creditors about the sustainability of public finances. The continuity of elevated risk for such an extended period also highlights the structural nature of the challenges facing Thailand’s public finances, rather than a temporary imbalance that could be resolved with short-run adjustments.
Liquidity pressures in 2025 are anticipated to intensify if revenue collection fails to keep pace with estimates. The borrowing buffer should, in theory, provide a cushion, but the practical capacity to respond to shortfalls is limited. With a relatively small cushion, the budget remains vulnerable to any revenue shocks or unexpected increases in outlays. This scenario calls for a robust risk management framework that includes contingency planning, better forecasting accuracy, and stronger governance mechanisms to avoid fiscal gaps that could necessitate emergency financing or sudden expenditure cuts that are politically and economically costly.
To mitigate these risks, the FPO recommends a concerted policy agenda focused on reducing the deficit to a sustainable level—specifically, lowering the deficit to not exceed 3% of GDP, down from the projected 4.4% in fiscal 2025. Achieving this target would require a combination of revenue-enhancing reforms, improved tax administration, and strategic expenditure containment, all while preserving essential services and critical investments. The recommended actions hinge on two pillars: first, reforming the tax structure to broaden the revenue base without imposing undue burdens on growth; and second, tightening exemptions to ensure that exemptions are reserved for circumstances that genuinely support economic activity or social protection goals without eroding the integrity of the tax system.
Within the revenue reform framework, the FPO stresses improving the efficiency and effectiveness of revenue collection. This includes ensuring that tax administration is streamlined, transparent, and capable of capturing a larger share of the economy’s activity. The goal is to strengthen the tax base and to secure a stable revenue flow that can sustain essential services, reduce reliance on debt financing, and create room for capital investments that foster growth. Within the expenditure framework, the focus is on reviewing tax exemptions and reductions, with a clear emphasis on limiting exemptions to those strictly necessary for achieving policy objectives. In practical terms, this means a careful assessment of which exemptions generate real economic benefits and which are merely fiscal concessions that erode revenue potential without delivering commensurate gains in growth or social welfare.
The overarching aim is to create a sustainable fiscal space that can support crucial, hard-to-reduce expenditures and enable investment in infrastructure, human capital, and technology that drive long-term national development. The policy architecture recommended by the source is not about austerity for its own sake; rather, it is about restoring balance to the budget so that spending priorities align with long-term strategic goals, and so that the country can absorb future shocks without compromising core public services or essential investments. The emphasis remains on prudent fiscal management, disciplined revenue administration, and targeted expenditure reforms that collectively produce a more stable and growth-supportive fiscal environment.
Policy Recommendations: Revenue Reform, Tax Exemption Review, and Expenditure Controls
To reduce risks and restore fiscal space for future crises and developments, the government must pursue a prioritized set of policy actions designed to stabilize the fiscal trajectory and improve resilience. The core recommendations center on revenue reform, careful review and calibration of tax exemptions, and prudent management of expenditures that are difficult to reduce. Each of these elements plays a vital role in creating a sustainable fiscal framework that can withstand macroeconomic volatility, demographic shifts, and the demands of public service provision.
First, revenue reform and the modernization of the tax system should be pursued to enhance the efficiency, fairness, and breadth of the revenue base. This entails measures to strengthen the structure and efficiency of revenue collection, improve compliance, and reduce leakage and evasion. A robust revenue administration is essential for ensuring that the government can mobilize the resources necessary to finance critical services, invest in growth-enhancing programs, and maintain fiscal stability even in the face of cyclical downturns. In practice, this means updating tax administration practices, expanding the tax base where appropriate, and ensuring that revenue measures are carefully calibrated to avoid stifling economic activity while broadening the fiscal base.
Second, the government should undertake a systematic review of tax exemptions and reductions to ensure they remain justified and targeted. The objective is to preserve exemptions that are essential for policy objectives and strategic economic priorities, while eliminating or scaling back those that do not yield the intended benefits or that erode the revenue base without delivering commensurate value. This review would involve a detailed assessment of exemptions across different sectors and programs, including any that disproportionately erode revenue or create distortions that could hamper growth and investment. By aligning exemptions with clear policy goals and measurable outcomes, the government can strengthen fiscal sustainability and maintain the integrity of the tax system.
Third, expenditure policies must focus on hard-to-reduce categories with a view to balancing the need for essential services and social protection against the necessity of fiscal sustainability. This does not imply indiscriminate cutting; rather, it requires strategic choices about which expenditures are essential to social welfare, economic stability, and long-run development. In parallel, the government should pursue reforms that improve the efficiency and effectiveness of public spending, ensuring that the resources allocated to health, pensions, welfare, and public services deliver maximum value. This approach should be complemented by the continued evaluation of debt sustainability measures, ensuring that the cost of debt does not crowd out growth-promoting investments or constrain the state’s ability to respond to future emergencies.
Finally, these actions are designed to support a rebalanced fiscal framework that preserves essential hard-to-reduce expenditures and maintains investment capacity while ensuring the deficit remains within a manageable range. The goal is to achieve a sustainable fiscal space that can absorb shocks, support long-term development objectives, and sustain essential public services without compromising the overall health of the public finances. This multi-faceted policy package is intended to be implemented in a phased, transparent, and evidence-based manner, with ongoing monitoring to ensure that fiscal outcomes align with stated objectives and that any adjustments are data-driven and responsive to evolving economic conditions.
Conclusion
Thailand’s fiscal risk assessment for 2024 paints a picture of persistent vulnerability, marked by revenue underperformance relative to the pre-Covid era and a weakened capacity to service debt. The medium-term outlook underscores a continued high risk profile, driven by structural revenue challenges, rising hard-to-reduce expenditures, and elevated debt service costs. The fiscal space needed to address ageing populations, structural transitions, and potential future crises remains constrained unless decisive consolidation and reform measures are undertaken. The government faces the imperative to strengthen revenue collection, reassess exemptions, and implement targeted expenditure reforms to ensure that essential services and growth-promoting investments can be sustained without letting the deficit drift higher or debt accumulate unchecked. The priority is to restore fiscal space and risk resilience through a credible, comprehensive plan that balances short-term constraints with long-term development objectives, ensuring that policy choices today lay the groundwork for a more stable and prosperous fiscal future. The path forward requires disciplined fiscal management, prudent risk assessment, and a commitment to reform that preserves the core functions of the state while enabling sustainable growth and resilience against future shocks.