Govt caught between a rock and a hard place on spending plan to lift economy

Economic research from Bangkok Bank said that to ensure 4-per-cent growth in gross domestic product and prevent massive lay-offs, the government must invest more.

"More public investment projects would boost the economy, as this would increase private confidence in the short and medium term. It would be a signal for expansion in private investment in related industries such as steel, construction and real estate," the bank said.

Growing private investment would increase the country's competitiveness, which has been sliding over the past decade. Thailand's 2007 national-competitiveness ranking by the Institute of Management Development (IMD) was 33rd out of 55 countries, from 29th and 28th respectively over the previous two years. The Kingdom's ranking in infrastructure development plunged from 42nd in 2006 to 48th in 2007.

Public investment for new projects in the 2009 fiscal year totals Bt99 billion, or 24.3 per cent of GDP, up from 14.9 per cent last year. This funding is earmarked for 1,147 projects, which mostly involve the construction of roads, buildings and water-related facilities.

Bangkok remains the province with the highest portion of public investment, at Bt13.34 billion or 14 per cent of the budget. Ubon Ratchathani, Surat Thani and Phitsanulok enjoy higher portions than normal, in line with the Greater Mekong Subregion logistics development policy. Bt1.87 trillion has also been set aside for mega-project investment during 2009-2012. While the government will provide Bt1.26 trillion of the funding, state enterprises will shoulder the balance.

The investment is split over seven areas: transportation, 50.9 per cent or Bt948.9 billion; energy, Bt444.6 billion; telecoms, Bt43.4 billion; water and irrigation, Bt184.1 billion; education, Bt124.1 billion; housing, Bt81.1 billion; and healthcare, Bt39.9 billion.

In 2009, mega-projects would require an investment of Bt357.1 billion. The two projects most likely to take off are the 23-kilometre Purple Line (Bang Sue-Bang Yai) and the Red Line (Bang Sue-Taling Chan), which have won government endorsement.

Projects with a medium chance of being executed next year are the extended Skytrain route and the Blue Line. "The progress on mega-projects depends on political will, and the government must also take into account budgetary constraints to make them happen," Bangkok Bank said.

Thailand has run budget deficits for two consecutive years. In the current (2009) fiscal year, the deficit has been widened from Bt249.5 million to Bt349.5 million, or 3.5 per cent of GDP.

This breaches the disciplinary threshold, which demands that the deficit is held at a maximum of 2.5-3 per cent of GDP.

As the new government takes office, the expansionary deficit may be changed. The amount could, however, only be distributed with the endorsement of Parliament. This is expected to take place around April.

The country has also suffered from continued cash deficits: Bt78.7 billion in fiscal 2008, against Bt48.7 billion the year before.

On the revenue front, economic conditions may prevent the government from achieving its target as tax income slows.

Meanwhile, the public-debt-to-GDP ratio could widen, from 36.22 per cent in September. The Public Debt Management Office estimates that if GDP expands by 3-4 per cent, the ratio could rise to 40 per cent of GDP - or even higher if the government needs more money to stimulate the economy.

As borrowing is needed to fund the projects, the government is urged to prioritise the investment plans.

"First of all, it must focus on the projects which would boost overall competitiveness [roads, irrigation and rail]. It is also urged to improve the tax structure and raise non [income]-tax revenues, such as a property tax," Bangkok Bank said in its research.