Next year, the govt must adjust its economic strategy

The Thai economy will face a series of challenges next year. Prime Minister Yingluck Shinawatra may be satisfied that that her populist policies have managed to stimulate domestic consumption this year. But this may not be the case with next year’s economic performance, since Thailand is facing many issues, both on the domestic front and with pressure from external factors.

Domestically, the populist policies will have an impact, slowing down of consumption and overall economic growth. Externally, the debt situations are not yet settled in the US or Europe.

The Thai government and Thais cannot be complacent. In fact, the expected final growth figure of 4.7 per cent this year is a result mainly of the populist schemes. Household loans rose by double-digit figures, due partly to a rise in vehicle lease-purchases. Last month alone, domestic car sales skyrocketed by 477.6 per cent from the same period last year, to 148,243 units. This was due solely to the subsidy given by the government to first-car buyers. 

The government has borrowed against future earnings and revenue to inflate growth, but the Thai economy is forecast to grow by only around 5 per cent next year. The figure shows that our current growth is vulnerable and it does not stand on solid economic fundamentals. 

The rapid rise in public debt can pose a serious fiscal threat if the deficit level is not curtailed. Currently, public debt stands at 47 per cent of GDP. But if the government continues with its massive spending plans, which are not sustainable and which do not put real revenue back into society, the public-debt level could hit the dangerous threshold of 60 per cent of GDP.

Next year the government must initiate economic policy discretion or run the risk of destabilising the economy. So far its populist policies are not producing the multiple economic effects as planned.

Thailand is set to see single-digit export growth next year. Some Thai products such as rice are losing in price competitive on the world market. In addition, global demand depends on economic factors in the European Union and the US, which are not resolved yet.

The economic downtrend in the euro zone will certainly hit Thai exports to many countries, since the European Union is one of the world’s major markets. Indirect sales to Europe via China and other Asian countries will also be hit hard by the crunch.

Thai exports declined by 14.56 per cent in 2009 as a result of the US-led global economic crisis, but then grew by 28.13 per cent in 2010 and 13.96 per cent last year. Single-digit expansion next year will largely result from the downward trend in global trading.

The higher minimum wage to be introduced nationally next year will affect the costs of operators. It could also prompt small and medium-sized industries to adjust their operations and even lay off staff.

This whole raft of populist policies could have severe consequences in the coming years. The rice price-pledging programme has been an absolute failure. It has not only had a negative impact on the country’s fiscal standing, but has also eroded Thai competitiveness on the world market. Most importantly, the project does not improve the wellbeing of farmers, nor boost their capacity.

Some of the other populist policies have also distorted the market and will have a negative impact next year. For instance, more than 1 million new cars are set to hit the roads soon, thanks largely to the first-car policy. It remains to be seen how this would affect used-car sales and the demand for new cars next year. Instead of subsidising new-car purchases, the government should have used the Bt60 billion to improve public transport systems in a sustainable manner.

We hope the government will concentrate on policies that are sustainable in 2013. Instead of merely citing election pledges, it will have no other choice except to become more sensible in its economic policy. Ministers will have to understand that this course is not sustainable, and then communicate that reality to voters – to prepare them for changes.