An economist is concerned about Thailand's potential dual deficit scenario, in which both the fiscal balance and…

An economist is concerned about Thailand's potential dual deficit scenario, in which both the fiscal balance and current account move into deficit simultaneously.

While the government continues to rely on fiscal stimulus to support growth, weaker exports, softer tourism earnings and rising imports have raised questions about the sustainability of the country's external position.

A widening fiscal deficit alongside a deteriorating current account could increase financial market volatility, pressure the baht and limit policy flexibility.

These concerns were highlighted by Kiatnakin Phatra Financial Group chief economist Pipat Luengnaruemitchai, who warned that Thailand may be moving towards a dual deficit that could undermine economic stability and contribute to long-term baht depreciation.

The warning comes as Thailand recorded a record trade deficit of US$10 billion in April, driven by a 45% year-on-year surge in imports to $41.6 billion, compared with exports of $31.5 billion. For the first four months of the year, imports totalled $147 billion against exports of $128 billion, resulting in a cumulative trade deficit of $19.5 billion.

The shift marks a significant change for an economy long regarded as one of the region's most resilient due to its persistent current account surplus.

Although tourism arrivals have largely recovered from the pandemic, the services surplus is weaker than before, while higher shipping and transport costs have increased payments to foreign service providers.

Combined with continued fiscal deficits under expansionary government policies, these trends are heightening concerns over Thailand's external and fiscal balances, with potential implications for investor confidence, capital flows and the baht's long-term outlook.

NO BIG DEAL

Former finance minister Thirachai Phuvanatnaranubala said the dual deficit phenomenon is not yet a cause for major concern.

Although a current account deficit can have adverse effects on the economy, with imports exceeding what the country's economic position can sustainably support, the economy's adjustment mechanisms will eventually restore balance on their own, he noted.

Specifically, a widening current account deficit tends to put downward pressure on the baht. A weaker baht increases the cost of imported goods, thereby reducing demand for imports. As a result, the current account balance gradually moves back towards a more sustainable equilibrium.

"When we are financially poor but consume like rich people, buying imported goods, the baht will eventually weaken. We are then forced to change our behaviour because imported goods become more expensive," Mr Thirachai said.

The greater concern is the fiscal deficit because government deficit spending directly increases the public debt burden, he said.

"We need to ask whether the increase in borrowing is accompanied by a corresponding increase in our capacity to repay it. If our repayment capacity has not improved, then a higher debt burden poses significant risks," noted Mr Thirachai.

In addition to running budget deficits that require borrowing to cover the shortfall, the government has also issued emergency borrowing decrees for subsidies to spur consumption, rather than investments that would enhance the country's competitiveness and generate higher income for the economy.

"Budget deficits and rising public debt are causing the country to develop bad habits. It is like a family that does not work hard but continues to swipe credit cards, enjoy luxury and live comfortably without improving its ability to earn income. Instead of increasing its earning capacity, it relies on credit. This approach can only work up to a point, after which it becomes increasingly difficult to sustain," he said.

"The government's ability to generate revenue is closely linked to the country's ability to generate income -- or more specifically to the earning capacity of its people."

Mr Thirachai said if the government borrows to invest in projects that create innovation or increase national productivity, then higher debt can lead to higher national income, greater tax revenues and a stronger capacity to repay that debt in the future.

He said borrowing to help ease the cost-of-living burden for Thais during an economic crisis is appropriate. However, assistance should be targeted for vulnerable groups or those who genuinely require special support, rather than being distributed indiscriminately.

The current government stimulus resembles a vote-seeking giveaway, said Mr Thirachai.

Thailand may already be trapped in a cycle of populist policies, escaping the debt trap only if it goes bankrupt and can no longer borrow, or when the government's interest payments become excessively burdensome, he noted.

The US should serve as a warning, as the federal government's interest expenses are now larger than its defence budget and second only to spending on social welfare programmes, said Mr Thirachai.

TEMPORARY ISSUE

Bank of Thailand governor Vitai Ratanakorn said the central bank is not concerned about the current account deficit, viewing it as a temporary condition that is expected to return to a surplus next year.

For 2026, the central bank assesses Thailand's current account as remaining broadly balanced or posting a small deficit, driven by a sharp increase in oil imports as well as strong inflows of foreign direct investment (FDI). Strong FDI growth supports the country's investment and benefits the economy over the long term, he noted.

During 1987-1992, FDI flowed into Thailand and supported various infrastructure projects, particularly the Eastern Seaboard development, the Map Ta Phut Industrial Estate, Laem Chabang Port and petrochemical projects.

"Although Thailand recorded current account deficits for 5-7 years following these major infrastructure investments, they ultimately supported stronger economic growth," said Mr Vitai.

Meanwhile, Thailand has experienced a prolonged investment shortfall, with private investment remaining at around 20% of GDP, compared with more than 30% in Vietnam.

"If private investment rises to 25-27% of GDP and causes Thailand to run a current account deficit, that should not be a concern as it would support stronger long-term economic growth," he said.

While Thailand's imports have increased substantially, leading to a current account deficit, most of these imports are related to export-oriented production.

In April, the value of exports excluding gold rose 23.4% year-on-year, while imports surged 49%. As a result, Thailand recorded a trade deficit of $6.8 billion and a current account deficit of $7.6 billion, largely due to $7.4 billion in oil imports, according to the central bank.

Mr Vitai said a trade surplus is possible in the fourth quarter, driven by continued growth in exports, particularly technology-related products, while imports are expected to ease in line with lower global oil prices.

Moreover, the services balance is expected to continue improving, supported by tourism revenue, while lower global oil prices could reduce freight costs, he said.

Vinit Visessuvanapoom, director-general of the Fiscal Policy Office, said the dual deficit outlook is partly attributable to the oil crisis and increased imports of electronic components, which will eventually support domestic investment.

While Thai tourism revenue has declined, tourism revenue has fallen globally as international travel is no longer as easy as it once was. The high level of oil imports may be a temporary issue, he noted.

However, imports of electronic equipment and components that are subsequently incorporated into production and re-exported generate substantial value added. As these activities develop into new industries, they have the potential to drive significant economic growth, said Mr Vinit.

"To make a long jump, one must first take a step back. But if we step back and then fail to jump forward, that is when we need to have a serious discussion," he said.

WEIGHING THE BENEFITS

Pimjai Leeissaranukul, chairwoman of the Federation of Thai Industries (FTI), downplayed concerns that imports of costly equipment for data centre projects could worsen Thailand's trade balance, saying the country must weigh the long-term benefits of these investments against their potential drawbacks.

She was responding to concerns over a sharp rise in imports, particularly servers, semiconductors and cooling systems needed for the rapid expansion of data centre and cloud service businesses in Thailand.

Mrs Pimjai acknowledged that resource-intensive data centres could add to these concerns, but said it is equally important to consider the broader benefits they could bring to the economy.

"We may face a trade deficit, but we must consider whether these technology investments will help drive industrial transformation," she said.

Under her leadership, the FTI aims to usher in a new chapter for industry through several measures, including reforms to industrial infrastructure. A priority is developing workforce skills to support foreign investment in emerging industries.

"A short-term trade deficit should be acceptable," said Mrs Pimjai.

"I believe data centre investments are beneficial for the country, but we need to ensure they contribute meaningfully to industrial transformation."

The Board of Investment recently reported a surge in investment applications for the first quarter of 2026, with proposed investments exceeding 1 trillion baht -- a 2.4-fold increase from a year earlier.

The growth was driven largely by megaprojects in the digital and electronics sectors linked to the expansion of artificial intelligence (AI).

Data centres and cloud services accounted for 86% of total investment value for the quarter, highlighting the rapid growth of the digital economy and increasing demand for AI computing capacity.

Major digital investors hailed from Singapore, Japan, the UK and Malaysia, including TikTok System (Thailand), which is investing in data centre and information system development.

ENHANCING COMPETITIVENESS

Dhanakorn Kasetrsuwan, chairman of the Thai National Shippers' Council (TNSC), said the primary concern is not a short-term trade deficit, but the risk Thailand could lose its manufacturing base, investment, employment opportunities and long-term competitiveness if timely and appropriate policies are not implemented.

Rising imports are not a cause for concern when they consist of raw materials, machinery, technology or capital goods that support domestic production and value creation, he noted.

Such imports can play a vital role in strengthening the competitiveness of the industrial sector.

However, recent trends indicate a sharp increase in imports of certain products, particularly from regional trading partners, that appear to be intended for transshipment, or consist of finished goods that directly compete with domestic manufacturers while generating limited value creation or employment benefits for Thailand, said Mr Dhanakorn.

The government must monitor whether rising imports are being used for "investment and production" or for "consumption and transshipment", as the economic implications of each are significantly different, he noted.

In the short term, a trade deficit may not have severe consequences if Thailand continues to receive offsetting income from tourism, FDI and service exports, according to the TNSC.

However, if the trade deficit widens, it could affect economic growth through several channels, including declining income from domestic production, slower industrial investment, reduced capacity to generate value-added output, and greater foreign currency outflows than inflows.

Over the longer term, if the deficit stems from weakening competitiveness in the manufacturing sector, it could evolve into a structural problem that undermines Thailand's growth potential, said Mr Dhanakorn.

In addition, a substantial trade deficit could adversely affect industries that compete with low-cost imports, he said.

Sectors of particular concern include steel and basic metals, petrochemicals and chemicals, certain electrical appliances, textiles and garments, furniture and home decor, selected machinery and industrial equipment segments, and consumer goods that compete primarily on price, noted TNSC.

The priority should not be to simply reduce imports, but rather bolstering the competitiveness of Thailand's manufacturing and export sectors to ensure sustainable economic growth, said Mr Dhanakorn.

"We are concerned about the country's declining competitiveness amid mounting challenges, including competition from low-cost countries, rapid technological advancement, shifts in global manufacturing bases, and evolving trade and environmental measures adopted by major trading partners," he said.

QUICK ACTION

The TNSC urged the government to act quickly on three issues: enhancing competitiveness, creating a level playing field for Thai and foreign companies, and modernising tax and regulatory systems to keep pace with changes in global trade.

Mr Dhanakorn said the government should focus on upgrading Thai industries towards higher-value and advanced-technology products; promoting investment in future industries; and preventing false declarations of product origin and the use of Thailand as a transshipment hub.

In addition, he called for rigorous enforcement of trade remedies against dumping and unfair competition; help for small and medium-sized enterprises to gain access to technology, financing and overseas markets; accelerating market diversification and the pursuit of free trade agreements; and reducing logistics, energy and business costs to enhance the competitiveness of Thai manufacturers.

"Thailand should avoid trade barriers that violate international commitments," said Mr Dhanakorn.

"However, it can implement non-tariff measures that are consistent with international standards and applied equally to all countries, thereby improving product quality and ensuring fair competition."

The TNSC believes Thailand does not need to turn away from free trade, but the country must establish a trading system that is fair, transparent and sustainable, enabling Thai businesses to compete on equal terms with foreign competitors.