Financial experts concerned about over-spending
Prime Minister Srettha Thavisin has announced his government’s intention to implement five urgent measures to revive the Thai economy, free it from stagnation, and help the people escape the current income crisis.
The measures are:
1. Solving the debt problems in agriculture, business, and the general public sectors
2. Distributing 10,000 baht in digital money to alleviate people's financial difficulties
3. Reducing energy costs
4. Increasing income from tourism
5. Amending the constitution.
All these measures require funding to a greater or lesser degree and questions are being asked about where the money will come from for these urgent policies and the extent to which it will burden the state budget.
According to Pipat Luengnarumitchai, chief economist of Kiatnakin Phatra Financial Business Group, the funding can only come from two sources: the regular budget and off-budget funds. If the funds come from the regular budget, there might be a delay of up to five months in implementation.
The 10,000 baht handouts in digital money and reducing the cost of living involve using off-budget funds, and will thus require adjustments to the state's financial discipline regulations under Article 28, he notes.
Burin Adulwattana chief economist at KResearch, suggests that the focus should not solely be on whether the funds come from the regular budget or off-budget sources but rather on whether the spending is justified and achieves the intended economic stimulation. He suggests two potential sources for the state budget: increasing taxes, including raising VAT, property taxes, and wealth taxes, and encouraging foreigners to work in Thailand, increasing income from foreign workers and retirees.
According to Naris Sathapondecha, head of TTB Analytics, the state budget should be used for urgent projects but should come from borrowing within the framework of the state budget, under the financial discipline framework or the issuance of an urgent royal decree. This is to ensure that the use of state funds is clear and direct.
It is believed that the government can increase its debt, as the current public debt stands at 61%. If additional borrowing of more than 500 billion baht occurs, public debt will still be within the financial discipline framework at 65%.
As for the Public Debt Management Office (PDMO) borrowing urgently, it can be done, but there may be questions about whether Thailand is in crisis or not. Looking at the overall economic picture, household consumption has grown by 7% in the past quarter. Therefore, the question is whether there is a need for further consumption stimulation or not. The Thai economy's main source of growth has historically been exports, which is a concern for large companies.
Several financial experts are asking if is necessary to stimulate everyone, pointing out that the people that need assistance are the vulnerable groups with low income, which may require more targeted policies that could have a greater economic multiplier effect.
Amornthep Jawala of CIMBT Thai Bank (CIMBT) believes the budget to be used for urgent projects to stimulate the economy must come from the treasury budget or the regular budget for 2024 or from increased tax revenue.
However, most of the experts share three main concerns. First, spending that ends with cash handouts to everyone without long-term economic development, technology development, or digital infrastructure development, could lead to excessive spending without pushing the Thai economy beyond its 3% potential growth.
Second, inflation. If money is used excessively in the system, supporting overspending, it may eventually lead to short-term inflation increases and make monetary policy more difficult amid a highly volatile global financial environment.
Third, the burden on the treasury. Although part of the urgent budget will come from the state banks, the money will become a long-term burden on the government and may result in higher public debt levels. The trend may move towards a 70% debt-to-GDP ratio if not managed properly.
If this stimulus results in good economic growth, there may not be a problem. However, if it fails to stimulate the economy or push it beyond the 3% potential, it could become a worrisome and concerning factor.
According to Dr. Supawut Saichue, an advisor to Kiatnakin Phatra Financial Business Group, the government's urgent policies, such as distributing digital cash of 10,000 baht, which aim to stimulate the economy for strong growth, seem to be effective although the sectors that need the most stimulation are investment and exports, which are currently lagging.
He believes that the 10,000 baht digital vouchers, if used by people to spend on items like fertiliser for agriculture, creating jobs, and increasing rice cultivation, could be beneficial and actually stimulate the economy, but points out that the vouchers may have a short-term economic impact.
The level of funding will undoubtedly burden the treasury. It will require state banks to borrow money and shoulder the burden, even though it may not be an immediate burden but rather a long-term one for the government.
This will reduce flexibility in managing the treasury in the long term. Therefore, it would be better to make these measures more targeted to specific groups.
