My message is short, loud and clear. There will not be enough money to finance FY 2026's 860 billion baht budget deficit. Without enough money, the budget will collapse and take the economy down with it. The government is learning the bitter lesson of drying up finance sources now, but budget financing will be in crisis in the 2026 fiscal year.
It is a false belief that any government can easily fund its deficit by issuing bonds, as public bonds are the safest investment instruments in any country. In fact, economic theory has a term, "crowding out", which is when private credit expansion is curtailed as it cannot compete with government bonds. However, Japan's experience depicts a different story.
Japanese governments have been running large fiscal deficits since 1993. As of 2025, the government has total debt of 263% of GDP. I used to naively think that Japanese pension funds held most of the bonds. I could not be more wrong. The fact is the Bank of Japan (BoJ) holds 53% of bonds outstanding, which means the bank prints money to purchase government bonds.
The reason is simple. The economy cannot produce enough yen -- money to constantly purchase government debt. Then, the BoJ jumps into to save the day by buying up unsold bonds. However, this nasty practice does not come without a cost. The cost is inflation and depreciation of the currency. Outsiders might view this practice as a positive move, as a weak yen would boost exports and tourism. Japanese consumers, however, viewed this as a killer because the inflation rate rose to 3.6%.
If the Japanese economy does not have enough yen to support the government deficit, why would the Thai economy have enough baht to support the government deficit?
It is arguable that Thai government debt is relatively small compared to Japan's. But bear in mind the Thai economy is far weaker and far smaller than Japan's economy, not to mention Japan's solid saving base. A few years of continued large fiscal deficits would take the Thai economy to the limit.
Please take a look at the history of Thai fiscal deficits and their financing presented in the table.
All numbers are for fiscal years which in Thailand runs from October of the current year to September of the following year. Data for FY 2025 is seven months actual, from October 2024 to April 2025. Data for FY 2026 is based on a proposed budget deficit for the year with a projected financing method.
Instead of explaining the table, it would be easier if I go to the conclusions.
The most important conclusion is that it is not possible for a government to borrow (first row) more than the available money supply (last row). (There were insignificant data discrepancies in certain years.) In case the government should need more financing than the available money supply, there are three possible alternatives other than budget cuts and raising taxes (such as US President Trump's reciprocal tariffs).
The first alternative is borrowing from abroad. Latin American countries loved this option and often ended up asking for IMF assistance. The second alternative is to ask its central bank to increase money supply so that private investors will have more money to buy government bonds. The third alternative is the Japanese option of having its central bank directly purchases government bonds.
Readers might think this is an easy game, then. The government runs a fiscal deficit to stimulate the economy, then the central bank injects liquidity to allow the private sector to have money to buy government bonds. Or better yet, the central bank buys bonds directly in order to leave the bond yield unchanged. Problems solved.
The price to pay is inflation. In FY 2022, Thailand opted for the second alternative when the government needed 1 trillion baht to ease Covid's economic disruption. The Bank of Thailand (BoT) kindly agreed to increase the money supply by 1 trillion baht accordingly. Inflation climbed to 6.2%. That was why the BoT quickly reduced money supply growth to 462 billion baht in FY 2023.
After failing to prop up the economy in 2024, the current government launched a most ambitious government budget for FY 2025 with a 3.75 trillion baht spending budget, which included the 10,000 baht cash handout scheme. To finance such expenses, the budget called for 866 billion baht of deficit.
The government might have subscribed to the "money falling from the sky" theory and thought the deficit could be financed by issuing bonds like previous years. Unfortunately, the government forgot two important points. First, the FY 2025 deficit is double that of FY 2024. Therefore, the financing requirement is also doubled. Second, the banking system is dead from NPLs in 2025 and will not produce enough money to allow investors to buy government bonds.
A financing shortage for FY 2025?
Luckily, Gen Prayut's government left 543 billion baht in government's savings account (known as a fiscal surplus) deposited at the BoT. Instead of borrowing the full amount of 730 billion baht as shown in the 4th column, the government needed to borrow only 468 billion baht. Loong Too's (Gen Prayut's nickname) money saved the day.
Wait a minute. Does the last row show that 804 billion baht of money supply is available? Then, the government should have no problem borrowing the entire amount of 730 billion baht. This issue is a bit technical. That is because the available money supply free for borrowing is only 520 (804-284) billion baht, not the full amount.
I will skip explaining the "net" money supply issue. Let's just say the Thai government has already borrowed as much as it possibly can and, without withdrawing from its fiscal surplus, it will have to default on its expenses, including government employee salaries.
The remaining five months of FY 2025 will be tough, as an additional 136 billion in financing is needed. Half of the remaining fiscal surplus (243 billion baht outstanding as of end of April 2025) will be further depleted. Many expenses will be postponed or cancelled to avoid a fiscal crunch. There will be no economic stimulus budget from the government. Words, yes. Money, no.
If FY 2025 is tough, FY 2026 will be hellish as the fiscal surplus account will have already dried up. According to my projection in the last column of the table, a maximum of 500 billion baht could be raised by issuing bonds. The government has to find ways to finance the remaining 360 billion baht.
A budget cut for that amount is out of the question. Borrowing from abroad seems to be untimely. Injecting liquidity into the system would be ineffective as commercial banks would keep the money and not on-lend. Asking the new BoT governor to directly purchase government bonds makes most sense, but the IMF would not agree to that. Printing money to support government expenditure is a sensitive and dangerous issue.
FY 2026 budget financing will be most challenging.
Chartchai Parasuk, PhD, is a freelance economist.