Published on January 18, 2006

Govt to invest heavily in mega-projects; Bt1.48 trln spending plan based on optimistic growth forecasts

The Cabinet yesterday approved a budget of Bt1.48 trillion for the 2007 fiscal year, up Bt116 billion, or 8.5 per cent, from the previous fiscal year amid optimism that the economy will continue to grow strongly.

The budget was worked out on the assumption that the economy would expand 5.5-6 per cent in the year. Prime Minister Thaksin Shinawatra last week said the economy should grow by at least 5 per cent this year.

While Bt1.03 trillion is set aside for fixed expenses, up 7.5 per cent on the previous year, Bt388 billion, or 26 per cent, of the total budget is earmarked for investment. To maintain fiscal stability, outstanding public debts will be kept below 50 per cent of gross domestic product and the debt-service ratio at less than 15 per cent of government expenses, said PM’s Office Spokesman Surapong Suebwonglee.

“In 2007, the government will focus on boosting the country’s competitiveness especially through the investment in mega projects, as well as seeking economic, social and fiscal balance,” he noted.

Fiscal imbalances have been in the public focus after the Finance Ministry raised the borrowing ceiling in the 2006 fiscal year by Bt80 billion to Bt250 billion, amid the delay in the sale of state-owned Egat Plc’s shares.

According to the public debt management office, Thailand’s outstanding public debts as of November 30, 2005 stood at Bt3.26 trillion, or 45.9 per cent of gross domestic product. An amount of Bt1.82 trillion is direct government borrowing. Out of total debts, 18.2 per cent are foreign loans. Mean-while, Bt2.66 trillion, or 81.5 per cent, of the total are long-term loans.

The office director Panna Stavarodom said that month on month, public debt was down Bt6.7 billion from October. In the first three months of the 2006 fiscal year, starting from October 2005, the government borrowed a total of Bt22.7 billion. Out of that, the Finance Ministry raised Bt9.5 billion while the rest was borrowed by state enterprises.

According to Surapong, the budget is set in accordance with the economic forecasts from four economic agencies - the Finance Ministry, the Budget Bureau, the National Economic and Social Development Board, and the Bank of Thailand - which forecast the 2007 economic growth at 5.5-6 per cent with inflation at 3.4 per cent.

The four agencies concluded that in the year, public investment will be the major economic driver, coupled with foreign investment, while domestic private spending could be adjusted.

Meanwhile, the economy will suffer from the effects of higher oil prices, which are expected to subside in the latter half of the year. The export and tourism sectors should expand due to the recovery in the global economy.

Risk factors include the upward cycle of interest rates and fund flows, as well as the possible increase in global competition. Each ministry must submit their budgets in detail to the Budget Bureau by February 23.

On the allocation of central funds to local administrations, the Budget Bureau has set the ratio at 26 per cent of total government expenses, below the constitutional requirement of 35 per cent.

To increase their revenue, Deputy Prime Minister Wissanu Krea-ngam and PM’s Office Minister Suranan Vejjajiva were assigned by the Cabinet yesterday to come up with suggestions. Primarily, the government might transfer the educational and health expenses allocated to the Education and Public Health ministries to local administrations.

Post your comment to this story here