Thailand told to cut subsidies and seek more revenue

In the conclusion of the Article IV Consultation with Thailand, it also urged the Kingdom to further reduce generalised energy subsidies and replace the rice-pledging scheme with budgetary transfers targeted to low-income rural households. 

Despite Thailand's commitment to fiscal discipline, the IMF's staff showed concerns over the public sector's finances.

The IMF's staff estimated that the central government fiscal deficit will rise to 3.4 per cent of gross domestic product in the 2013 fiscal year against 1.7 per cent in 2012, mainly due to lower corporate tax rate and tax relief granted (including for car and home-buying, and fuel taxes). 

Moreover, the deficit of overall public sector which includes off-budget investment projects is projected to rise from 1.5 per cent of GDP in the 2011 fiscal year to 4.2 per cent by 2014. Meanwhile, the public debt ratio is projected to exceed 53 per cent of GDP in the 2008 fiscal year.

"These projections are based on currently stated policies and a broadly favourable economic environment."

In the report, which summarised what the bilateral talk covered, the authorities told the IMF that they are confident that they will achieve their medium-term fiscal goals, including a balanced central government budget by 2017 and keeping public debt below 50 per cent of GDP.

They explained that their strategy is based on three pillars: containing recurrent spending; adjusting excises, including on sumptuary goods and fuel; and expanding the tax base through strengthened tax administration. They noted that a number of measures have already been taken or proposed to Parliament for next year’s budget, including an increase in diesel excises, 

expiration of first-buyer tax incentives, and ongoing efforts to improve the efficiency of tax 

collection. Other measures, in particular, additional spending cuts, would be introduced 

gradually over the coming budget cycles, at a rate that would reflect economic conditions. The 

authorities noted that Fund staff projections did not include the future spending cuts and 

therefore showed a somewhat higher path for the central government deficit and public debt 

ratio. 

To the IMF, the the authorities stressed the critical importance of public infrastructure projects for inclusive growth, noting that financing them off-budget would improve implementation. They estimate that the projects would contribute an average of 1 percent of GDP per year to the economy during the construction phase, and that improved logistics would reduce costs by 2 per cent of GDP per year. The authorities explained that similar projects were tried unsuccessfully twice in recent years - they were crowded out by more urgent expenditure priorities during the budget discussions or delayed owing to political transitions. In contrast, the authorities cited the example of the off budget programs approved to address the GFC, which have been more successfully implemented by a series of successive governments. The authorities also assured that the project review process would include Parliament and thereby ensure full accountability and transparency of the programme’s implementation.