Despite the delay in the 2007 fiscal budget, the government's spending will still increase as much as 3-4 per cent in real terms in the next calendar year, growing quickly enough to drive continuous economic growth, Bank of Thailand Governor MR Pridiyathorn Devakula said yesterday.

Government spending in the second half of this year is expected to grow as much as 5-6 per cent in real terms, or 11.4 per cent including inflation, Pridiyathorn added.

"What will help boost the economy in the second half of the year is strange but true. It is government spending, that includes 2006 budget spending accelerating in the third quarter and carried-over budget to be spent in the fourth quarter," he said.

"Who said that without a government, we won't have enough budget to boost the economy? That's not true. There's a lot of budget spending, although there has been a slowdown in the first and second quarters. All credit should be given to the good work of the Finance Ministry. These are all real figures."

Pridiyathorn said the economy had been little affected by the political vacuum as it grew at a good pace of 4.7-4.8 per cent in the second quarter - and by 5.4 per cent in the first half. It is expected to grow 4-5.25 per cent next year, higher than the 2-per-cent growth forecasted by some economists.

Earlier, Olarn Chaiprawat, adviser to caretaker Finance Minister Thanong Bidaya, said the current political tension might lead to a slowdown and growth as low as 2 per cent in 2007.

Pridiyathorn said the government's spending next calendar year would not decline as some have speculated because the 2007 budget, if approved in the second quarter next year, would be largely disbursed in the third quarter. The 2008 fiscal budget's disbursement would also accelerate quickly in the fourth quarter of next calendar year, keeping economic momentum on track.

"Although the new budget is expected to be approved late for April to June, I think the government will accelerate its spending and the 2008 budget will be approved in time as scheduled. The government's expenditure does not help much in boosting the economy, but also does not drag it down as some were earlier concerned about," he said.

Pridiyathorn said that without the 2007 fiscal budget approval, the government's expenditure from carried-over budgets and budget obligations in the second half of this year would rise 11.4 per cent over the year or 5-6 per cent in real terms, which will help the economy to grow continuously this year.

Earlier, the central bank said Bt250 billion of the remaining budget would be spent during the delay in the new budget.

In this year's second quarter, government spending contracted 2 per cent from last year, compared to a 1.4-per-cent increase in the first quarter. In the first half, its expenditures were down by 0.3 per cent.

The governor said despite skyrocketing oil prices and political uncertainty, this year's economic growth would continue to rise, driven by improving tourism and exports, which rose 19.1 per cent and 11.3 per cent in the first half, respectively.

However, private investment will become a key economic engine next year as exports are likely to grow slowly. Oil-price hikes caused by international conflicts and short-term capital movement remain risk factors for the economy, said Pridiyathorn.

The Bank of Thailand forecasts that private investment will grow in real terms by 7-8 per cent next year, compared to 4.5-5.5 per cent this year, and that private consumption will grow 3.5-4.5 per cent next year. Exports are projected to grow only 5-6 per cent in real terms.

Pridiyathorn said 76-per-cent industrial capacity utilisation, plus consumption and export expansion, would cause investors to raise their stakes.

Stable oil prices and a clearer political situation would also restore investor confidence, he added.

However, private investment will grow only 3.5-4.5 per cent in real terms in this year's second quarter, compared to 6-per-cent growth in the first quarter. Investors want to ensure sustainability of oil prices and an improving local political scene, which is expected to improve by year-end, Pridiyathorn said.

Anoma Srisukkasem,

Jiwamol Kanoksilp

The Nation