In terms of fiscal policy, the 2020s saw a shift in Thailand’s stance. The fiscal deficit averaged -5.3% of GDP during the pandemic years of 2020-2022, compared with just -0.1% on average in the 2010s. It has somewhat narrowed since, but is still expected to stay around -2.5% during the 2026-2027 period, amid populist policies to stimulate domestic consumption and higher infrastructure investment, while growth remains subdued. Thailand is expected to strengthen its tax collection process in the coming years, with its new minimum corporate tax and a planned increase in the VAT rate in late-2027.

After monetary tightening in 2022-2023 (totaling +200bps policy rate hikes) in the context of a depreciating currency and elevated inflation (+6.1% in 2022), the Bank of Thailand (BOT) delivered a first cut in October 2024 (-25bps). Headline inflation had eased to +1.2% in 2023 and declined further in 2024 (+0.4%), mainly on the back of lower energy and food prices. In the context of headline inflation turning negative in 2025 (-0.1% on average), the BOT delivered four additional -25bps cuts in 2025. With inflation expected to stay low (+0.5% in 2026 and +1.0% in 2027) and below the target range of the central bank (1-3%), we forecast one additional -25bps rate cut in 2026, with the policy rate reaching 1%. 

Overall, the short-term financing risk in Thailand is low. Thailand's financial system has shown resilience, but vulnerabilities remain. The fiscal deficit rose significantly during the pandemic and has moderated since, but should remain higher than before the pandemic at an annual average of -2.5% of GDP during the 2025-2027 period. As a result, the public debt-to-GDP ratio rose from an average of 42% in the 2010s to 61% in 2022 in the wake of the pandemic. It has continued edging up in recent years and going forward, we expect public debt to reach 68% of GDP by 2027. On the positive side, this is not critical as most of the debt is domestic and with long maturities. In terms of the external balance, Thailand’s current account balance posted moderate deficits in 2021-2022 as the tourism sector suffered from the pandemic and rising global energy prices boosted the value of imports in 2022. The current account deficit returned to a surplus as soon as 2023 and should average 1.5% of GDP in the 2025-2027 period. This will be driven primarily by the recovery in the tourism sector (albeit partial) and moderating energy prices. In addition, the promotion of free trade and deeper regional integration through the signing of free-trade deals will be on Thailand’s external policy agenda in the medium term.

Thailand’s business environment has deteriorated over the past few years, according to our assessment of 185 economies, in which the country now ranks just around the average. The Heritage Foundation’s Index of Economic Freedom 2025 survey assigns Thailand rank 84, down from rank 42 in the 2021 survey, reflecting deteriorations with regards to property rights, judicial effectiveness, government integrity, fiscal health, investment freedom and labor freedom. Meanwhile, the World Bank Institute’s annual Worldwide Governance Indicators 2024 survey suggests a decline in the already-weak control of corruption indicator and a slight improvement in political stability and absence of violence/terrorism, although these indicators remain weak. Our proprietary Environmental Sustainability Index puts Thailand at rank 121 out of 210 economies, reflecting weaknesses in terms of renewable electricity output, the recycling rate and overall climate-change vulnerability. However, the country scores better with regard to CO2 emissions and energy use per GDP as well as water stress. 

Former prime minister Paetongtarn Shinawatra of the Pheu Thai Party (PTP) was dismissed by a decision of the Constitutional Court in September 2025 following  ethical violations in a phone call with her Cambodian counterpart. Supported by the opposition party People’s Party (PP), formerly the Move Forward Party, Anutin Charnvirakul, leader of the Bhumjai Thai Party (BJT), was elected to the premiership with the promise to dissolve the parliament by January 2026. The election in February resulted in a strong performance by the BJT, which became the party with the highest number of seats in the House of Representatives. It is expected to form a coalition with the PTP, thereby securing a narrow parliamentary majority, while the PP will remain in the opposition. In the short to medium term, risks to political stability in Thailand will remain. We expect the new coalition to defend traditional institutions while addressing voters’ key concerns, particularly the relocation of factories to neighboring countries and ongoing tensions along the border with Cambodia. Overall, the military is likely to remain powerful. The risk of a military coup remains quite low, especially given the army’s focus on ongoing border tensions, but it could increase should the coalition government fall apart. Finally, the divisive issue of reforming the monarchy will also continue to weigh on political stability: Although the process of rewriting the constitution officially began in early 2026, we do not expect significant progress over the course of the year. While there may be occasional episodes of political tension during the process, we do not expect them to persist.