Fiscal Policy Office supports plan to stimulate grass-roots economy
The Fiscal Policy Office (FPO) agrees with the new Council of Economic Ministers' plan to stimulate the grass-roots economy by putting money into the hands of low-income earners via the Village Fund scheme as it will create a multiplier effect that will b
Meanwhile, the continuous decline of farmers’ incomes from the drops in global commodity prices continued to hamper domestic consumption and consumer confidence in July, while slow internal and external demand led to declines in the import of capital goods and in industrial confidence.
The FPO said state spending could and should be utilised to drive the economy because the country’s financial stability is strong thanks to good fiscal discipline in the past and there is low unemployment, while global demand is still weak and the country’s economy is currently fragile.
"The principle that was [stated] by the deputy prime minister [Somkid Jatusripitak] is that the world has changed and the situation has changed, so there is a need to introduce measures to support the Thai economy or else it could be worse than it is now," said FPOs deputy director-general Ekniti Nitithanprapas.
"Thanks to our good fiscal discipline in the past, which has been supporting the economy, where public debt is only at 42 per cent of GDP, we have the capacity to use fiscal policy to stimulate the economy," he said.
Thailand had international reserves of US$156.9 billion as of July, which is 2.9 times the value of its short-term foreign debts.
Low unemployment at 1 per cent (around 380,000 people) and low headline inflation of negative-1.1 per cent in July also mean that there are no obstacles to the stimulation of the economy via state spending, since the majority of the people are employed, Ekniti said.
"If we wait until people are out of a job, then any stimulus effort via injection [of capital] will be very difficult," he said.
External woes
"The Thai economy has been largely affected by external factors, which is similar to other countries in the region that have been hit harder than us, such as Malaysia and Singapore where exports and farmers’ incomes have declined.
"But government spending [in Thailand] increased by 10.8 per cent year on year in July.
That is currently supporting the economy along with the excellent 39-per-cent year-on-year expansion in the tourism sector in the same month," he added.
Still, he warned that the tourism and government sectors combined accounted for a considerably smaller proportion of GDP than exports and private consumption.
Ekniti also noted that inbound tourists via Suvarnabhumi Airport had declined by 23 per cent since the August 17 bomb blast in the capital. That amounts to a drop of about 100,000 inbound tourists since the tragedy.
At this rate, the FPO expects the event to result in a total decline of about 300,000 tourists before the effect dissipates, which could cut this year’s GDP growth by 0.05 percentage point.
The FPO now expects around 29.6 million inbound tourists this year.
Kulaya Tantitemit, director of the FPO’s Macroeconomic Policy Bureau, said value-added-tax collections based on domestic consumption expanded by 5.9 per cent year on year in July but VAT collection based on imports declines by 11.1 per cent, which reflects the 22.1-per-cent drop in the import of capital goods.
Domestic consumption of durable goods is still weak. Motorbike sales have declined for seven straight months, with a drop of 23.2 per cent in July, which reflects the 14.6-per-cent year-on-year slump in farmers’ incomes during the same month.
Consumer and industrial confidence has also continued to decline. The Consumer Confidence Index dropped from 68.4 points at the beginning of the year to 62.6 points last month, while the Industrial Confidence Index dropped from 89.6 in the first quarter to 83.0 in July.
Scores below 100 in both indices indicate negative confidence.
