Kiatnakin Phatra Securities (KKPS) wrote in its analysis, stating that Thailand’s energy sector is facing mounting vulnerability as the nation remains a significant net energy importer, with net imports accounting for approximately 6.5% of GDP.
As the government’s ongoing policy of subsidizing retail fuel prices through the Oil Fuel Fund has helped insulate consumers from global price shocks, this approach has become increasingly costly, with daily diesel subsidies now estimated at THB 1.5 billion. The current trajectory risks exhausting the Fund’s debt ceiling, which may eventually force authorities to raise retail prices and consider reductions in excise taxes to ease the burden.
Central to this risk is the Oil Fuel Fund—Thailand’s main fiscal buffer against energy price volatility. Diesel alone represents 60% of total daily fuel sales, and the disparity between the capped retail price of THB 30 per liter and the market-based “shadow price” of THB 50 per liter has created an unsustainable financial strain.
The Fund has only recently emerged from its previous deficit and now lacks adequate reserves to absorb further pressure. The current situation bears resemblance to the crisis seen in 2022, though the pace of fiscal deterioration is markedly faster. The Fund’s position has swiftly reversed from a small surplus to a deficit of THB 12.6 billion within weeks.
While this remains off-balance-sheet for now, the government may soon be compelled to issue an Executive Decree to guarantee additional borrowing, which would move the liability onto Thailand’s official balance sheet. This step could test the legislated public debt ceiling of 70% of GDP, constraining the government’s space for further fiscal stimulus.
Electricity prices are also poised for upward adjustment, driven by increased reliance on the Fuel Tariff (Ft) mechanism. Around 60% of Thailand’s power generation is gas-fired, yet domestic gas production is declining, making the nation increasingly reliant on spot LNG imports, especially from the Middle East. Approximately 30% of LNG imports now originate from this region, further elevating cost and fiscal risk.
The brokerage noted that although rising energy prices typically pose inflationary risks, the current dynamic more closely resembles a regressive tax. With subdued domestic demand and household debt sitting at nearly 87% of GDP, businesses face limited ability to pass on higher costs to consumers.
Rather than accelerating consumer price inflation (CPI), higher energy costs are compressing private consumption, particularly among lower-income Thai households. This phenomenon is acting as a natural brake on inflation, keeping core CPI within the Bank of Thailand’s (BOT) target range of 1–3%.
In response to these developments, the Monetary Policy Committee is unlikely to resort to interest rate hikes. The absence of broad-based second-round effects and ongoing weak GDP growth—likely to remain below 2%—suggests that the BOT will maintain its accommodative stance. The current dovish leaning of the central bank’s Governor and changes in the MPC’s composition further reinforce the high bar for any tightening moves in the near term.
