Budget deficit for 2010 to be capped at 4% of GDP

Given the impact of the global economic slowdown and a sharp fall in export and tourism earnings, the government's revenue collection will likely be less than Bt1.58 trillion, according to ministers.

"The Finance Ministry will have to ensure that actual revenue collection is close to the projection," Finance Minister Korn Chatikavanij told a seminar hosted by Krungthep Thurakij newspaper yesterday.

The government's strategy appears to be maintaining economic momentum via deficit spending for an extended period until the global economy enters into a recovery stage.

In a speech given at the seminar, Prime Minister Abhisit Vejjajiva expressed confidence the economy would be back on track in the second half of the year.

The government's stimulus measures should keep the economy in positive territory, although it was possible it might face just a slight contraction in the second quarter, he said.

However, the economy will likely record negative growth this quarter, after contracting 3 per cent in last year's fourth quarter.

Korn said the government would evaluate the results of its economic stimulus measures and those of other global economies before projecting its growth rate for 2010.

However, the government will have more room to manage a budget deficit for fiscal 2010, which starts on October 1, given that it will not have to contribute part of the budget to the treasury reserve, as was the case this year.

Deputy Prime Minister Korbsak Sabhavasu told the seminar the Cabinet was in the process of finalising the fiscal-2010 budget, with a deficit cap of Bt430 billion.

Thailand Development Research Institute president Nipon Poapongsakorn said the government could consider lifting the ceiling on pubic debt temporarily if necessary.

Phatra Securities managing director Supavud Saicheua expressed concern at the seminar that the government might have to lower its investment budget, due to a shortfall in revenue collection.

He said the economic recovery would have to be strong, with an annual growth rate of at least 4 per cent in the next few years, so that rising public debt could be managed effectively.

"If the economy grows 3 per cent for [a number of] years, the public debt will worsen. If growth is 4-5 per cent annually, the public debt will be eased, so the point is to make sure the government really spends now to boost purchasing power later," he said.

Nipon suggested the government introduce a longer-term stimulus package - lasting two or three years - in order to boost domestic demand.

He also urged the government to bolster private consumption and investment, saying exports had been hit hard by the global crisis.

Asset Plus Securities CEO Kongkiat Opas-wongkarn said the government would also have to manage the private sector's expectations, so that they reduce their dependence on the government.

Meanwhile, JP Morgan said in a report entitled "Asia Focus: Deterio-rating Public Finances" that in aggregate, emerging Asia's fiscal position had shifted from a surplus of 0.6 per cent of GDP in 2007 to a forecast deficit of 3.7 per cent this year.

This reflects worsening fiscal positions across the region in 2008 and 2009, it said.

Fiscal balances in the region are deteriorating for two reasons. First, government revenues are declining, because of the downturn in private-sector economic activity.

So even if governments kept spending constant from one year to the next, fiscal balances would deteriorate from the hit to revenues.

Second, governments across the region have announced spending packages to offset declines in private demand partially.

Many of the packages have been large, with additional measures announced frequently in recent months. As a result, many downward revisions to the 2009 fiscal-balance forecasts have occurred since last October, the report said.

Malaysia, India, Hong Kong and Thailand stand out as the largest deficit economies this year (as a percentage of GDP), but Hong Kong, Singapore and South Korea - all economies that ran surpluses in 2007 - will likely see the largest deterioration in fiscal positions.