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| Dire Warning from Bank of Thailand |
| UPDATE : 29 July 2010 |
The administration of PM Abhisit Vejjajiva seems to be too preoccupied with the crisis on the political front, giving the public reasons for enforcing the emergency decree in various provinces of central, eastern, northern and northeastern regions of Thailand.
Meanwhile, MPs from the ruling Democrat Party and Pheu Thai Party engage in an interminable war of words accusing each other of being responsible for a series of political violence. Sadly, it’s not too hard to imagine that a dire warning from the Bank of Thailand will pale into the background amid a barrage of headline-making political developments.
The administration should heed suggestions from the BOT and take them into consideration in reviewing whether they are leading the Thai economy into the right direction.
A few days ago, the Bank of Thailand published a report titled ‘Public Debt Problem: Solution Amid Crises’. In gist, it recommends that the government tries to achieve a balanced budget within the next five to ten years or else the country may face yet another financial crisis.
Three points to bring about better fiscal disciplines are income and
tax restructure, no spending on populist policies such as economic
stimulus measures or measures to cut the public's cost of living, and more spending on infrastructure projects in order to pave way for more public-and-private joint investments.
The Bank of Thailand stated that government income grows on average by eight percent a year while fixed expenditures and cost of social welfare increase by 15 percent annually. Keeping these estimations in mind, it is difficult to see that the government will manage to achieve a balanced budget in the near future. If Thailand continues to post budget deficits, the financial stability of the country will be weakened.
BOT calls for the government to pay more attention to public debts. Although the public debt figure now stands at a satisfactory level, in comparison to GDP, is not enough to evaluate the stability of Thailand’s financial position. The government must find a way to reduce the magnitude of the country's fiscal deficits in order to reduce the ratio of public debt to GDP in the long run.
This dire warning from the Bank of Thailand shows independence of the agency in overseeing the stability of the country’s finances, fiscal stability and banking system. BOT serves as a whistleblower, alerting the government to any signs or factors that may negatively affect the economy. Although the public debt figure is not yet a cause for concern, Thailand may face a public debt crisis in the future given the fact that the annual revenue increases at a slower rate compared to the annual increase of committed expenditures.
Greece faced both a public debt crisis and a fiscal deficit crisis due to spending on politically-motivated populist policies which included a scheme to give bonuses to civil servants three times a year. In May, a riot broke out when the disgruntled public went to the streets after the government announced its plan to reduce its expenditures and raise taxes to revive the waning Greece economy bogged down by the historic deficit and public debt.
Thailand should look to Greece for what not to do.
We must reduce the Thai public debts, worth 4.144 trillion baht, which makes up 42.59 percent of the country's GDP, while new taxes should be implemented to reduce the existing income gap. Any budget spending that doesn’t improve the competitiveness of Thailand must be avoided. Or else we may face yet another crisis.
Matichon Editorial, Page 2, July 29, 2010
Rewritten and translated by Pornchai Sereemongkonpol
Please note that the views expressed in our "Analysis" segment are translated from local newspaper articles and do not reflect the views of the Thai-ASEAN News Network.
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