The Yingluck government has set the 2013 fiscal budget at Bt2.4 trillion, which will require a deficit of Bt300 billion because revenue collection is expected to reach only Bt2.1 trillion.
This deficit spending of Bt300 billion is less than the last fiscal year’s Bt400 billion, but it still represents 3-4 per cent of the gross domestic product.
Thailand’s public debt now stands at 42 per cent of GDP. If the government continues to rack up the deficit and other debts, we’ll be heading faster to the public-sector debt limit of 60 per cent of GDP.
Korbsak Sabhavasu of the Democrat Party says the government has run up budget deficits of more than Bt600 billion in two years. Yet it has repaid only around Bt100 billion. This means that debt creation is running significantly faster than repayment.
All of this has yet to take into account the off-balance sheet debt creation by the government, from Bt300 billion for the rice subsidy scheme, the rubber price intervention and other massive spending projects, all of which will eventually have to be factored into the government’s accounting book.
Earlier, the Finance Ministry sought approval from the Cabinet to raise the public debt by another Bt450 billion. Of this, Bt350 billion will account for borrowing to compensate those who suffered damages from last year’s floods; Bt50 billion for contributions to the flood insurance fund; and Bt50 billion to cover the revenue shortfall. This borrowing spree will raise the public debt to GDP ratio to 50 per cent within this year or next.
Dr Narongchai Arkarasenee, a former commerce minister, has warned that the government should in fact keep the public debt to GDP ratio at 50 per cent or less. Since the government’s spending accounts for around 20 per cent of GDP, raising the public debt beyond 50 per cent of GDP would put the country’s fiscal position at risk.
Apart from this ongoing massive debt creation, the government also plans to dig deep into the vaults of the Bank of Thailand to spend at least US$100 billion (Bt3 trillion) of its $180 billion in international reserves.
Dr Virabongsa Ramangkura, who now heads the board of the Bank of Thailand, has said that the central bank should not hold such an unnecessary reserve surplus. The excess money should be used for infrastructure investment projects that will help lay the foundation for future growth.
The Bank of Thailand’s reserves of $180 billion should be enough to defend the baht or facilitate international trade transactions.
Dr Prasarn Trairatvorakul, the Bank of Thailand governor, is protecting the reserves like – as the old Thai saying goes – “a snake protecting its eggs”. However, the government has already shown so far that it has no respect for fiscal discipline. And now it wants to spend even more by coming up with justifications to appropriate money from the international reserves.
Bank of Thailand officials are still haunted by the 1997 baht crisis when the central bank lost almost all of its reserves and the country was forced to accept a support programme from the International Monetary Fund.
With the sudden removal of Piyasavasti Amranand as president of Thai Airways International – supposedly over conflict regarding the long-term aircraft acquisition programme – a similar situation might arise with Dr Prasarn at the Bank of Thailand.
The government is going to spend money like crazy and will test its borrowing to the limit. It has insisted that it will keep the ceiling at 60 per cent of GDP. But we can hardly trust the word of politicians on their borrowing and spend.
If the global economy heads south and Thailand’s GDP takes a hit for several years in a row, the debt to GDP ratio will rise to 80 per cent or 100 per cent in a hurry. Then we will become another Greek tragedy.