The government's surprise move this week to take on more debt to stimulate the economy risks a setback for its fiscal consolidation efforts though it's likely to accelerate growth in the near-term, according to ratings companies.
The cabinet on Tuesday revised the medium-term budget plan, lifting the deficit next fiscal year to 4.42% from 3.56% of gross domestic product, which will be plugged by additional borrowing of 153 billion baht. The debt will fund various stimulus measures to support the economy, according to officials.
Prime Minister Srettha Thavisin is pushing for looser fiscal policy settings to lift the nation's economy from a decade of average sub-2% growth after the central bank snubbed his repeated calls to cut interest rates. A higher deficit has also sparked speculation that the government may finance a 500 billion baht cash handout through the state budget, as its original plan to fund it through borrowing faces potential legal challenges.
S&P Global Ratings expects an increase in the budget gap from next year amid efforts by the government to restore a more supportive fiscal stance going forward, especially as economic growth momentum remains soft, according to sovereign analyst Andrew Wood.
Still, Thailand's economic growth is likely to accelerate over the near-term as the fiscal impulse shifts from negative to positive, the tourism sector continues to recover, and external demand conditions stabilise, Wood said in an email. The timing, scale, and implementation of the proposed digital wallet scheme will also be meaningful for economic growth, depending on how it plays out, he said.
"Fitch expects burgeoning budget deficits, as part of the recent revision to the government's medium-term budget framework, to potentially accommodate the pledged digital wallet scheme," said George Xu, a director at Fitch Ratings. "This would imply slippage in the planned fiscal consolidation."
The handout programme, if fully implemented, can boost private consumption and pose an upside risk to Thailand's growth prospects, according to Xu. Fitch forecasts the economy to expand 3% this year and 3.5% next year, accelerating from 1.9% in 2023.
However, the government debt trajectory would further weaken with negative spillovers to the country's credit profile, particularly if rising public spending fails to address the country's structural growth shortcomings, but provides only a short-lived boost to the economy, Xu said.
This article was downloaded by calibre from https://www.bangkokpost.com/business/general/2771489/sp-fitch-say-govt-debt-binge-poses-risk-to-fiscal-consolidation
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