Rising household debt in Thailand is becoming a concern, with the risk of a major debt trap not all that remote, particularly for the lowest earners, according to consultancy Grant Thornton Thailand.
"It's a shame that Thailand is now entering a stage of going into its own increase in debt when the rest of the world is trying to deleverage itself, recognising the huge problems of overconsumption for the last 20-30 years," said managing partner Ian Pascoe.
Ironically, the government's populist schemes, designed to relieve low earners from debts, have contributed to the problem, as the first-time car buyer and rice pledging schemes have encouraged people to spend beyond their means, he said.
Surveying 200 businesses, Grant Thornton's International Business Report 2012 found household debt rising quickly to 45-50% of income, much higher than the safe level of 28%.
This was particularly true for those earning less than 15,000 baht a month.
"While there are acceptable debt levels that are good for the economy, Thailand risks exceeding that threshold, particularly at the household level," Mr Pascoe said.
He said the artificially inflated price of rice costs the economy US$3 billion a year. The policy will have to stop, as other countries can sell rice a lot cheaper.
"In the meantime, you risk increasing the sovereign debt level significantly, putting Thailand in danger of not being able to show it has responsible sovereign debt," said Mr Pascoe.
People made significant borrowing to repair damage from last year's floods. As they could not get loans from banks, they borrowed from informal sources, meaning higher repayments.
Businesses are also concerned about the transparency of the rice pledging scheme, arguing the public has a right to know details since it subsidises the scheme.
"It's not a threat to national security to reveal which countries purchase the rice," said Mr Pascoe.
Another concern is the nationwide introduction of a 300-baht daily minimum wage against the backdrop of a labour shortage.
Mr Pascoe said the wage hike is not a huge problem provided productivity increases.
"Within the next 10 years, the workforce will start shrinking with an ageing population, so you have got to increase productivity," he said, noting companies are not getting an appropriate level of productivity from workers.
The educational system needs to upgrade by improving English-language skills and encouraging the ability to adapt to change and innovate.
Despite some constraints, Thailand remains a business-friendly country to investors across the board, especially in manufacturing and food.
The banking sector, however, is relatively difficult for foreign investors to enter, with concerns from the Thai Bankers' Association about opening up.
"This is an area that needs to expand. Thai banks are well established. I dont see why they need to be protected. Competition would be good for them," said Mr Pascoe.
One inefficiency in the banking sector is a lack of lending to help businesses with cash flow.
"It is still pretty much an asset-based lending regime, so companies need to have hard assets to take a loan," said Mr Pascoe, noting that as more industries obtain income from services, human capital or low-fixed-asset requirements, they will find it more difficult to obtain loans.
A combination of regulations, law changes and a more open banking system is needed, Mr Pascoe said.
He also urged companies, especially those with family holdings, to grow via mergers and acquisitions (M&As) to bring in capital and new expertise.
Family businesses need to look at a change in ownership. Potential sectors for M&As include food production, mining oil and gas, and hotels.
The report found only 10% of Thai firms plan to grow through M&Es over the next three years compared with 23% of Asean businesses and 29% globally.
Only 3% are anticipating a change in ownership, far lower than 9% of businesses in Asean.
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- Writer: Soonya Vanichkorn