In a context of economic sluggishness, the budget poses a huge challenge to the government


Adverse economic conditions are likely to pose difficult challenges to current and future governments in managing the annual budget.

Prayut Chan-o-cha’s government plans to spend 3.185 billion baht in fiscal year 2023 (October 2022 to September 2023), but the bill has yet to be introduced in parliament.

The planned increase of 2.74% in expenditure compared to the current financial year reflects the constraints weighing on public finances.

The revenue forecast is 2.49 trillion baht, resulting in a budget deficit of 695 billion baht, or 3.89% of gross domestic product.

Pressure on public finances

The government faces both revenue and expenditure pressures.

Given the fragile recovery from the COVID-19 pandemic over the past two years, significant government spending is still needed to maintain the momentum of the recovery.

Russia’s invasion of Ukraine has led to sharp increases in oil and natural gas prices, and the impact on Thai businesses and consumers is severe as Thailand is a net importer of energy.

Businesses and consumers have complained about rising petrol, electricity and cooking gas prices and are calling for additional energy subsidies.

The World Bank recently warned developing countries in the Asia-Pacific region that countries dependent on energy imports and with high public debt would find themselves in a very difficult position to navigate economic policy amid risks stemming from the COVID-19 and geopolitical tensions.

“Thailand would have limited fiscal space to stimulate the economy,” said Anusorn Tamajai, former dean of economics at Rangsit University.

Thailand has run budget deficits for several years since 2004, leading to an accumulation of public debt, he said.

As of Feb. 28, Thailand’s public debt was 9.8 trillion baht, or 60.17 percent of the 16.3 trillion baht GDP, according to the Office of Public Debt Management.

Previously, Thai governments intended to keep public debt below 60% of GDP to ensure fiscal sustainability. But the combination of slow economic growth and the fallout from COVID-19 has recently forced the government to take on higher public debt.

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Stuck with a budget deficit

Given that the slowdown in economic growth would continue amid great uncertainty for the global economy, Thai government tax revenues are unlikely to increase. The government must therefore continue to borrow for the next few years.

According to the Ministry of Finance’s medium-term budget plan, the ministry projected annual government spending at 3.185 trillion baht, 3.270 trillion baht, 3.363 trillion baht and 3.456 trillion baht for the fiscal years 2023-26.

The ministry projects government revenue of 2.49 trillion baht, 2.56 trillion baht, 2.64 trillion baht and 2.72 trillion baht respectively during these years.

The shortfall will lead to budget deficits of 3.9%, 3.8%, 3.7% and 3.6% of GDP respectively, gradually narrowing the budget gap but not yet targeting a balanced budget or surplus.

The government has tasked state-owned banks or specialized financial institutions to help individuals and businesses struggling to survive the impact of COVID-19 containment measures locally and internationally.

For example, the government has asked the Thai Credit Guarantee Corporation (TCG) to provide credit guarantee services to small and medium enterprises to help them obtain loans from commercial banks. If these loans turn into bad debts, then the TCG will bear much of the damage and in the end the government will have to subsidize its operation.

Anusorn predicted that this guarantee scheme could inflate public debt by an additional 10-15 billion Bt.

Higher financing cost

Given the upward trend in interest rates globally, with countries raising or planning to raise interest rates to combat high inflation, the Thai government will face a cost of higher borrowing to finance its budget deficit and service its debt. Investors will have to be offered a higher interest rate on government bonds.

Anusorn warned that if public debt reached 70% of GDP, Thailand’s sovereign credit rating could be downgraded by international rating agencies over the next few years. This would further increase the cost of borrowing, as lower ratings would mean higher risks for holding Thai government bonds, so investors would likely demand a higher coupon rate on government bonds.

Due to the current low external debt, Thailand has some leeway to expand its fiscal space to some extent.

As of February 28, the external debt represented 1.78% of the total public debt. Combined with abundant local liquidity, the government may still be able to run budget deficits over the next few years.

Amornthep Chawla, chief economist at CIMB Thai Bank, believes the government still has room to spend more by running budget deficits.

However, Mr. Pridiyathorn Devakula, a former central bank governor and former deputy prime minister, expressed concern about fiscal space. He blamed current and previous governments, saying they had not handled fiscal policy prudently.

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Aim for a balanced budget

The Ministry of Finance plans to achieve a balanced budget over the long term by carefully managing government revenues, expenditures and debt payments.

The ministry continues to want to keep annual expenditures at appropriate levels to allow the government to implement desirable policies and manage future risks.

Then, we must manage the public debt, ensuring that it does not get out of control. Ensuring debt sustainability requires a low cost of debt refinancing and appropriate debt repayment in terms of amount and timing that will not impose too heavy a fiscal burden in the long term.

The Ministry of Finance plans to increase the efficiency of tax collection and also to reform the tax structure. Critics have long expressed disappointment with tax reform.

Some have suggested that the government levy more taxes on the country’s wealthiest, such as land and property taxes as well as inheritance taxes. Others suggest the government raise the value added tax (VAT) rate to 8 or 10% from the current 7%. But tax hikes are unpopular and governments have been reluctant to go that route.

On the spending side, the ministry advised governments to reprioritize spending by reducing or delaying spending that is not immediately needed so that allocations can be made for high-priority projects that directly benefit the people. Critics have long called for cuts to military spending and funds allocated to support palace agencies to increase welfare spending instead.

As part of the spending plan for fiscal year 2023, the government plans to cut the budget for the Ministry of Defense to 197.3 billion baht, down 4.4 billion baht from the current fiscal year . Opposition politicians in parliament are expected to demand a bigger cut while continuing to call for army reform.

By Thai PBS World’s Business Desk


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