By Pooky-this blog’s economic journalist
Thailand has been an unstable country politically and economically for the past few years. In one protest alone, in closing the Thai main airport, the Thai central bank said the damages was about US$5 billion. The current government of Abhisit is planning to borrow and spend massively to stimulate the Thai economy.
- But “Is” the current government taking on a great deal more of risk?
The following are some crucial considerations needed to answer this question.
Anusorn, the economic dean at the pro-Abhsit University of Rangsit, says if Thailand’s GDP growth in the next few years does not reach 5%, instability will lead to a deterioration of Thailand’s finances.
- “It depends on if the government borrowing and spending will lead to high GDP growth, but if Thai GDP growth grows at around 2%, Thailand’s finances will deteriorate,” said Anusorn, quoted in Tharn Sethakij-a business newspaper.
Budget Priority Questioned:
Thai Business, another business newspaper, reported that of the first lot of the “Strong Thailand” spending project-the prime minister office gets about 10 billion baht, defense about 2 billion baht, the finance ministry gets 14 billion baht, tourism gets about 900 million baht, and social about 1.5 billion baht.
The biggest chunks goes to agriculture of about 50 billion baht, communications and transportation about 40 billion baht, education 45 billion baht, and health 10 billion baht.
- “It is a wonder how little is going to industry, commerce and tourism,” said the editorial of Thai Business.
Commercial Bank Action:
Since the government borrowing through high interest bond issuance, local interest rates have come under pressure to increase. Commercial banks are also competing to lend money to the “Strong Thai” borrowing.
- “We rather save our liquidity for the real sector of the private sector, rather than lending to the government,” said Piti of the Thai Military Bank.
The Bank of Thailand and the Finance Ministry have many budget planning office under its supervision and reports have been surfacing of severe internal conflict over the planned government borrowing on Thailand’s total public debt to GDP.
- “Public debt to GDP will fall to 57% from 62% of GDP by 2014, based on projected GDP growth that will benefit from the spending,” said Korn, Thailand’s finance minister of the borrowing impact’s on GDP.
The government is in the midst of massive subsidiary across the board and a tax reduction drive. The government is also in the midst of making funds available to SMEs, exporters, tourism and agriculture sectors.
Thailand’s GDP depends about 70% on externalities and a significant driver of internal consumption is the agricultural sector. Thailand also rely 80% on imported oil for its energy need.
Its export industry also relies significantly on on imported parts and materials and its exports also rely on a competitive local currency. Currently public debt to GDP stands at about 45% and foreign reserves at about US$100 billion.
In the first quarter Thailand’s NPS edge up, mostly from the industrial sector, from about 5.5% to 5.8% of total system lending. The central bank is setting up a unit to speed up borrowers and lenders negotiations to settle debt as a way to fend off increase in NPLs. Local press reports massive defaults occurring at the consumer level.
However housing sales have been brisk.
- “I suggest the government un-lock the reserves and use it now,” said Thailand’s joint chamber of commerce.