ADB happy with the government's economic plans

The Asian Development Bank says it is happy with the military government’s economic-development plans and is looking forward to its implementation while expecting growth next year to be equally driven by all four of the economic engines – consumption, investment, government spending and exports.

However, the ADB said accelerated government spending would be the main fuel for growth in gross domestic product. It said this would stimulate the economy in the short term through job creation, and the Bt2.4 trillion worth of infrastructure projects, if implemented without delay, would support growth next year and beyond through the expected increase of private investments. 

ADB country director Yasushi Negishi said the international community “totally welcomed” the government’s development plans, which aimed to improve the country’s transport infrastructure and connectivity with Thailand’s neighbours, because the Kingdom had a geographical advantage. He said Thailand therefore had the potential to be a hub for businesses and trade in the region if the plans were successfully implemented. 

Proposed tax reforms, which centre on the introduction of progressive taxes, could also help narrow the gap between the rich and the poor, he said.

“Thailand’s overall direction is very positive both for the ADB and foreign investors because the country apparently needs to expand its infrastructure to support the growth of the economy.

“And in order to spend more money for such investments, it would be beneficial for the government if it expands the tax base, while the introduction of an inheritance tax would fill in the gap between wealthy people and lower-income households.” Negishi said the government’s development plans should be implemented by the time of the next elected government because it could increase the country’s competitiveness.

 

Fastest-growing region 

Meanwhile, the ADB has revealed that Asia is still the fastest-growing region and it has kept its growth projection for the region at 6.2 per cent for 2014 and 6.4 per cent for 2015.

But the Manila-based development bank has lowered its growth forecast for Thailand this year from 2.9 per cent to 1.6 per cent because of the political unrest that eroded confidence and undermined consumption, investment, and government spending in the first half of the year. 

However, it expects the Kingdom’s GDP growth to turn up by the end of this year and has maintained its growth forecast for 2015 at 4.5 per cent, though this figure is still lower than its true potential of more than 5 per cent.

ADB senior country economist Luxmon Attapich said consumer confidence, which had increased since May, would translate into higher private consumption by next quarter while a scheduled increase in salaries for government workers in April 2015 would contribute to stronger private consumption next year.

Luxmon said private investment was expected to recover thanks to business sentiment improving, and it should increase next year on the back of the planned infrastructure projects in the public sector.

But if there are delays, she warned that the expected increase in private investment would not be met. And if the authorities do not resort to fiscal measures to simulate spending, the pace of the consumption recovery is also likely to be muted by high household debt.

Luxmon said the stronger economic growth forecast for major industrial countries next year would support investment in Thailand’s export-oriented manufacturing sector and it would also improve merchandise exports in 2015 as demand improved, while exports in 2014 had fallen short of the ADB’s expectation.

The expected increase in exports and imports from the rise of investments would result in narrower trade and current-account surpluses.

“There will be no economic hero next year as all four of the economic drivers will be in alignment, but the factor that can start right away is government spending, since the budget has been approved and it is ready to go,” she said.