Soaring oil price is a 'threat to stability'

The government's investment in mega-projects and current-account balance will come under inflationary pressure if the oil price continues to surge.

The rising oil price has already caused the highest monthly current-account deficit in almost three years in April, according to the Bank of Thailand (BOT).

It has also affected the country's internal and external stability and dampened both business and consumer confidence, with the Consumer Confidence Index dropping to 43 in April from 47.3 the previous month, the central bank said.

If the oil price continues to climb, it will increase not only inflation but also the current-account deficit, BOT senior director Amara Sriphayak said.

"The soaring oil price affects both internal and external stability - inflation and the current account - which puts pressure on consumers and businessmen as well as terms of trade."

Although the rise in prices of agricultural products would encourage export growth, imports could grow at a higher rate than exports. The export of agricultural goods accounted for just 7-10 per cent of total exports in April, whereas oil accounted for 23.8 per cent of total imports, she said.

The central bank expects the current account to show a deficit for the full second quarter. However, it said external stability should improve in the second half of the year, based on the assumption that oil will drop to US$94 per barrel.

Amara expressed concern that consumers had not changed their behaviour despite the high oil price. The value of crude imports grew 79.7 per cent in April as a result of a 61.9-per-cent hike in prices and an 11-per-cent increase in volume.

The current-account deficit in April was $1.7 billion, the highest since the $1.76-billion deficit in June 2005. The deficit over the first four months of this year was $1.4 billion, compared with the BOT projection of $4 billion-$7 billion for the full year.

Amara also expressed concern that the government might postpone investment in mega-projects due to unsustainable costs caused by the relentless rise of oil and construction materials and that this could affect economic growth.

"Builders may not join the bidding if they realise that their costs will be too high compared with the median price," she said.

The private sector has already slowed investment, as seen from the 0.6-per-cent contraction in the Private Investment Index from March to April. It grew 5.6 per cent on year, compared with 7.4 per cent in March.