Stimulus package a tough choice amid funds crunch

The newly appointed Cabinet under Prime Minister Anutin Charnvirakul has taken a decisive step by approving a substantial short-term stimulus package valued at 44 billion baht.

Dubbed “Khon La Khrueng Plus,” this “half-half co-payment” subsidy is designed to invigorate consumer spending, specifically targeting 20 million Thais.

The scheme offers eligible individuals aged 16 and above a subsidy ranging from 2,000 to 2,400 baht per person for the purchase of essential goods and services from small vendors. Notably, those who file annual tax returns stand to receive the higher end of the subsidy — up to 2,400 baht.

Each participant is permitted to spend a maximum of 400 baht per day, with the government matching up to 200 baht.

The registration period for vendors is set for October 15–19, while individuals can register from October 20–26. The co-payment shopping program officially kicks off on October 29 and runs until December 31.

The Finance Ministry projects that this initiative will stimulate total spending of 88 billion baht and is expected to boost the nation’s gross domestic product (GDP) growth by an additional 0.22 percentage points.

Populism or prudence?

Amid criticism of the move as a populist bid to win political favor, Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas was quick to defend the package.

“The government will not borrow more as funding will come from normal annual budget outlays. This will ensure fiscal discipline,” Ekniti asserted, underscoring the administration’s commitment to responsible budgeting.

However, Thailand continues to grapple with significant fiscal deficits, as government revenues have persistently trailed expenditure.

For fiscal year 2026, which began on October 1 and runs through September of the following year, the fiscal deficit is projected at 4.3 per cent of GDP. There is still no clear plan to narrow the deficit in the coming years, especially as the economy faces persistent headwinds from slowing growth and an aging population.

International warnings on fiscal outlook

Concerns about Thailand’s fiscal position have not gone unnoticed internationally. In recent months, two major credit rating agencies—Moody’s Ratings and Fitch Ratings—have revised their outlook on Thailand’s sovereign rating from stable to negative, raising the specter of a potential downgrade should fiscal conditions further deteriorate.

In April, Moody’s affirmed Thailand’s Baa1 issuer and local currency senior unsecured ratings but changed the outlook to negative.

The agency explained that “The decision to change the outlook to negative from stable captures the risks that Thailand's economic and fiscal strength will weaken further.

The already announced US tariffs are likely to weigh significantly on global trade and global economic growth, and which will affect Thailand's open economy. In addition, there remains significant uncertainty as to whether the US will implement additional tariffs on Thailand and other countries, after the 90-day pause elapses.”

“This shock exacerbates Thailand's already sluggish economic recovery post-pandemic, and risks aggravating the trend of decline in the country's potential growth. Material downward pressures on Thailand's growth raises risks of further weakening the government's fiscal position, which has already deteriorated since the pandemic,” Moody’s emphasized.

Echoing these concerns, Fitch Ratings last month also shifted Thailand’s outlook to negative, citing “increasing risks to Thailand's public finance outlook from prolonged political uncertainty combined with growth headwinds from slowing global demand, a delayed tourism recovery and household deleveraging”.

Fitch noted that fiscal buffers have eroded, and “continued sizeable stimulus measures, repeated delays in planned consolidation and uncertainty on the fiscal strategy pose risks in the medium term, especially given modest GDP growth and demographic pressures”.

Particularly worrisome is the fact that the gross general government debt reached 59.4% of GDP in August 2025, nearly matching the ‘BBB’ category median of 59.6% and up by 25 percentage points since before the Covid-19 pandemic.

Nonetheless, Fitch affirmed Thailand’s ‘BBB+’ rating, pointing to “strong external finances, a sound macroeconomic policy framework and a relatively strong capacity to finance its government debt, with the lion's share in local currency and financed at low cost”.

Stimulus seen as necessary

The heightened risk of a credit rating downgrade has made the government’s recent stimulus package a cautious, but necessary, measure.

“It is a must-do, given slower economic growth and uncertainty of global headwinds as we now hear Trump is renewing the trade war with China,” argues Somchai Jitsuchon, research director at the Thailand Development Research Institute (TDRI), an independent think tank.

Somchai notes that the government’s commitment to avoid additional borrowing to finance the stimulus makes the move more palatable.

He contrasts the current co-payment scheme with the previous coalition government’s Digital Wallet scheme, which distributed 10,000 baht each to 14.45 million people with disabilities and state welfare cardholders (a total of 144.5 billion baht last year), as well as 3 million elderly citizens (30 billion baht early this year). Prime Minister Anutin was a Cabinet member in that government.

According to Somchai, the co-payment approach is better for stimulating the economy. “The co-payment would be much better than the Digital Wallet scheme in stimulating the economy, as the money will reach the grass roots and the multiplier should be higher because people have to also spend their money,” he explains.

He also pointed out that the co-payment scheme was successfully used during the Covid-19 pandemic, with widespread agreement among economists that it effectively met urgent needs and helped shore up the economy during the shock.

The challenge of narrowing the budget deficit

Despite the injection of short-term stimulus, Thailand’s fiscal outlook remains clouded by persistent budget shortfalls. Government net revenue for the first 11 months of fiscal 2025 (October 2024 to August 2025) fell short by 1.3 per cent, netting 2.5 trillion baht.

Of greater concern is the performance of the three key tax-collecting agencies—Revenue, Customs, and Excise Departments—which together missed their targets by a wider margin of 3.7 per cent, amounting to a shortfall of 100.5 billion baht.

The Finance Ministry attributes this underperformance to tax incentives provided to promote the electric vehicle industry, declining automobile sales, and generally unfavorable economic conditions. As a result, the government was forced to borrow 869.5 billion baht to cover the cash flow deficit.

For the current fiscal year, which was planned by the previous government, the budget deficit is expected to be about 4.3 per cent of GDP, or 860 billion baht, from a total spending plan of 3.78 trillion baht. This deficit level is comparable to last year’s 4.5 per cent.

Subdued economic growth continues to be a concern. The Bank of Thailand recently forecast GDP growth at just 2.2 per cent for this year, with an even lower projection of 1.9 per cent for next year.

Government vows fiscal reforms

In response to the mounting concerns raised by international credit rating agencies and the persistent budgetary challenges, Finance Minister Ekniti has pledged that the government will revisit and revise its medium-term fiscal framework next month.

Key measures under consideration include resetting the ceiling on tax credits for taxpayers, investing more in digital technology to enhance tax collection, and implementing targeted spending cuts.

While these reforms are yet to be detailed, their success will be critical in convincing both domestic stakeholders and international observers of Thailand’s commitment to fiscal sustainability.