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Mega-projects to hike public debt

Feb 24. 2019
Credit: EEC Office
Credit: EEC Office
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RISING government spending on mega-projects, which are deemed crucial to economic growth, will further increase the country’s public debt, economists said with some asking the military to be more efficient in its spending.

Continuous public funding of infrastructure projects – including the Eastern Economic Corridor(EEC), new roads and double-track rail systems nationwide – would entail an expansion of annual budget deficits in the medium term, said Pisit Puapan, senior economist on macroeconomic policy at the Fiscal Policy Office under the Finance Ministry. He was speaking at a seminar hosted by Kasikornbank last week.

Public debt is forecast to reach almost 49 per cent of gross domestic product (GDP) in 2023, up from the current level of 42 per cent, he said. 

The country has long run fiscal deficits as government revenues have failed to meet investment demand, social welfare payouts and other expenditure. 

For fiscal year 2020, starting from October 1, the government plans to spend a total of Bt3.2 trillion, compared to Bt3 trillion this year.

The government is expected to post a budget deficit of Bt450 billion, the same amount as the current fiscal year.

Investment will rise in order to make up for decades of under-spending since the 1997 Asian financial crisis, he said. 

 Public investment is forecast at Bt691.2 billion for fiscal year 2020, up from Bt660.3 billion in 2019. 

However, Pisit was not concerned about the government’s fiscal policy and expected the next administration to continue the uptrend in investment despite the risk of higher public debt. 

The Finance Ministry plans to cap public debt at below 60 per cent of GDP, a level considered prudential and safe. 

Pisit refused to comment on Pheu Thai Party’s proposal to cut the military budget by 10 per cent, in order to prioritise government spending and provide more funding to startups and young entrepreneurs.

The proposal recently sparked heated debates among the public while drawing anger from the military top brass.

In a separate interview, Somchai Jitsuchon, research director at the Thailand Development Research Institute, said the next parliament should set up an independent panel on defence spending and military reform.

“It should hire credible individuals or a reputable international organisation to evaluate the professional capabilities of the Thai military,” he told The Nation.

Somjai Phagaphasvivat, a political scientist at Thammasat University, agreed with the need for a military reform, saying “it should be more accountable in spending and defence of the country”. 

Somjai told The Nation he did not know the appropriate budget allocation for the military but stressed the need for reform given the changes in the global equilibrium. 

“Although Thailand does not face any threat of war, it still requires a strong military to maintain the country’s bargaining power on the global stage”, he explained. 

 With regard to the proposals of some candidates for the upcoming election to cancel the annual military conscription, Somjai said recruitment of soldiers should be on a voluntary basis.

 Meanwhile, Pisit of the Fiscal Policy Office said the economy faced the challenge of a global economic slowdown and its negative impact on Thai exports. The Finance Ministry forecast economic growth of 4 per cent this year, slipping from 4.1 per cent in 2018.

 Kobsidthi Silpachai, the head of market and economic research at Kasikornbank, said at the same seminar that the baht would remain strong due largely to the country’s high current account surplus and under-investment.

 However, he warned about the high level of Thai household debt – currently standing at Bt12.6 trillion or 206 per cent of their combined net annual income. 

 The country is fast approaching an ageing society and workers have limited time for higher incomes, he said. 


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