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Economic package in the works 

Jun 03. 2019
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By   THE NATION

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THE Finance Ministry will propose extra fiscal measures to boost the domestic economy that has been adversely affected by falling exports.

“Officials have been working to come up with a stimulus package, as we expect the economy to slow down e second half of the year. The economic package would be proposed to the new government,” said Lavaron Sangsnit, director-general at the Fiscal Policy Office.

His comments came amid a slowdown in the Thai economy due to the impact of the trade tensions between the US and China. Thai exports in the first four months contracted by 1.9 per cent year on year.

“We are hoping the economy does not see a sharp slowdown, hence the stimulus would not be a big one, as exports are not expected to contract significantly,” he said.

The Finance Ministry projects that trade tensions between the world’s two largest economies would ease as leaders of the United States and China will meet at the G20 summit.

The stimulus package will be aimed at boosting consumption among low-income groups as they have a tendency to spend all the money that government puts into the economic lifeline, he said. 

The ministry will also offer tax incentives to the middle-income group in order to encourage them to spend more. Usually, middle-income group spends about 80 per cent of their earnings, he said.

Recently, the government provided tax incentives for those who go shopping and travel in the country. The new measures may include a Bt1,500 allowance to citizens for domestic travel, according to Lavaron. 

Asked about the impact on public debt due to the series of economic stimulus packages, Lavaron said the ministry has the fiscal space to spend more and it would not affect fiscal discipline. 

Limited fiscal space 

Officials at the ministry, however, revealed that the government has only limited fiscal space for spending to boost the economy.

The fiscal discipline law caps quasi-fiscal measures or loans from state-owned banks at 30 per cent of annual budget and the current government has already used up 28 per cent, they said. 

The government has set annual spending for 2020 at Bt3.2 trillion, up from Bt3 trillion for the 2019 fiscal year. The 2020 fiscal year starts in October. 

Previous quasi-fiscal activities to finance government projects have played a key role in increasing public debt and public contingent liability.

 Meanwhile, Somprawin Manprasert, chief economist and executive vice president, head of research division at Bank of Ayudhya Plc (BAY), is sceptical about how effective a new stimulus package can be. 

It cannot do much as the world economy has been slowing down, he said.

BAY projects that Thai exports will contract by 1-1.5 per cent this year, down from the previous projection of 3.5 per cent rise. Economic growth will decelerate to 3.2 per cent this year against the previous projection of 3.8 per cent growth.

Some farmers and small businesses deserve public support, as they were affected greatly by the falling prices of farm products and export contraction, he said. He agreed that extra public spending would be appropriate but a policy rate cut would not work.

Athiphat Muthitacharoen, an economist at Chulalongkorn University, said he was worried about the impact of fiscal discipline due to many rounds of short-term economic stimuli. 

While short-term measures might not help much, the government should think about long-term impact, he warned. 

 

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