Thailands fiscal position remains well clear of debt trap

The Ministry of Finance has confirmed that the country's fiscal status remains robust and it could take more loans needed to heal and recover the economy affected by the Covid-19 outbreak without the risk of a debt trap, as public debt will be closer to the normal level within the next four years.

The Thai government led by Prime Minister General Prayut Chan-o-cha decided to issue an executive decree to borrow an additional THB500 billion following the previous year’s THB1-trillion emergency loan for economic relief to deal with the fallout of the pandemic.

However, this has raised concerns whether Thailand, with continuous borrowing, could plunge into a debt trap.

Patricia Mongkhonvanit, director-general of the Public Debt Management Office (PDMO), explained that the government's borrowing was not a blunder or wrong action. There is no country that does not borrow money.

“It would not be a good idea for the government to slow down all development and just wait to collect enough tax money to start investing,” she said.

According to examples of foreign countries entering the debt trap, it was clearly evident that those countries all had weak fiscal positions.

When faced with volatile financial markets, lack of liquidity in the financial system or not gaining investors' confidence, the borrowing option is crucial and they need to rely mainly on borrowing money from abroad.

When they are unable to borrow more money and there is a payment default, the creditor country can exercise its right to demand that the debtor country sell and transfer assets, give up possession rights or grant concession rights in exchange for loan reduction or loan repayment extension.

Patricia said Thailand was completely different from those countries.

"Widely recognised as a country with a strong financial system and banking sector, our country has a very high level of international reserves and a large bond market as well as a wide range of investors. For the fiscal sector, the level of public debt remains relatively low and most of the debt is domestic under the appropriate risk management," she said.

It can always be seen that the public debt-to-GDP ratio will gradually decline after every economic crisis.

In addition, the proportion of public debt for investment purposes still accounts for more than 70 per cent of total debt, while the remaining debt is incurred as needed to solve the country's crises in any period, such as the economic downturns in 1997 and 2008-09 and the great flooding of 2011, all of which were urgent and unavoidable cases.

Currently, Thailand has the State Fiscal and Financial Disciplines Act as the main law in determining fiscal and financial disciplines in line with the economic conditions in each period.

Therefore, law enforcement must be appropriately strict and ensure fiscal sustainability is promoted.

“Even at present or in the near future, we may still need loans. Please be assured that the Ministry of Finance and PDMO manage and supervise the implementation of fiscal policies rigorously, appropriately, prudently and cautiously hence Thailand will never fall into a debt trap.”

At the end of April 2021, Thailand's public debt-to-GDP ratio stood at 54.91 per cent and PDMO managed to provide enough loans to meet the government's expenditure needs in order to support public investment in various activities or projects, including on-going plans under emergency loan decrees relating to the Covid-19 pandemic.

The plans cover, for example, expenses of 35 million doses of vaccines, over 30,000 items of medical equipment and supplies as well as economic alleviation and stimulation projects, such as the half-half co-payment scheme phase 3, “Ying Chai Ying Dai” (the more you spend, the more you get) e-voucher cashback scheme, etc.

Thus, the public debt each month tends to gradually increase and it is expected that at the end of fiscal year 2021, the ratio of public debt to GDP will rise to 58.56 per cent.

Regarding the possibility of increasing public debt in the future, the PDMO has always assessed the public debt levels in the medium term.

In the present preliminary assessment, medium-term public debt has a tendency to increase at a lower rate and return below its peak level within the next 3-4 years.

Meanwhile, Kulaya Tantitemit, director-general of the Fiscal Policy Office, said relevant agencies have closely monitored the fiscal situation, particularly the government's cash flow management in conformity with the income stream and spending needs, as well as the state of the government's treasury on a daily basis to ensure that the fiscal position can maintain the government's continued fiscal spending and fiscal policy.

Due to the assessment of medium-term economic prospects, there is a good trend and recovery starting after the Covid-19 pandemic in terms of providing additional income, especially as a source of revenue for future debt repayments.

The Ministry of Finance has recently steadily implemented measures to enhance revenue collection efficiency and taxpayer facilitation.

Some recent actions have covered promoting electronic tax payment and applying technology to upgrade tax collection and tax audit.

The government’s revenue collection structure will also be supported and reformed so the tax administration system will modernise, and reduce inequality.

Meanwhile, the government will speed up economic recovery so that the economy can improve quickly to create jobs and support national development.

Moreover, the upgraded economic restructuring and the higher performance of the revenue collection will lead to long-term fiscal sustainability.