External Debt Dynamics and Current Account Sustainability

The objective of this study is to investigate the sustainability of external debt and current account in Thailand. The solvency and vulnerability indicators demonstrated increasingly worsening external conditions before the crisis in 1997 but a distinct improvement has been witnessed afterwards. The steady state current account deficit calibration with the incorporation of FDI and short-term debt considerations indicates that, in the long term, Thailand’s current account deficits should not consistently exceed the rage of 2.3 to 3.3 percent of GDO. Furthermore, the results from and econometric investigation mostly confirmed the case of external debt unsustainability in the past. Assuming that the GDP gap will close up in the medium term, the future assessment points out that the current account will eventually turn negative, leading to and increase in external debt. To prevent the external debt from reaching the unsustainable level, the current account deficits should not be allowed to persistently rise above the steady state range.