Concern over poorly designed govt schemes

Amid the political turmoil, the government will this week submit to Parliament its budget for the 2009 fiscal year beginning in October.

The Budget Bill shows expenditures at Bt1.835 trillion against projected revenues of Bt1.585.5 trillion, leaving a deficit of 249.5 billion, equivalent to 2.5 per cent of gross domestic product.

Sakol Varanyuwatana, an economist at Thammasat University, has raised the question of the government's ability to counter high inflation as the central bank recently warned that inflation could rise to double digits.

Government expenditures for fiscal 2009 will increase by 10.5 per cent, compared with a rise of 6 per cent in the current fiscal year. The growth rate of fiscal expansion is quite high and could add momentum to high inflation, said Sakol.

He said he was worried about poorly designed projects, such as handouts worth Bt21.19 billion to villagers under the SML (Small, Medium, Large) budget, which is allocated to villages according to their size. He warned that this project and other populist projects would boost consumption in the short run rather than create jobs and income for the long run.

Budget allocation to the grass roots is the right move, but it could be wasteful when there is no proper mechanism to ensure productive spending, he added.

The other important point is the low rate of capital spending of Bt407.3 billion, which accounts for only 22.2 per cent of total government expenditure, down from 24.1 per cent in the current fiscal year.

This suggests that a small amount of investment would not create many jobs or boost income significantly, argued Sakol. The lion's share is taken by current expenditures - salary for civil servants and other routine spending accounting for 73.1 per cent - suggesting slow progress in public-sector reform.

Repayment of debts also jumped 40 per cent to Bt63.67 billion, accounting for 3.5 per cent of the total budget.

Vorapol Socatiyanurak, vice chairman of the National Economic and Social Advisory Council, shared these concerns and urged the government to set up a public organisation to manage the SML project to ensure efficient spending by villagers.

He also questioned the government's ability to steer the economy away from dependence on imported oil.

Sansern Samalapa, a member of the Democrat Party's economic team, voiced his concern about government revenue. The government may fail to meet targeted revenue due to expected unfavourable economic conditions. If the Revenue Department is forced hard by the government, taxpayers would be squeezed by tax officials, he said.

Political turmoil may also depress economic growth and lead to lower tax collection.

Sakol said that if the political stand-off between the government and People's Alliance for Democracy persisted, it would depress both private consumption and investment. And it would then have an adverse impact on government revenue.

According to the draft of the 2009 Budget Bill, the government projects economic growth at 5.5 per cent next year, about the same as this year, while inflation would be 3.5 per cent, down from an estimated 5.5 to 6 per cent this year.

The government argues that the budget deficit is necessary for boosting growth, as uncertainty over the world economy would slow exports down.

The government highlights its strategy to boost confidence, which politically implies that the coup undermined confidence in the country.