Debt ratio threshold of concern : leading economist

With Bt1.1 trillion planned borrowing in the next two years, Thailand’s public debt ratio could hit Bt5.4 trillion or 52 per cent of gross domestic product. That poses a big risk if it is poorly managed, he said.

“The debt ratio threshold of 60 per cent of GDP is too high, as the government’s revenue is less than 20 per cent of GDP. The high interest burden will also boost the government’s expenditure,” he said. As the government is borrowing more, all the money should be invested in creating jobs rather than to finance populist policies.

“Building up debts for popularity will yield no true benefits,” he said.

 At a seminar hosted by MFC Asset Management today, Public Debt Management Office Director-General Chakkrit Parapuntakul however defended that the public debt is in a manageable level, though it would increase from 40.30 per cent of GDP to 50.4 per cent next year.
 He said that the level is manageable given the debt service ability, which is only 9.33 per cent of annual expenditure and far from the 15 per cent threshold. 
 More importantly, nearly 100 per cent of public debt is baht-denominated, he added.
 "Thailand's economic fundamentals are strong, despite the floods which caused a loss of Bt1.4 trillion. Credit rating agencies still maintain stable outlook for the economy, due to low debt in the public and private sectors. Notably, Thailand has never defaulted on its debt obligation. As such, the public debt level this year and in the next few years is not an issue of concern. The borrowing amount of Bt1.1 trillion looks huge, but it would be raised in tranches. This year, Bt500 billion bonds will be issued, and the government will mobilise the rest from other sources. Bond investors should not be worried over the crowding out effect," he said.

 

Narongchai also commented on the price spike in goods. He suggested further liberalisation in consumer products and energy industries to keep oil price-inflated inflation under control.

Saying that the inflation forecast of 4 per cent this year is not yet frightening, he explained that liberalisation is necessary as the consumer product sector remains monopolised. He also added that the price spike cannot be addressed simply by the policy of having the Commerce Ministry distribute cheap products.

Meanwhile, he added that the minimum wage policy would create a short-term spike in cost, but in time the private sector will adjust to the new pay structure.