Higher public debt payment needed to fend off crisis, economist warns
The government should pay more of the principal on the public debt to pre-empt a sovereign debt crisis like Europe's, an economist says.
Speaking yesterday at Thailand’s Economic Outlook 2013 seminar titled “Economic Trends and Overview of Investment Abroad in 2013 by Thai Business”, Teerawut Sripinij of the faculty of economics, Thammasat University, said that even though the economy next year would be driven by public and private investments, the government should take care of the public debt, which currently stands at 42.49 per cent of gross domestic product.
He said the government allocated too little to pay down the principal on its debts. It paid Bt46.85 billion in the last fiscal year and plans to pay Bt49.15 billion for the current fiscal that will end next September. Debt payment accounted for 2 per cent of its total outlay of Bt2.38 trillion in fiscal year 2012 and 2.1 per cent of total expenditures of Bt2.4 trillion for fiscal 2013.
“Government borrowing is needed to finance investment projects. However, the state should focus on improving efficiency in utilising each investment, because if GDP does not expand much, the public debt will be a serious problem,” he warned at the seminar hosted by the Thammasat Economic Association.
Thailand’s total debt burden is actually double the public-debt figure when private and household debts are factored in, he said. The current level of public debt is manageable compared with that of the United States, at 100 per cent of GDP, or Japan’s at 200 per cent. However, the public debt will be a danger to the country if it faces an economic crisis.
Principal repayment is small because the government has spent a lot of money to boost economic growth.
If the government does not change its policies, the debt will rise to 50 per cent of GDP within five years despite economic growth.
Greece is facing an economic crisis because it focused more on driving GDP than on reducing the debt, he said.
Kanit Sangsubhan, director of the Fiscal Policy Research Institute, said the public debt should be 20-30 per cent of GDP to ensure fiscal sustainability.
He said that Thailand’s GDP next year was expected to expand by 5.2 per cent, mainly driven by public investment. However, the unclear investment schedule is a worry. The shortage of manpower in the construction industry is also a drag on the nation’s growth potential as new infrastructure has to be built.
